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Ask HN: Pharmaceutical BigCo wants to acquire my iPad app. Advice?

18 points by luckyclueless ↗ HN
Hey HN, throwaway account here.

My partner and I created an iPad app and it's been pretty successful (especially considering it was only a 4 week investment). The app is in the top 100 US & China, covered by NYT, ABC, Gizmodo, etc.

Now a BigCo Pharmaceutical is asking to buy the app (not the company), code and all. They want to rebrand it and re-release it as one of their products.

We are an LLC, but we didn't take any funding, so we don't have any "advisors" as such. We're technicians, not lawyers, and we are more or less clueless on the best way to go about negotiating (and closing) this deal.

What advice can you give us on negotiating? Are there any HNers out there that have been through this sort of mini-acquisition before that are willing to reach out to us? (please comment and I'll ping you via my normal account). Have any good links to read?

A few details you might want to know:

* Our app's revenue was <$10k in the last 30 days, but it hasn't been out very long.

* We've been getting a good deal of press, but we don't think it will last. Now is probably a good time to exit.

* We'd love to sell. We're not that emotionally invested into the product; this app isn't our life passion (it was actually started as joke)

We'd be grateful for any advice you have for us.

P.S. Just finished reading:

[1] http://news.ycombinator.com/item?id=1985552

[2] http://www.davidgcohen.com/2010/06/18/you-have-acquisition-interest-now-what/

[3] http://news.ycombinator.com/item?id=1639523

[4] http://giffconstable.com/2010/11/selling-your-company-some-core-questions/

[5] http://www.seattle20.com/tv/clip/StartupDay-2010-Exit-Strategies-for-Startups-by-Hadi-Partovi.aspx

Thanks!

11 comments

[ 3.4 ms ] story [ 33.1 ms ] thread
thushan
Congrats! That's so cool that something that started off as a side project might have a nice payoff. I would say one thing in regards to this posting actually. You're almost taking a bit of your possible sale value by saying the items in bullet point #3 and #2. I don't believe in the outlandish expectations a lot of people have for their projects/startups, but conversely you're selling yourself short by saying those things.
luckyclueless
Agreed, we certainly don't plan on telling our suitors those things. But here on HN we're among friends and I want to be candid.

That said, I can see what you're saying. If I don't believe our product has significant 'worth' then I am likely to sell myself short simply by having that kind of mindset.

pwhelan
I have no experience in this so be skeptical of this. It might be a good idea to bring on an adviser for this sale? Perhaps talk with a VC just to help on the sale for some flat fee -- say 5k$ + 3% of the sale - transactions fees? Use your own numbers of course.

If they are offering serious money (being BigPharma I imagine it isn't peanuts) you will want this handled professionally. Peace of mind that you are getting a good deal and while they company maintains interest.

Kudos on the success!

curt
Depending on your city, (if you're in the midwest email me and I can recommend a few people) there are firms (Small-Cap Investment Bankers) that specialize in acquisitions. Hire one, it'll cost money but you you'll avoid mistakes and get the optimal deal possible. If you don't know the due diligence process, you can very easily get screwed, so don't do it yourself (unless they are offering peanuts and doesn't make sense to hire anyone).

By what you said they should be offering at least a few hundred thousand if not $500k+. They are interested for the branding/PR aspect which could be valued into the millions. So don't only look at the financial, this is more of a strategic buy, so instead of asking what the company is worth to you... Ask what it's worth to them...

luckyclueless
Great advice. I'm in SoCal and I have no idea which acquisition firms are good. I'll ask around.

First I'm going to see if I can get them to tell us a ballpark figure before I involve any other parties.

curt
Be very careful, you might accidentally make an offer. Read up on contract law and if you don't understand it find someone that does.

Make sure to close the holding LLC after the sale so you limit any potential liability.

EDIT: Most of these firms will give you a few hours of advise for free in the hope of more business. Don't be afraid to ask. Also you can make the payments contingent on the sale as a percentage.

asdfj843lkdjs
Could you live with yourselves if the company made WAY more from your app then they paid you for it? If yes, then sell.

I'd just ask for the number that would buy me freedom. And if they gave me that, I'd happily sell.And I wouldn't care how much more they make.

luckyclueless
I could live with this. They have a significantly bigger marketing budget and an existing product they could piggy-back on. We couldn't make as much money in the same way if we stayed independent, but we might be able to through other avenues.
joshu
Who reached out? What is the guy's title?

Drop me a line if you want to ask more specific questions.

A lawyer would definitely help. I can recommend a good one, depending on where you are.

luckyclueless
@joshu thanks for the offer to answer a question or two, I'll probably take you up on it. (I'm a big fan of your work.) Let me see if I can figure out if we are even in the same ballpark in terms of money and then I'll start getting more serious about a lawyer.
thedealmaker
Being reasonable and pragmatic is the most important thing to do in this situation. There are a few things you should keep in mind. 1. Interest is just that...interest. They may want the app but they may have other motives such as assessing the market, costs, etc. So be open but keep this in mind. 2. Don't waste too much time on this. This company could be in talks with other companies with similar apps so make quick decisions. If you are open to sell don't deliberate to long. Pick a number that would be a multiple of your time/money invested (say 4x's) and offer a 1 year fixed price consulting agreement with said company that insures you income for another year to move on to your next venture. It also gives said company help with the transition. 3. If it doesn't work out don't fret. It tells you that you are on the right track if you continue to push forward. Consider it validation and toast to the moment any damn way.