[HN Gopher] I almost sold Baremetrics for $5M
___________________________________________________________________
I almost sold Baremetrics for $5M
Author : cj
Score : 219 points
Date : 2020-01-10 18:39 UTC (4 hours ago)
(HTM) web link (baremetrics.com)
(TXT) w3m dump (baremetrics.com)
| pxlpshr wrote:
| I didn't fully appreciate the value of our data room until it
| mattered. Since the last deal, we've kept our data room
| impeccable and exceptionally granular. We're also way more
| sensitive about the timing of what we share and what we black-box
| for as long as possible. There's a strategy for managing your
| data room in situations like this, so I encourage talking with
| mentors/advisors if it's your first time.
|
| This is also true for general communication to the team about
| offers like this. It's way too distracting and too high of a risk
| to morale if the deal falls apart.
| icelancer wrote:
| Can you go into more detail on your data room? Thanks.
| lmeyerov wrote:
| So hard! And this is a reality even you're not trying to sell but
| are doing as part of your regular corp responsibility! I've been
| on the founder side in convs like this, both real+fake, so some
| advice I got here that has resonated the most:
|
| 1. Assume 95+% of inbounds won't go through, even if 'serious'
|
| 2. Use every ask from the acquirer to get a parallel give: if
| they're serious, they'll increasingly show they're not the 95%
| here
|
| 3. Almost all teams are not emotionally equipped to understand
| the 95% no-deal thing, unless you're say a VP-only company (???).
| As soon as they hear potential acquirer, it's natural to think
| "maybe 30% chance for one, so 100% across 3-4 inbounds", not
| "maybe 5% for just one if we qualify it more." It's hard to do
| anything if you're worrying about your kid's college tuition for
| 6mo wrt to a fragile deal's ups and downs that you have little
| control over.
|
| A common path here is to understand indiv employee personal
| goals, and only bring in the acquirer in front of them, such as
| for interviews or whatever, only once you've gotten a deal to the
| 99% point (one of the biggest asks). Baremetrics is going for
| more transparency afaict, so having someone to help contextualize
| for both its ~first-time ceo + employees would seem required to
| avoid morale going through the ringer.
|
| 4. Don't optimize for building to exit, but do treat as part of
| general BD. (Though I feel most YC etc. co's don't do this, and
| the wave of quick-flip startup people is poisoning the well for
| follow-on founders more serious about high-trust areas like
| enterprise.)
|
| ==> 4b. This kind of distinction can be all sorts of confusing
| for team members too, who aren't thinking about BD+Prod+... etc.
| strategy all day but how to make an X do a Y. They can make bad
| high-level decisions if it takes center stage.
|
| ==> 4c. More likely outcome is becoming colleagues with folks for
| future accounts/partnerships/etc., and even hires. So do that!
| jakozaur wrote:
| Hearing many horror stories over backing out at last minute, I
| wonder why breakup fees and escrow are not more popular in
| startup world.
|
| E.g. if you would like to acquire for $5mln you need to deposit
| $100k. If you walk out, this is a breakup fee. If startup bails
| it also have to pay same amount to the acquire.
| tectec wrote:
| Apparently something like that is done sometimes:
| https://www.bloomberg.com/opinion/articles/2019-03-15/don-t-...
| monsieurbanana wrote:
| A company sales can go wrong for many reasons, how do you
| differentiate between a legitimate reason to not proceed to the
| sale and a "last minute backing out"?
|
| I assume that's what a LOI (which is all that the founder had)
| is for: it comes before any legally binding agreements and
| allows both parties to be sure they get what they want without
| bad surprises.
| wolco wrote:
| Usually happens in steps. You provide some info they decide
| to proceed to next phase. Price get attached then.
| mrkurt wrote:
| The companies getting purchased usually don't have enough
| leverage to get a breakup fee.
| hinkley wrote:
| Part of any acquisition is getting a look at your books.
|
| Now the buyer knows exactly how much runway you have left and
| all they have to do is drag their feet until you get desperate
| to make a deal.
|
| Either you have to be cashflow positive, or keep at least two
| buyers on the hook past whatever disclosure phase nets them
| this sort of information. I think maybe one company I ever
| worked for was clever and healthy enough to do this. And even
| on that one, things went a bit touch and go. One of the worst
| kludges we ever did, it came out later, was worth a month of
| payroll, which got us through that acquisition without bouncing
| checks.
|
| (Still the longest single method body I've seen a human create,
| and from someone I thought would never write code like that.)
| [deleted]
| jessaustin wrote:
| Wow I'm struggling to imagine how a too-long method could
| keep the wolf from the door for a month. More details please,
| if you can.
| hinkley wrote:
| Horrible messy business logic to fulfill a short term
| contract. It's been a long time, but if memory serves it
| was used for data ingestion. The file was 6000 lines, the
| worst method was over a third of that, closer to half.
