Ask HN: Big company looking to acquire us, I'm terrified

Lawyer, lawyer, lawyer.

The way you negotiate and approach any deal is going to vary drastically based upon your current situation. As you're not in a position to give away confidential information on HN, you need to speak to someone to whom such information can be given.

I don't know where you are located, but I am under the impression that pretty much every investing hub has lawyers with a focus on startups. I am confident that they will know the ins and outs of acquisitions, and will be able to provide you with advice as to best navigate the deal.

Hard to give good advice from just the details in your question.

I guess the most important thing to think about is, do you want to be acquired? And if so, what would it take to make you sell? Then, does that number seem at all justifiable from your current trajectory?

I have zero experience with this. But I learned a lot about communicating effectively under pressure while very ill and being jerked around by doctors. If I got all emotional, it was just another excuse to dismiss my very real concerns that I might die if they didn't treat me. I had to keep a very cool head at a time when that was enormously challenging due to pain, fear, how sick I was, etc. I found that doing a few minutes of "meditating" just beforehand -- breathe deeply, clear your mind of prejudices, that sort of thing -- was one of the most effective things I could do.

I would also recommend you pick up a copy of "Getting to Yes" if you aren't familiar with it. It is a quick read and research-based. A meatier book is "The Mind and Heart of the Negotiator". http://www.amazon.com/Mind-Heart-Negotiator-Leigh-Thompson/d... But it might be a bit late for that. (EDIT: Both were required texts in a class I had on "Negotiation and Conflict Management".)

Good luck.

Talk to the founders of companies in your sector who've been acquired recently. Find out who represented them. Then hire that firm. Selling a company is like going to court. You can do it yourself, but when the other side has trained professionals working for them, it makes sense to have the same level of expertise on your side.

I struggled with this too. Just be honest--don't hide anything and don't pretend to be something you're not. If you sell they'll find out anyway.

Negotiating is all about the ability to walk away. Focus on your product. If a sale doesn't happen you shouldn't be crushed. Just continue growing as you planned.

Congrats. I can imagine a hell worse than being acquired!:)

Watch this great talk by entrepreneur Hadi Partovi on this very subject: http://www.seattle20.com/tv/clip/StartupDay-2010-Exit-Strate...

Sometimes when something really big and good starts to happen, even if it's something you've been working hard to achieve, it can be a bit hard to understand. Getting used to the idea that yes, you really did it, might be a good step to helping yourself calm down and gracefully surf this newest big wave coming at you.

You worked for it, now nail it!

I've been in this situation before. I did it all myself - it worked out OK. In hindsight, though, I'd advise a lawyer if you can possibly afford one as it could have gone horribly wrong ;-) (Others here have given better advice on that part.)

If you decide to go it alone anyway, you must first get a good feel for their true intent. It's like dating. Don't give it all up or get heavy on the first date. Keep things cordial and don't act secretive or defensive, but spend time talking to them and feel out what they're gunning for. You'll need some time after to reflect on things they said or impressions you got from their manner. The more people on your side who share in the talks, the better.

Like someone can detect a shady date even if they don't overtly do anything nasty, you should be able to sniff out bad intentions from the buyer. If they're just digging for information or yanking your chain, unless they're really smooth manipulators, you should get a bad feeling in your gut after the first or second serious talk.

The biggest problem with getting lawyers involved early-on is that it's their purview to protect your interests above all else, including an equitable, workable deal.

It has been my experience that using lawyers too early will put ridiculous clauses in contracts that don't necessarily make good commercial sense or are even in the spirit of whatever negotiations you are trying to make.

Additionally, lawyers are expensive, especially early on.

My advice: sit down, talk with the other side, decide what you both want to get out of the deal, write a heads of agreement whilst reserving your rights (they aren't binding after all) so you both have documentation to ensure you are all on the same page then, and only then, get the lawyers involved to draft up an sale document based on your heads of agreement.

Lawyers are lawyers, not negotiators or entrepreneurs. Ultimately, they aren't the best people to represent you when it comes to working out what you are willing to accept to part with your baby.

Couple of quick points, though this is a very subjective topic so these might or might not apply.

1. Know that 99% of deals fall through. This one will also, except when it won't. More importantly, the deal is only done when the cash hits the bank. Deals are known to fall through even at very late stage. Falling through is the norm, going through is the exception.

