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Ask HN: Acquisition failed, company has our IP / knowledge

20 points by eventunexpected ↗ HN
We recently went through a tough acquisition process, in which we laid bare most of our technology to a rival business. It didn't close (which surprised us but we're moving on), but they are going to build a competing product. Anyone been in this situation and got any advice? We had an NDA with them of course and have documented everything we think they've seen. We have some tricks up our sleeve we never told them about (waiting until close) so we're not concerned but we do think they'll be closer to market because of what they've seen from us.

19 comments

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pg
I wouldn't worry. Startups are rarely killed by competitors. And people who copy you don't get as much benefit from it as you might expect. They know what you're doing but not why.

Worry about making users happy. Competitors are a second order problem.

lancewiggs
I agree in principle, having been through the process with a huge company looking at us, walking away and then launching a competitor site soon afterwards. They out-executed us due to a number of factors, in particular as they already had scale.

A request to abide by the NDA is about all you can do, and in our case it wasn't really ever going to make a difference.

eventunexpected
I also believe the same, as we really know what we are doing better than them as it's been our total focus while this is a new project for them. We know they'll take market share but we are confident that we'll retain our user-base and hopefully over time we'll be able to share the space that their behemoth marketing team will generate through awareness.

Thank you for replying, I'm honored that you've read my note and taken the time.

Zakuzaa
>>They know what you're doing but not why

I am having trouble understanding this. Isn't "why" trivial, if not obvious? I think "what" and "how" are far more important than "why".

pg
For example, most of the other YC-like organizations copied the questions on our application form. We ask those questions to detect things we've found are either good or bad in startups. But since the people who copied us don't know what the questions are designed to detect, they can't learn as much from the answers as we could.
kls
As much as I am a believer in markets and competition, if they did enter into the acquisition in bad faith then it sounds like you need to talk to an IP lawyer. It is a little late for should haves, but I would have had a rider in the NDA that failure to acquire carried a monetary fee 10% of acquisition sounds about right. It may scare off truly interested parties, but it will surly weed out anyone acting in bad faith to acquire market segment knowledge. A non-completion rider is not as unusual as one would expect.
eventunexpected
Yes, it's a lot to learn when you're running a startup, and the idea of scaring off a purchase seemed the worse thing that could have happened but in retrospect we should have held out for a fee.
anigbrowl
Pretend that they are going to sue you, and you have to get every document/email/agenda that is even slightly relevant into evidence within an exceedingly short timeframe. Because when you sue them, that's one of the first things you'll be requesting from the court, and in turn it is one of the first things they will do in response. This process is known as 'discovery' and if the stakes are high enough it can get quite abusive, ie ridiculously wide-ranging requests that are designed to make the litigation process as expensive as possible. If the other company is much larger than you, they will try to spend you into submission. Likewise, they will want to bring you into their offices for lengthy and unpleasant depositions, and your lawyers will try to do the same to them, which they will fight.

I presume you're waiting for your lawyers to call you back, because this is why you have lawyers in the first place. You might as well sit down with your accountants and start trying to quantify the gap between your best and worst-case scenarios in order to get a handle on your economic loss and establish what the efficient settlement price is. I'm only a law student so I can't give you any real guidance, other than to avoid becoming emotionally invested in who's right or wrong.

PS: they might sue you anyway, if the economics makes sense. It's not unheard of.

eventunexpected
Why would they sue us? They would copy our methods, we learnt a little about them but nothing that really helps us on a technical level.
anigbrowl
Same reason they abused your trust in the first place, as you've described it. They don't need to win, just to ensure you lose. But don't lose sleep over it, it's unlikely and I'm just mentioning the possibility because I'm nerdy. You should talk to an IP lawyer though.
eventunexpected
Thanks, this makes sense. We're documenting everything we can think of.
lancewiggs
At the very least ask them to oblige with the terms of the NDA immediately. Formally ask them, using the official communications methods and cc with email, to return everything to you and to verify to you that they have not distributed them to anyone else and that they have destroyed all existing copies. Do it ASAP. Formally request that they do not use information they have acquired from you under the NDA in any of their businesses. This is pretty standard stuff for a decent IP lawyer.
eventunexpected
Yes, I don't know why this wasn't done immediately. Is it important that an IP lawyer sends this request or is it sufficient coming from us?
mtjl79
I am not sure what kind of company you are, or what industry you are in so advice does vary.

In my last company, we once were "probed" and our books were opened up, I am guessing to see "where we were at".

Maybe your situation was a probe, maybe an acquisition gone bad - but I wouldn't sweat it too much. Your already steps ahead if they even did try and copy you. Your a startup, your a survivor, and just keep trucking on.

Frustrating and emotional I know. You had your hopes up, and the acquisition didn't go through, but take it as a learning experience and use it as motivation to keep kicking ass.

Best of luck.

eventunexpected
The entire process certainly was valuable, even in just forcing us to take a good look at our business plan and just know that we really believe in ourselves.
wavephorm
Since you have an NDA just let them make their product, if it succeeds you can sue them into oblivion, and you get all the money they make. They are going to be your very own unpaid employee. Think of it as a hedge, if you fail and they succeed, you still succeed.
eventunexpected
We can't sue a company for making a product like ours, as I understand? While what we do is unique, you can't patent the idea.
wavephorm
but you didn't patent the idea. They signed an agreement not to disclose what they learned from you. If they breach that agreement you can sue them.
eventunexpected
Right, that's a good point: internal disclosure. The NDA is very specific on a need-to-know basis. So if our methods are obviously put to use it means that they disclosed, if my thinking is correct?