|
| It never really worked, as some of us predicted while the
| project was being ramped up. Without going into too much
| detail (most of which has gone from my head anyway), the
| speed of light won and we used a different architecture
| which obsoleted most of that code.
|
| However, if I and the other people who said it couldn't be
| done had gotten our way, that sale would have gone much
| worse for us. Decisions from incomplete data and all that
| jazz. It went live and the customer and we cashed the check
| with less than two months of operating capital left, while
| the lawyers were still futzing around with term sheets.
|
| The irony is this was also the owner who thought he was
| rallying the troops and instead filled us with existential
| dread every time he tried to give us a speech. Why I wasn't
| aware we were scraping bottom of the barrel until six
| months later, I'll never know.
| jacquesm wrote:
| The typical terms sheet has an 'out' in that any surprises
| during DD are grounds for annulment without compensation.
| LeifCarrotson wrote:
| Similar to a home purchase...and I imagine that even with an
| immaculate company or home you can always find something to
| satisfy that clause and give you an out.
| jacquesm wrote:
| Beware of terms that require the target to pay for DD if
| the deal goes sour.
| aidos wrote:
| Unless you're in England, where people can drop out or
| change their price on a house sale or purchase at any time,
| even after months of legal red tape.
| ricardobeat wrote:
| What would you spend _months_ on when buying a house?
| Over here (NL) a buyer inspection is a 30 minute affair.
| Then you sign a purchase contract straight away, three
| days to back out.
| jacquesm wrote:
| In NL as well. It is not rare at all to do a 'bouwkundige
| inspectie', that is definitely not a 30 minute affair
| depending on the kind of building. People doing their own
| inspections tend to overlook important things.
| RHSeeger wrote:
| If my inspector was done in 30 minutes, I'd tell him to
| go home and hire a different one.
|
| That being said, it depends on where you are. Some places
| it can take a week to go from first seeing to buying,
| other places it can take months. Some places, closing
| costs are a few thousand, some they are 15k. There's a
| lot of variety across places even in the same state in
| the US.
| zrail wrote:
| Tye typical reason for long closings, at least in the US,
| is sale contingencies and financing. If sale of your
| existing home is contingent on closing on your new home,
| and that sale is contingent on another closing, things
| can take awhile to sort out (and not much time at all to
| blow up).
|
| Financing can also take quite a long time, especially if
| you have a non-traditional income stream (i.e. you're a
| startup founder).
| jessaustin wrote:
| A buyer who doesn't have the money now, doesn't have the
| money. The only reason to humor such people is if you
| have the asset priced too high. In that case, those might
| be the only people interested...
| pja wrote:
| In the UK, ordinary families don't have access to large
| amounts of ready cash - the money they intend to spend on
| your house is currently tied up in their existing house.
| So if you want the deepest pool of buyers (& hence to
| realise the best price for your property) you have to
| accept being part of a chain of house buyers, all of whom
| need to perform a dance where they simultaneously sell
| their houses to each other in order to raise the cash
| they need to buy the next property in the chain.
|
| It should be unsurprising that this process is widely
| regarded to be more stressful than anything other than
| death in the family or divorce.
| aidos wrote:
| Oh it's insane. You've never seen a process like it.
| Nothing happens, but it takes forever. Half of the sale
| chains fall apart during the wait. Brexit delays seem a
| whole lot more obvious in that context.
| cosmodisk wrote:
| English process of buying a house is an equivalent of 5
| seconds film thst is being played in slow-mo for 20
| hours. Again, England has some very odd land nad property
| ownership types thst simply don't exist anywhere else in
| the world and usually complicate the process a lot.
| Regardless of it, the lawyer are alway the winners on
| this one.
| paxys wrote:
| It is standard in bigger corporate M&As, but a tiny startup
| isn't going to have the leverage to pull it off.
| fludlight wrote:
| A contract is only worth as much as you are willing to pay to
| enforce it. It makes sense to pay an army of lawyers for
| years to pursue a $100m breakup fee. For $100k, not so much.
|
| Quod licet Iovi, non licet bovi
| stevespang wrote:
| At least something to pay the lawyers . . .
| rolltiide wrote:
| I've seen million dollar deposits get forfeited, people are
| insane! It might honestly be a good business model on its own.
| pc86 wrote:
| Losing a million dollar deposit makes total sense if the
| alternative is losing more than a million dollars.
| mbesto wrote:
| This is why reputations in M&A matter.
| jessaustin wrote:
| Most high-reputation firms wouldn't hesitate to leave a poor
| founder swinging in the wind. What's she going to do, sue
| them? Any lawyer capable of handling that case, the M&A dudes
| already have on retainer.
| socalnate1 wrote:
| Two quick thoughts on this.
|
| 1) The amount of transparency that this company shows is insane.