2. Be open about numbers, growth etc. Be closed(vague) about strategy, execution plan etc. You need to be open about the numbers to give them confidence. You need to be closed about strategy, execution plan because a huge number of deals fall through because the acquirer decides to build the same stuff inhouse (typically prodded on by internal engineering teams)

3. Build confidence. Talk about how this marriage will be best for both the teams. Reserve the negotiations around cash towards the end of the deal. When you start negotiating about cash, the deal is already done.(Except when it isn't - see point 1). Negotiating the deal is though topic for another post.

4. Decision making in big companies is slow and hard. The decision to acquire your startup will need to be driven by someone internally in that company. Find out who your 'champion' is in that company. Maintain regular contact with him, though dont push him too much. If some time elapses without any communication, ping him and check with him.

5. Most deals that go through will go through quickly. The decision in most of the deals which go through is already made. You just need to nod your way along in such cases. In other cases there will be just one big issue that you need to build confidence upon. If the talks get extended, it is likely that the deal will not go through.

6. The Zen Rule for Deals: Assume that the deal will NOT go through and plan your startup accordingly. The person who is willing to walk away is the stronger person in any deal. Detachment will allow you to negotiate from a position of strength.

David Cohen of TechStars has written a good post about this -

http://www.davidgcohen.com/2010/06/18/you-have-acquisition-i...

Here are already a lot of tips about the local/tactical situation dealing with maybe beeing acquired. But what if it falls through (like it happens way too often)? Was it just this? Can we use this situation to get an advantage, if we get a deal or not?

There is where strategy comes in! Yes, you always have to look for alternatives to use this situation for your company.

For that you need to find out WHY they want to acquire you. For example: Google wants to acquire you, because they want to be in your market (http://bits.blogs.nytimes.com/2010/12/07/google-executive-no..., can't find the HN thread for this), then you can ask googles opponents, like facebook, yahoo, microsoft, if they are interested in a deal. That will increase the money you get from anyone and also your chance of beeing acquired.

Because I have no own experience in this matter I will not lead you in the wrong direction by giving you further tips. Maybe other people here can help to give a more strategic view of the situation. How else can an aquisition attempt be leveraged?

Other resources: http://venturehacks.com/archives#closing http://venturehacks.com/articles/diligence http://venturehacks.com/archives <- Actually just reading most of it is healthy itself for a startup who knows nothing about money things.

You don't seem to indicate what I would figure to be a major concern for you right now: Do you or do you not want to sell?

I think you should come to this conclusion within your team before doing anything else. Considering you personally sound pretty conflicted, you're going to have a tough time "winning" this challenge if each one of you has different ideas of the ideal outcome.

Once you understand that - that is, the ideal outcome - work towards that. Don't get sidelined by big companies and big money. As bluethunder says 99.9% of all deals never happen, so they aren't worth putting more than .1% of your daily effort into (figuratively speaking here, of course).

I'd say this as well: Do not for a second believe that being acquired is some sort of growth mechanism for your dreams. It is by definition the exact opposite; the death of your company. No matter what, the company you have, its plans, culture, desires and particulars will cease to exist. This will happen despite everyone's promises and best intentions.

What will exist may or may not be something you can live with, but it won't be the thing you are living right now.

Whatever you do, be willing to walk away from the deal if you don't feel comfortable with the terms. That changes you from negotiating from a weak position to negotiating from a strong position all by itself.

Remind yourself of this: The really bad deals are the ones that you do and regret, those are far worse than the ones that you don't and regret.

Do not negotiate in person during the final phase, get an experienced M&A lawyer to be your front during the negotiations, if you can't afford that then get someone you know that is very well off and has done these kind of negotiations in the past. You are very strongly emotionally tied to the deal and likely to be read like a book by the party on the other side of the table. If you are not an experienced poker player, don't sit down at the table.

Don't decide things 'on the spot' or under pressure, always think them over.

Much good luck! I hope it works out for you and that you will get out of it what you want, beware of stock deals, lock-ins, non-competes, performance clauses and a hundred other things that might come your way, see 'experienced M&A lawyer' above. Oh, and pay your own laywer!!! Never rely on legal advice by the other party.

Get a lawyer. Not someone small that you've been using regularly for the little stuff who's never done this before, but someone that has experience. Be careful about this; there's a lot of dummies that put on a show of competence.

Same thing with a negotiator. Are you in a city that has a lot of startup activity? Reach out to a good COO type who can help you conduct the negotiations. How much they get involved will obviously depend on the amount of money we're talking about. It's just not a good idea to learn about negotiations by doing in circumstances like this.

Be careful who you pick. Money turns heads unfortunately, and a lot of otherwise sensible people become complete pricks.