Ask YC: Aquisition Advice

Once you have bitten the apple, it's tough to go back to a world where you have a boss. Do you really want to hear someone give you a 'performance review'?

Performance metrics are ok, but now that you don't have full control over your future, you might not be able to hit them because the 'marketing department' got it's budget cut. I would take as much possible up front, and keep the 'required' time to be there as short as possible.

Insist on a lot of vacation so you can be working on your next gig. Depending, of course, on the weowneverythingyouthinkof contract they'll want you to sign.

Talk to a speclialized attorney NOW. Why so urgent? You do not want to appear dumb to your potential purchaser. To appear prepared, you need to present a professional face and let them know they are not going to get away with a steal (which is bad for you). Let them know they will get away with a fair deal.

EDIT: Talking about ALL the possibilities will involve many, many pages of text, none of which is any good (better to google it) since we are not your attorney. (and only listen to your attorney, none of this friend of a friend thing).

Congratulations, by the way :-)

If you're really small, and that number is really low, remember that the bottom side of the valuation is probably what an "awesome signing bonus" would be for a big company. As in, you wouldn't accept a buyout that equated to nothing more than a plausible signing bonus, because you can get that now and not give up the company or the site.

That being said, there are numerous ways to value a company, e.g. multiples of revenue, users/customers, traffic, assets, etc. What makes sense is very case-by-case and industry specific. But what it comes down to is that valuation is just a tool to make a case for deal terms. In the end, a deal is an agreement between two parties about what the terms of the deal are worth to them.

They probably already have an idea in mind about the minimum they will pay, and they are probably trying to draw an initial # out of you. I'm not going to tell you how to negotiate, but just be very wary of this, i.e. throwing out an initial #. It can set the stage for the whole transaction, and since you obviously don't already have a well thought out valuation, you may come to regret whatever you throw out.

Whether to work for them or not and how that would look like, is again, very case by case. For example, it could be structured in a way where if certain targets are met you get more money (earn-outs), or it could be a short transition consulting contract, or simply a salaried position not otherwise tied to the deal. I personally would make sure whatever you get up front can not be influenced by your behavior as an employee, i.e. are completely independent.

If you've got good content and functionality which is wanted by one website then there exists the possibility of others wanting it too. Getting the first sale is the hardest and one customer has already "beaten a path to your door".

A licensing deal would allow you to remain independent and it would reduce the legal complexity of an acquisition to that of a simple business deal.

Tags: [business] [licensing] [acquisition] [Microsoft] [IBM] [MSDOS] [content] [website] [sales] [legal]

We were approached early on and I asked everyone I knew for advice (founders, corp dev friends, former EIRs) and nobody had anything concrete, especially about the part which was most important to me: how do I value and sell the company.

Another hard part for me was determining if I wanted to sell. What I really needed was for them to give me a price so I could think about it. What I ended up doing was having the meeting and telling them both that I wasn't sure and that all my friends in the company had told me not to work there. What I figured was best case they'd give me a hard sell and worst case the conversation would end. I ended up with the worst case.

What people have told me afterward was that taking $1M at this age is a golden opportunity since you'll have a lifetime of ideas so you should go into this meeting selling. Tell them how big of an opportunity you open up for their business.

As for value, this is what I've heard. As a baseline start with $1M per employee (so for you $2M) and then let that number vary wildly. If you are essentially broke and they're bailing you out you might expect as little as $200k. If you're a high flyer you might expect as much as $10M.

- Do your homework on M&A.

- Study the guys who have approached you. Based on your knowledge of the market try have an understanding of your value to them.

- Important: This is a SALES job. It does not matter how much your cost has been or even how much money you are making (well, it matters, but it's secondary). The key valuation factor is how much you are worth to them, i.e., what would cost them (resources and time) to build what you have built and take to the levels (revenue, pageviews, registered users) you have taken it.

- Which also means it's important to understand why they want to buy you: Your technology? User base? User engagement?

- If you have done sales before, or you're good at negotiating, meet with them and listen to them. You don't have to commit to anything, but it'll be good to hear where they are comfortable and where they are not. It's ok to initially give them ranges rather than concrete numbers to get the ball rolling - again it's sales and don't look at it from a hacker's perspective! While to an engineer a price range of, say, "10 to 20 Million" sounds too vague, in negotiation it's a good starting point. Do not limit yourself, just give them enough so that they start talking and giving you ideas.

- Whether to do it or not is a question that goes back to your goals and dreams. If you're looking for a job that pays the bills, you can gradually grow it, and you can be your own boss and work on your own schedule then why sell (I'm assuming you are making money). If you want to make a bigger chunk of money, say to buy a house, and at the same time have a good salary, then sell and become their employee.

- The employment agreement itself is also subject to negotiation. You can promise that you'll stay at least a year, so that you have the flexibility of getting out later. Or you can ask for special arrangement such as moving or not moving, keeping your site independently managed, etc. Again, think of what you would like to happen and talk to them. If they have approached you they will be willing to listen, and good negotiation will get you where you want to be.

- When you're ready to make promises hire a lawyer :-)

Good luck, and congratulations.

Ultimately it's your call. Think of a price you can live with, and don't take a penny less.

As another poster said, it's a sales process. You should appear delighted at the prospect of working there. You can always say no later, but they should be wowed by your enthusiasm.

Regarding valuation, make them offer a #. A good way might be, "for a company at our stage, a formal valuation is pretty hit and miss. We kinda feel like the market should set our value. You guys certainly have more experience buying companies than we do selling them-- and we'd like you to make an offer." If they push you could always make noises about the best way being to see what a couple of other buyers might pay. ;-)

I'd avoid a lawyer for a bit-- they aren't going to help much with valuation.

The variables in the deal we did was:

1) stock options (part of employment agreement), vesting over 4 years 2) cash 3) cash signing bonus (just a way for them to put it in a different budget line) 4) relocation allowance 5) salary

Treat the employment stuff as separate. My buyer laid off 40% of the company in 6 months... I made the cut, but as easily couldn't have and would've lost my options and salary. Assume that'll happen to you (which means focus on cash, signing bonus, and relo variables).

Get them to give you an offer before you spend any significant money or time on this thing. If they're serious about it, the should give you numbers.