| I have a hard time imagining any one else in this situation
| sharing the way they do. I hope it works out for them long term.
|
| 2) The due diligence work they did for this deal was absolutely
| not a waste (even if they never sell the company). Having gone
| through this process once will make it orders of magnitude easier
| if they sell in the future (especially gathering and organizing
| documents from the very early stages). Even if they don't sell,
| the process would have shown light on potential liabilities and
| issues they hadn't even been thinking about. This is helpful
| regardless of who owns the company. Maybe not worth the time and
| money; but definitely not a waste.
| zyang wrote:
| It wouldn't feel great seeing this as an employee of the
| company. The only reason you are not sold to the highest bidder
| was because the ceo got played.
| unlinked_dll wrote:
| I fucking wish some of the companies I've been at sold to the
| highest bidder when they had the chance.
|
| Exits are better than layoffs.
| froindt wrote:
| > Even if they don't sell, the process would have shown light
| on potential liabilities and issues they hadn't even been
| thinking about.
|
| If I recall correctly, some VC's make their companies put
| together quarterly reports of similar nature to a normal
| publicly traded company. It sounds like it would have similar
| value.
|
| Doing so requires significant thought and focus, and provides a
| structure and cadence to the business.
| irjustin wrote:
| Common practice from VC is to do a 3rd party financial audit
| - billed to the startup in the end. Very expensive, but as
| you mention, it helps uncover potential ticking time bombs.
|
| It's easy to complain about a heavy, expensive finance audit,
| but startups commonly are setup or practicing mildly to
| extremely incorrectly. It's just too risky not to do it.
|
| Tech audits seem to fly under the radar a lot. Post deal,
| I've had one principal complain to me a portfolio company was
| using a single table for users & bookings just more columns -
| what. Ruined the company for 14 months to fix the tech with
| all the deployed money and the business never recovered.
| Extreme, but there should be someone looking.
| athiercelin wrote:
| "In many ways, I feel like my job as CEO and Founder is to absorb
| all of the insane parts of running a business so my team can
| focus on building, learning and enjoying their jobs."
|
| This is spot on. I would extend to senior leadership in general.
| bcrosby95 wrote:
| One way I've heard the role of product manager described as is
| a "shit umbrella".
| arcturus17 wrote:
| This touches me on a spiritual level.
| cletus wrote:
| This is applied to managers in general:
|
| - Good managers are shit umbrellas
|
| - Bad managers are shit funnels
| codegeek wrote:
| Totally stealing this one.
| azhenley wrote:
| I need this on a motivational poster or something.
| jbredeche wrote:
| I couldn't agree more.
| geebee wrote:
| beautiful metaphor. anyway, I quasi-agree, though I've
| become suspicious of managers who claims to be an umbrella
| protecting their team from the rain. Half the time, they're
| really just trying to make sure their team doesn't see the
| forecast and quit.
| alias_neo wrote:
| I guess umbrellas also keep the sun out.
|
| What you need are those clear plastic umbrellas, no rain,
| but all the sun.
|
| Transparency.
| metanoia wrote:
| Unfortunately, in my experience, I've had my fair share of
| "shit funnels" or "shit multipliers." That applies to any
| manager role, really.
|
| As a former product manager, I think of it as being at the
| bottom of a canyon and shit rolling in from both edges of the
| canyon (business and technical). It's a hard job to do well
| and keep everyone happy.
| disintegore wrote:
| You are a creative fellow
| trhway wrote:
| such good PM/managers/leaders are very rare. Instead it is
| usually this way
| https://cheezburger.com/4626943488/corporate-ladder , just
| with even more levels in real life and resulting
| amplification of the signal.
| tyre wrote:
| all leadership, generally.
|
| understand enough broader context to set direction, then
| distill, cut, and communicate what your team needs to know to
| do the work
| rb808 wrote:
| I've heard this too, except it got really annoying to be
| working crazy hours doing annoying crap while you have a team
| of devs working 40 hrs working on interesting tech with not
| much pressure. I burnt out, now I delegate lots of crap work
| and it works better for me and I think the team as well as they
| get a wider perspective.
| david_shaw wrote:
| _> I burnt out, now I delegate lots of crap work and it works
| better for me and I think the team as well as they get a
| wider perspective._
|
| I think this is an underrated (but very accurate) opinion.
|
| While I'm not the founder of a company, I do have the
| tendency to shield my team from much of the insanity I deal
| with on a daily basis.
|
| I've made active, conscious efforts to stop doing this.
|
| When you shield your team from the harder, more hectic parts
| of the job, several things happen:
|
| (1) You burn out. A burned out leader is not an effective
| one. You're not doing your team any favors by forcing
| yourself into an impossible position.
|
| (2) Your team won't understand the pressures that are driving
| the business. Having a nice, relaxed work-week is great, but
| employees should at least be _aware_ of high-pressure
| situations in the business.
