Ask HN: Early startup valuation for acquihire?

Now, having said that, you have to determine your goals and how to synthesize an ideal set of negotiating levels.

Typically these levels are:

  1.  Possible Best Case
  2.  Likely negotiated agreement
  3.  Worse you'll take (walk away below)
  4.  BATNA - Your "Best Alternative to Negotiated Agreement."

  1.  Comparables on metrics such as revenue, profit, market share, impressions, downloads, average daily/monthly users
  2.  The company's (buyer)'s budget - "Well all we have is this"
  3.  The sellers demands (I won't sell for less than this)

You're going to have give out more (anonymous) details before most people can help you too much:

  1.  Are you a 1-man shop?  Including contractors?
  2.  How many people at acquirer?
  3.  How long have to both been in business?
  4.  How much revenue do you both have?  How much profit?
  5.  What guarantees do you want if you're hired?  What agreements are you willing to make (i.e. non-compete)

Remember, a negotiation is a game in which both people agree things are fair, or both people agree that they get screwed equally.

After the negotiation, if you have to work with the person, then try to focus on the former case.

Since you are basically asking for co-founder level equity in the merged company, pretend that you were working there the whole time when you were working on your own startup. The acquisition cost is the amount of salary you would have drawn.

The valuation of your company is going to take into account how much has been invested so far and potential for future growth (among other things). Since it sounds like you haven't had any investors, you'll want to figure out ways to quantify investment so far. Put together a spreadsheet. Don't necessarily show it, but use the sums you come up with as rationale during negotiation.

Some ideas along that line: -Quantify your personal time investment: add up the value of the time you've put in, including opportunity cost. If you didn't build this company, what could you have earned doing consulting? -Quantify your traction: if this includes revenue from customers, project how much those customers will earn for your company over the next few years and add that to the total value of the company.

Good luck!

Read this: http://paulgraham.com/corpdev.html

It doesn't even have to be a negotiation tactic - just tell them the same thing you posted here. You aren't sure what would be fair, and are not sure what number to respond.

Really, they are coming to you - let them do this part of the work, so you don't waste your time until you even know if you are talking in the same ballpark.

I think if they're early stage enough that you might get 10-20% (btw, 10% is optimistic), then there's no cash available (apart from a small signing bonus like 10-20k).

But really, you need to talk through the actual numbers with someone who has been more of an idea. Do you have advisors? If not, happy to help: my email is in my profile.

If their funds are from outside then the founders and employees are also less in control. In addition, it does not mean that they are executing better or have a better product.

not the product or technology per se.

That does not mean that the price should not reflect the value of these things because it is not as if you will retain their value after an acquisition should it occur. This is especially salient if any of your compensation will be in equity in the current competitor because shutting down your product potentially enhances the value of theirs.

eliminating future competition

If this is obviously one of their motives [which is different from an assumption that it is] it is a red flag because it means the founders and controlling interests are focused on the wrong thing: something other than execution.

fair terms

If you think its fair, then its fair. Be willing to stick with that decision and learn from any of the outcomes [money left on the table, no deal, and everything working out so that you feel it's fair 50 years from now]. As you note, not working alone has some value to you but nobody but you can assess it right now or in two years.

Good luck.

You don't ask for co-founder equity without a strongly shared vision. However, if they are not that interested in your product or technology, are you guys even on the same page?

If walkaway trying to get more, you are kidding yourself. That being said, you can ASK for more. Just don't walkaway if you don't get it.

Also, remember the guy who comes up with the ask is usually the chump. Make them make an offer if you can.

> I'm mostly trying to determine a dollar amount assuming I also get 10-20% of their company and a small salary.

Given those two statements (and without knowing any details), my instinct would be that you'd effectively be joining their company as a sort of late-arriving co-founder. On that basis, my advice would be as follows:

1. Decide whether you want to become a co-founder of the company. They key thing is whether you want to join that team and work with those individuals.

2. Don't expect to receive a large dollar amount. It's not an exit - it's an acquihire. You want to find out how much the co-founders are getting paid and use that as a benchmark for your salary.

3. Do make sure that you do full due diligence - you need to see the cap table and understand what terms all the existing shareholder (including the founders - e.g. vesting schedules) and investors (e.g. any preferential terms) have. I'd be wary if they were reluctant to share any of that information. It's not unreasonable for them to ask that you sign an NDA. Get a lawyer to review any document they want you to sign and talk you through what it means. In fact, it's not a bad idea to get your own NDA drafted up and put it forward to them.

4. Be clear on what your role will be going forward. You don't want any hand-waving or "We'll sort that out later."

5. Ensure that everyone's expectations (including both yours and the other company's investors') are clear and aligned. Don't make any assumptions. Lay everything out in painstakingly explicitness.

6. Make sure that you're protected in case things don't work out. Basically, think about what could go wrong. Will your equity be subject to vesting? What happens if they fire you before the vesting period is complete?

If you want to go into specifics, I'd be happy to talk further on a confidential basis. My contact details are in my profile.

I'd start by asking them for their cap table, so you a can see what they're offering you in equity compared to the existing founders. You should also determine if they're going to give you the label "founder". (They should.)

Next, cash. The most expensive thing at the stage they're at is cash. If the company is a big win, 99% of your compensation will come from the equity. But any cash you extract now is a big PITA, given their funding level.

I would look into non-cash ways of getting a similar effect. For example, you could receive equity that has a liquidation preference, as if they had paid you cash and you turned around and invested it in the company. That's a little unusual, and may spook their existing investors. But paying you a wad of cash when they've raised only $1-2mm may also spook their investors.

What you really need is advice from some people who've been through this scenario, not people who know about acquihires that are very unlike this situation.

Good luck!

But that's not your situation. It seems like you do have traction but you don't have a team.

If your traction is >> theirs, you might consider hiring them.

If their traction is >> yours, they won't give you much.

If you are at all worried about whether they are negotiating in good faith, then before you go any further, file one or more patents asap. This provides you with at least 2 things:

1) increases what you have to put on the table

2) if talks dissolve and you find they were in it to get as much info from you as possible (e.g. to use in their product), you have some legal options. Whether you need this recourse AND whether its even feasible, is left for a later time.

Business is war, expect no less. And in this case, the more they give you (cash or equity), the more they lose.

On the other hand, estimate what it would cost them to fund and hire your alternative, including equity, recruiter, and hiring bonus fees. That's their upper end.

Add cash on hand, subtract liabilities, in both cases.

If it is website traffic... multiple your monthly new visitors by $1.50 or whatever and given them a reasonable break-even period (12 months)?

If it is a team.... what would they have to pay in recruitment fees?

If it is code... what would it cost to build it?

For another small business that is bootstrapped, this is the only way they can think of it.

You get a bit of a negotiation advantage if you can identify what matters to them most and use that as the metric. You can start amplifying how much of a difference you really can make for them.

If they make an offer and you accept only then are you on the same team. Until that point you are adversaries.