|
| (3) Your team will get bored. Great teams like to work on
| challenging issues, and high-impact engineers like to work on
| high-impact problems. They want to grow. Exposing people to
| issues outside of their direct control and comfort zones will
| actually help make them _more_ satisfied at work, even if it
| does come with a little added stress.
|
| These are issues that I've been working on, personally, for
| years. The gut reaction of "protecting" teams is often times
| not the best one for anyone involved.
| cosmodisk wrote:
| Regarding 1st point: If you manage people-this is
| inevitable. I had plenty of situations where you know way
| more than you can tell anyone,yet you neet to put a face on
| just so could people carry on working. In most cases it's
| better for one person to be worried rather than the entire
| team.
| hinkley wrote:
| Alas, some seem to be more interested in making sure everyone
| knows who's in charge and who's a peon in their little fiefdom.
| enjo wrote:
| I strongly disagree with this. You and everyone in your company
| are on a journey together, a leader who thinks that it's their
| job to curate that journey inevitably fails. People know when
| you're stressed or when things are tough... when you try to
| hide these things or deflect them away you erode trust and
| ultimately performance.
|
| The role of a good leader is contextualize hard information and
| provide support for the team as they internalize it and then
| act upon it...
| zerkten wrote:
| > provide support for the team
|
| I'd be more specific and state that they should be
| consciously building systems to manage these things, even if
| it's done manually by them. This provides clarity about what
| and how things are being done, and let's them more easily
| scale (or kill) the process.
|
| The kill part is important because when you are thinking
| systematically you're more likely to be able to communicate
| the details, or other people can observe it and make
| recommendations. It's hard to kill things that leaders are
| effectively doing in secret and stealing time and attention
| from an org.
| gumby wrote:
| Best description I ever heard: "The job of the manager is to
| eliminate uncertainty."
| FpUser wrote:
| Same thing happen to me. Only it was 2 mil instead of 5 and I did
| not really have to do any due diligence as I was selling my
| product, not my company. So other then spending some time and
| paying couple of grand to have lawyer go over the agreements I
| did not suffer much.
|
| But boy, was I disappointed ;(
| wolco wrote:
| You lost a few grand?
| elbear wrote:
| More like missing out on 2 mil
| paulcole wrote:
| Spending $5 on a losing lottery ticket isn't missing out on
| $100 million.
| xwowsersx wrote:
| Can breakup fees be negotiated in these kinds of deals to protect
| the would-be acquired company? Seems like the company to be
| acquired bears all the risk.
| kerng wrote:
| A friend of mine who sold his company told me that it's common to
| get approached and if the buyer is serious things move very fast.
| Most of the time though it's just a game of delay to keep
| competition in control and get more insights. So, if buyer is
| interested they will make an offer quickly (initially maybe too
| low), but they show they are serious by doing so. Dont get
| dragged in meetings or fly around to meet buyers like crazy.
| Better to focus on growing the business.
| fludlight wrote:
| What software/service do you use for your data room?
| in3d wrote:
| I wish people would name names. That would discourage this type
| of behavior.
| salimmadjd wrote:
| Jay Jamison (when he was a VC) gave me a great advice once.
|
| "Companies are bought not sold"
| tptacek wrote:
| This is a hoary old chestnut; my dad told me this back in the
| 1990s.
| rdslw wrote:
| I can't even visit OP as my pi.hole blocks it :)
|
| Let me guess: another spam^H^Hads analytics^H^H^Hspy business
| there under the pretext of 'better user satisfaction'.
| ngngngng wrote:
| There's got to be a business in here somewhere. A company that
| acts as a middleman that sorts through all your financials for
| you, does all the communicating, drafts all legal paperwork and
| just gives you quick regular updates through the process. That
| way you can keep running your company during all of this madness.
|
| I wish I knew more about selling and acquiring companies since it
| seems like a business well worth launching if it's feasible,
| which I don't even know if it is.
| zonethundery wrote:
| It can't really work that way. There are diligence firms that
| provide quality of earnings analysis, compliance analysis,
| intellectual property audits, etc. But potential buyers always
| have questions that require input from staff.
|
| The executive team has to be very involved in the process.
| Their involvement naturally drags management/staff into it.
| cosmodisk wrote:
| I work for a relatively small company.It is simple as well,it
| sells training. If we'd have to supply all the necessary info
| to a company that'd take care of it, that alone would probably
| take months and months and they'd still have to query back and
| fort every day.
| hinkley wrote:
| The lesson I'm taking away from this is that if you're going to
| go through the steps of a M&A process, make sure there's
| something in it for you besides just the check at the end of
| the process.
|
| Off the top of my head, having a very detailed understanding of
| your burn rate and assets should be useful information for any
| business. Maybe you have some unprofitable projects, or maybe
| just for applying for a business loan.
|
| When we take risks we try to account for Murphy's law. If
| you've looked at things like unpaid bills and back taxes, maybe
| the confidence intervals get a little better?
| kejaed wrote:
| An investment bank?
| ngngngng wrote:
| My lower class upbringing is showing, is that what an
| investment bank does?
| boxy310 wrote:
| Yes - this is a major function of private equity in
| general. They even have investment banks and firms that
| specialize in "buy side" versus "sell side" of the
| transaction.
| codegeek wrote:
| Not for small companies that generally do less than $2M
| in revenue.
| icelancer wrote:
| If you have internal accounting and general counsel, they
| usually do a shitload of the heavy lifting (they outsource it
| to paralegals and associates most of the time). I've been
| through it before. It's still very painful, but this type of
| thing does exist... kinda.
| solotronics wrote:
| We could call it middlemetrics.com
| rapnie wrote:
| venturetransfer.com
| ikeboy wrote:
| Business brokers? Fe international, quiet light brokerage,
| empire flippers. They don't do all of this but they do filter
| buyers.
| mytailorisrich wrote:
| Due diligence works both ways and it pays to do your homework on
| potential buyers and to ask them to prove their claims, or even
| ask them to put some money down, before proceeding.
|
| I don't know the company or what they do but cynical me can also
| imagine a third party pretending to want to acquire in order to
| gain inside knowledge.
| throwaway_tech wrote:
| >or even ask them to put some money down, before proceeding.
|
| Yep. Just look at mature markets like housing. You don't see
| anyone wasting time without a deposit, which will be kept if
| the buyer doesn't go through with the closing.
|
| Won't put down a earnest money deposit? They aren't serious.
| For all you know the do this knowing they won't pull the
| trigger, but to justify their job/identifying an opportunity,
| then being the hero when they "find something off" and save the
| company from a bad deal (which they manufactured in the first
| place)
| cosmodisk wrote:
| Remember having a meeting with a charity org. They wanted to
| spend quite a bit of money on a CRM implementation.We had a few
| different companies in a room.After going through the entire
| block of ideas of what and how they want,my manager asked them:
| have you got money for this? Turns out their sponsor promised
| the money but then there are conditions and etc..This was for a
| simple dev project...
| meritt wrote:
| It's not uncommon for potential acquirers to feign interest in a
| purchase so they can derail your business for months while your
| competition (their actual investments) pull ahead.
| paxys wrote:
| If not derail then just to get a ton of valuable business
| insight that isn't available publicly. A while ago a large
| software company dragged us through this process for months,
| and eventually backed out at the last minute. A short while
| later they had a complete clone of our service ready for
| launch.
| wolco wrote:
| Large mergers use 5% of the purchase price as a backout fee
| so the cost and waste of time is assigned back to the initial
| party. Still wasteful.
|
| In the best position, I would assign a price as is no insider
| knowledge given. If they are interested they will buy because
| they already have research done prior.
| streetcat1 wrote:
| Have you tried to getting a patent? Does this help in any
| way?
| marcofiset wrote:
| A patent is only worth what you're willing to pay in legal
| fees to defend it.
|
| A patent in and of itself doesn't prevent that from
| happening.
| TheRealDunkirk wrote:
| This is what I was thinking as I read the article. Is this
| legally actionable? I'm guessing not, but you probably have a
| fresh understanding.
| hinkley wrote:
| I recall going to man a booth at a trade show, and being warned
| about VCs and VC-wannabes just asking a lot of questions of
| everybody. They aren't interested at all in your product,
| they're (only) interested in you as a member of the tech
| community.
|
| They go around collecting data points to get a gestalt of
| current and future trends. I recall talking to at least two
| people who asked a lot of very general questions after segueing
| away from our product.
| verganileonardo wrote:
| Could you provide examples of that?
| meritt wrote:
| Sure, Amazon does it all the time to small startups. They fly
| you into Seattle, setup a fancy meeting with strategy teams
| and M&A, make you run through a pitch deck, explain every
| aspect of your business. They take diligent notes until they
| fully understand your inner workings, they tell you thanks,
| you'll hear from us soon.
|
| And nothing happens, 6 months later AWS launches your exact
| product.
|
| Founders need to be extremely careful when talking to
| potential acquirers. Dollar signs cloud your vision and you
| need to understand _why_ they 're talking to you. It may be
| genuine interest or it may be deceit in order to gain a
| competitive edge.
| drclau wrote:
| This is not an example. This is an explanation of how it
| could happen.
|
| Can you share an actual case? Such as, a startup that went
| through this.
| gartdavis wrote:
| Lulu.com - book self publishing. Discussions between
| Amazon & Lulu led to the reproduction of every use case
| over the following 24 months. I worked at Lulu.
| johns wrote:
| It would be unlikely that anyone would/could share public
| details about such a thing given the NDA (and potentially
| LOI) terms that are signed prior to something like this
| happening. It happens though.
| mmazing wrote:
| Yeah. A small company I used to work for had a phase
| where Amazon contacted us and wanted to potentially
| partner up. CEO went and spoke at Amazon and they got to
| see our goodies and then nothing came of it.
|
| I think that their intention was to duplicate what we
| were doing if they got on the other side and thought it
| was valuable.
|
| Turns out the company was/is floating on investor money
| like so many startup ponzi schemes. I suspect Amazon just
| didn't think it was worth it.
| hermanradtke wrote:
| Amazon's flash sale site, my habit, was launched this
| way.
|
| Source: I worked for a flash sale company they did this
| to.
| grogenaut wrote:
| Having been involved in the other side of these types of
| transactions usually the large company is actually
| interested in making the purchase because buying a
| successful product is easier than building your own even
| if you're something as big as Amazon. however often
| during Discovery you find out major problems with the
| company that you want to acquire that make it become
| pointless to actually do it. usually by the time
| something like this happens and a large company is
| looking to make an acquisition there already a good
| portion of the route down figuring out what they would
| have done in the first place. the Delta on building a
| flashlight over Amazon's general retail presence isn't
| that huge so in a lot of cases they would be looking to
| acquire interesting pieces of tack or the customer base
| as a way to bootstrap their version. If during due
| diligence that showed to not be feasible then the deal
| wouldn't go through. They're also very likely to be
| talking to several companies in a similar area.
|
| I'm not saying it doesn't happen but I'm just explaining
| what happens on the other side.
|
| I've also seen some areas where we used a technical due
| diligence team so that there was no IP crossover and it
| turns out that the company that we wanted to acquire was
| either way too difficult to onboard due to the way that
| they built their systems or they just wanted way more
| money then we were willing to pay because our use of
| their systems was different than their grand vision and
| they were pricing on their grand vision. also in one of
| those cases we were playing the two companies off of each
| other for price and then decided not to build a product
| at all.
|
| And sometimes like the atom bomb all it takes is a due-
| diligence person saying there isn't much here for
| everyone else to realize that it's actually quite easy to
| build but it was very expensive and difficult to prove
| that you could build it in the first place. See Groupon
| for example of the explosion of daily deal websites after
| Groupon proved that they could "make money" off of it.
| [deleted]
| pc86 wrote:
| What is/was the site?
| darkhorn wrote:
| Could that mean that if you upload your code to AWS they
| can steal your software design? I think yes.
| [deleted]
| nefitty wrote:
| There's an early episode of Silicon Valley where they go
| through something similar.
| hinkley wrote:
| I believe that's also not one but two episodes of Silicon
| Valley. The second time they believe they've figured out
| how to avoid it happening to them again.
| cosmodisk wrote:
| Silicon Valley,while hilarious,has tons of invaluable
| business lessons.I think I could probably even say it's
| one of the best series about business. It covers
| absolutely every aspect of building, growing, maintaining
| and ultimately selling a business.
| hinkley wrote:
| Mercifully, I've avoided any conversations like the
| Season 1 finale, but I think we all laughed because we
| recall some absolutely ridiculous rabbit hole we went
| down at some point. Once in a while you learn something
| surprising (which just reinforces the behavior), but
| mostly you just feel foolish. Especially if you get
| caught doing it.
| ngngngng wrote:
| Why don't companies go in with something akin to an NDA
| saying you can't use any of this information to directly
| compete with us for x years? Seems like this would be
| standard if it's common practice to steal businesses while
| feigning interesting in acquisition.
| zonethundery wrote:
| Maybe they do, but they can't afford the litigation. Like
| "you can beat the rap, but not the ride."
| icelancer wrote:
| Two things:
|
| 1) Good luck getting $BIGCORP to sign that.
|
| 2) If you get #1 done, good luck enforcing it.
| georgeecollins wrote:
| Jeffrey Kaplan, in his book "Start Up", would talk about how
| Microsoft would do this in the days when it was particularly
| powerful.
|
| Think about it this way: You always want to learn about
| opportunities and potential competitors. The biz dev team may
| say, hey we should maybe acquire this company, and the
| product people may say, no this is a good idea but we should
| copy it. It doesn't have to stem from a sinister intent.
|
| The same can be true of interviews! Sometimes companies
| interview very senior people as a way of gathering business
| intelligence. People can be flattered and want to talk about
| their successes.
| adventured wrote:
| > Microsoft would do this in the days when it was
| particularly powerful
|
| They were so notorious for it back then, that when they
| attempted to do it to Netscape, Marc Andreessen went into
| the meeting knowing ahead of time to document everything.
| That documentation was useful later during the anti-trust
| proceedings.
|
| From the 2000 Wired article _The Truth, The Whole Truth,
| and Nothing But The Truth_ :
|
| > It was two months later, on June 21, that Reback received
| a call from Jim Clark, the chair of one of his firm's
| newest clients, Netscape. Earlier that day, Clark said, a
| team of Microsoft executives had visited Netscape's
| headquarters, met with its CEO, Jim Barksdale, its
| technical wunderkind, Marc Andreessen, and its marketing
| chief, Mike Homer, and offered them a "special
| relationship." If Netscape would abandon much of the
| browser market to Microsoft; if it would agree not to
| compete with Microsoft in other areas; if it would let
| Microsoft invest in Netscape and have a seat on its board,
| everything between the two companies would be wine and
| roses. If not ...
|
| > "They basically said, OK, we have this nice shit sandwich
| for you," Mike Homer told me later. "You can put a little
| mustard on it if you want. You can put a little ketchup on
| it. But you're going to eat the fucking thing or we're
| going to put you out of business."
|
| > The next day, Reback phoned Joel Klein, the former deputy
| White House counsel who had recently been named the second-
| ranking lawyer in the antitrust division, and persuaded him
| to send Netscape a CID for some detailed notes Andreessen
| had taken during the meeting.
|
| > Asked by Tobey why he'd taken notes on the meeting,
| Andreessen replied, "I thought that it might be a topic of
| discussion at some point with the US government on
| antitrust issues." (During the trial, Microsoft would cite
| the comment as evidence that the meeting was a setup, and
| Netscape and the DOJ would retort that Andreessen was just
| being sarcastic. "Bullshit, on both counts," Andreessen
| told me. "I'd read all the books. I knew their MO. We were
| a little startup. They were Microsoft, coming to town. I
| thought, Uh-oh. I know what happens now.")
|
| https://www.wired.com/2000/11/microsoft-7/
| Domenic_S wrote:
| Did you mean "Startup: A Silicon Valley Adventure" by Jerry
| Kaplan?
| georgeecollins wrote:
| Yes, an old book but still a good one.
| hinkley wrote:
| Every large or strong human goes through a phase in life
| where they learn the hard way that they have to be extra
| careful not to smash things. The bigger you are, the less
| sympathy you get (you clumsy oaf).
|
| Microsoft is fond of workaholic coders and bizdevs. The
| number of those who are Big and Tall is small, and the
| number of workaholic coders who are also weightlifters is
| tiny. So you look at things that are completely obvious to
| you and the other person has absolutely no framework for
| contemplation. And if you are living by the Golden Rule
| (who has the gold makes the rules) then you don't have to
| learn anything at all.
|
| But it sure would be nice for the rest of us if they did.
| czbond wrote:
| Anyone have an idea on why 3.7x revenue for SaaS was considered a
| fair valuation? I thought SaaS was always closer to 5-6x
| mritchie712 wrote:
| BareMetrics MRR is public, check it out:
|
| https://demo.baremetrics.com/#start_date=2019-01-01&end_date...
|
| 20% growth last year or 1.7% per month. That's considered slow
| for a SaaS. That's likely what's driving the 3.7x multiple.
| Exuma wrote:
| This is very painful to hear. I've tried selling my main company
| to 4 different buyers now... every single time we get past the
| LOI phase, they see all our financials in plain sight, and
| there's always some stupid hangup/ghosting/sketchiness exactly
| like in this article.
|
| Very disappointing, considering how transparent we are up front
| sending every financial, and there's no real 'discoveries' later
| that would change their mind. It's just general terrible
| flakiness.
|
| One guy's excuse was that his brother had put all his money into
| collateral without his knowledge, and that discovery phase was a
| waste of 5 months.
|
| This last one, we thought we learned our lesson so we demanded
| proof of funds, as well as much more thorough checks....... and
| they just magically ghosted us LITERALLY after I FedExed the
| signed agreement... so after months and months of due diligience.
| They change their mind after about 100 confirmations from their
| lawyers, accountants, financers... and just ghost hours after I
| send it.
|
| It has been greatly discouraging to me, as the 3 serious attempts
| to sell have essentially crushed our momentum, and now the
| company is dying/dead. I won't say that its a direct result of
| it, but we ran it very conservatively during these times as not
| to upset anything, and those were the times we needed to be
| running more aggressively to keep up with competition.
|
| The company is essentially insolvent now, with a large amount of
| debt. I also made the bad mistake (I was quite young) to
| originally put the company card on an Amex applied for by me (I
| had 820 credit at the time). Because of inability to pay back
| debt on this company, my personal credit is now destroyed.
|
| So.. going from 820 credit, making hundreds of thousands profit
| per month... to freelancing to pay bills with a 590 credit. Such
| is the life of an entrepreneur and the brutal lessons one learns
| along the way.
|
| PS... I found out later our accountant had dementia, and did all
| our taxes wrong. My biggest advice, have an accountant who is
| really on point, and accept absolutely nothing less. Don't fall
| for the illusion of the pain of having to "retrain" someone if
| you don't think your accountant is 100%. Just find someone who is
| fucking good, and if they show a red flag, find someone you fully
| trust. My business partner has also been ruined in the past by
| incompetent accountants.
| rglover wrote:
| Thanks for sharing this, a lot to learn from here. I hope
| you're doing well (sounds like it despite the circumstances).
|
| Also: I wanted to say kudos for your profile link.
| teruakohatu wrote:
| I am sorry to hear that you experienced that. I am curious to
| know why you did not run the business as a profitable going
| concern instead of selling?
| Exuma wrote:
| After years of doing it, I was very very sick of it and just
| wanted out. I'm a developer by "heart" and I just want to
| build and tinker. I do love spreadsheets, and I love the
| thrill/ups/downs of business, but the monotony is what kills
| me. I have another company I'm investing all my time into
| that I am optimistic of, and it's new and fresh again.
| teruakohatu wrote:
| Sounds like you are going in with eyes wide open this time.
| Best of luck with the new venture. Thank you for sharing
| your story.
| Exuma wrote:
| Thanks friend, I appreciate it. It's been quite brutal,
| but who I am at the end and at the start are very
| different, and I'm very thankful for that, even if I
| quite literally have nothing to show for it.
| ekanes wrote:
| So so sorry to hear this. It reminds me of this post from pg:
| http://www.paulgraham.com/corpdev.html
| throwaway5752 wrote:
| I'm very sorry for your circumstances, but are the "every buyer
| ghosted me when they saw our financials" and "our accountant
| had dementia" elements of this related? How could millions of
| dollars of net income go to insolvent so quickly?
|
| There are two sides to this general issue, and while there are
| bad buyers there are people dishonestly presenting their
| companies. Not that you are, but it seems like a very low-trust
| business environment in both directions. More lately than it
| used to be.
| Exuma wrote:
| There's obviously a lot more nuance to the situation. I'm
| here just posting my in-passing rambling, glossing over most
| details. In general, any mistakes made were clearly
| presented, and no numbers were deceivingly absent or
| misrepresented.
|
| The accountant issue is related because there were a number
| of major issues that lead to the downfall. One being the
| entire year-long+ selling debacle, the other other was
| accounting issues.
|
| FWIW, both brokers (2 deals on 1, 1 on another) both said
| "we've never seen anything like this in the entire time of
| doing this." I think a lot of it was just bad luck, or low
| quality buyers and not having experience to see certain red
| flags.
|
| As far as insolvency so quickly, we were a 2 man company with
| 0 employees. I started the company several years ago with
| zero business experience and we grew it to 11 million per
| year. So there were many mistakes along the way (all of which
| were clearly laid out to potential buyers btw). We re-
| invested almost all our money to grow bigger and quickly.
| throwaway5752 wrote:
| I'm so sorry. I hope you bounce back and have an exit on
| your next try such that you don't worry about fico.
| Misdicorl wrote:
| Require 10% of the deal in escrow after the first 2 weeks in
| the discovery phase. If the deal doesn't go through, the amount
| in escrow defaults to you. If they jerk you around on the
| escrow, cut them loose, they're not actually interested in
| acquisition
| mstade wrote:
| This is how I approach any serious business deals - put up or
| shut up. Either you agree to this kind of deal or you pull
| out. Either one is fine, but make it clear.
| nugget wrote:
| I've handled a decent volume of small tech startup m&a and
| I've never seen an escrow. Better advice is for the sellers
| to spend a decent amount of time in person with the buyers.
| Get to know who you are dealing with. It's a lot easier for a
| buyer to mislead (intentionally or otherwise) via email as
| opposed to in person lunches and dinners.
| _e wrote:
| Great point. This is what happens in a real estate. A letter
| of intent should have earnest money deposited into an escrow
| (because the offer is being made in "earnest") and each
| contingency should have an expiration date. Upon expiration
| of the due diligence contingency, for example, the earnest
| money deposit becomes non-refundable and credited towards the
| purchase price. If the buyer defaults after the due diligence
| contingency then the earnest money goes to the seller.
|
| Does anyone have a link to a sample LOI for selling startups
| or M&A in general?
| codegeek wrote:
| "I found out later our accountant had dementia, and did all our
| taxes wrong"
|
| Holy shit. I can't even imagine if that happens to my business.
| But really, you always want a second set of eyes to review your
| taxes, always. Even if you are not the expert, never trust the
| accountant. I always manually verify the drafts myself even if
| I don't quite understand everything on it. But I have a high
| level idea of the important line items. I have caught errors by
| my CPA (without dementia). So always verify yourself before
| taxes are filed.
| Exuma wrote:
| Yes.. great advice. They're all fixed now, thankfully, but
| yes that lesson was a painful one.
| mrtksn wrote:
| May I ask you what was your business?
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