3 ms·

i wonder how often this happens in the valley.

by isubkhankulov 9y ago

logronoide 9y ago
I wonder how often this happens outside of The Valley too.
- rsp1984 9y ago
  A friend of mine works for a large M&A advisory firm. Apparently it happens all the time and the acquiring companies often make it deliberately hard for an acquired company to meet their earn-out targets, e.g. by hitting them with a lot of bureaucracy.
  - dstroot 9y ago
    I've been bought twice. Each time the acquiring firm's bureaucracy was massively impactful. It's not done intentionally- larger companies need the structure. I have always thought of it as "gearing" - as in a large gear can make a small gear turn very fast simply by barely moving. Or put another way what happens when everyone in the larger company just needs 10 minutes of your time? You are booked for six months.
- c17r 9y ago
  Not part of The Valley and not in the sexy start-up space but it happened to me when I sold my company. They wanted us to meet minimum revenue numbers for 2 years but month after month they (A) wanted to take the bulk of our available time to do their needs and (B) certainly weren't going to PAY for any of that work. Pointing out the incongruent mandates were met with ignorance or "we'll figure it out later" with no later actually happening. My co-founder and I left as soon as we could and never looked back. Fortunately our earn out wasn't an all or nothing, so we hit a bunch of the milestones and got the bulk of our money. Still a little bitter over the whole thing.
- siegel 9y ago
  Whenever there is an earnout in the M&A context, the acquiring company will attempt to insert language in the transaction agreements relieving the acquiror from any liability if it does not help (or even hinders) the target (or the relevant employees from the target) in meeting the earnout thresholds. If your company receives an acquisition offer and it includes an earnout, do not sign a term sheet that lacks protections in terms of your ability to meet earnout thresholds. Your leverage decreases once the term sheet is signed. So, if there's any chance to get protections, it's at the term sheet phase.
tyingq 9y ago
Anecdotal, but I lost 1/24th of a 2 year vesting on a all-cash acquisition, despite a clause that seemed to say that event would vest everything. The amount was small enough that I didn't make a fuss.
ChuckMcM 9y ago
From my own experience and people I've talked to over the years, the 'transition' in a merger or acquisition, especially for the high level employees, is always more complex than you might think. Further the complexity rises depending on the leverage (so if the acquired company is in a strong position or a weak position). That is especially true in 'feature' acquisitions where the company being acquired is going to be a new feature of the acquiring company's existing product. In those types of situations the acquiring company is probably already evaluating the feature and in a 'make' vs 'buy' sort of analysis mode, and even if they 'buy' a company that has built the feature, they really just want the technology and maybe the customer traction, rather than much more than that. It will be interesting to hear how the Delaware Chancery court sees it but my guess is that they will hold for Twilio unless those redactions obscure some really bad contract work on Twilio's legal team.

i wonder how often this happens in the valley.

logronoide 9y ago

I wonder how often this happens outside of The Valley too.

rsp1984 9y ago
A friend of mine works for a large M&A advisory firm. Apparently it happens all the time and the acquiring companies often make it deliberately hard for an acquired company to meet their earn-out targets, e.g. by hitting them with a lot of bureaucracy.
- dstroot 9y ago
  I've been bought twice. Each time the acquiring firm's bureaucracy was massively impactful. It's not done intentionally- larger companies need the structure. I have always thought of it as "gearing" - as in a large gear can make a small gear turn very fast simply by barely moving. Or put another way what happens when everyone in the larger company just needs 10 minutes of your time? You are booked for six months.
c17r 9y ago
Not part of The Valley and not in the sexy start-up space but it happened to me when I sold my company. They wanted us to meet minimum revenue numbers for 2 years but month after month they (A) wanted to take the bulk of our available time to do their needs and (B) certainly weren't going to PAY for any of that work. Pointing out the incongruent mandates were met with ignorance or "we'll figure it out later" with no later actually happening. My co-founder and I left as soon as we could and never looked back. Fortunately our earn out wasn't an all or nothing, so we hit a bunch of the milestones and got the bulk of our money. Still a little bitter over the whole thing.
siegel 9y ago
Whenever there is an earnout in the M&A context, the acquiring company will attempt to insert language in the transaction agreements relieving the acquiror from any liability if it does not help (or even hinders) the target (or the relevant employees from the target) in meeting the earnout thresholds. If your company receives an acquisition offer and it includes an earnout, do not sign a term sheet that lacks protections in terms of your ability to meet earnout thresholds. Your leverage decreases once the term sheet is signed. So, if there's any chance to get protections, it's at the term sheet phase.

tyingq 9y ago

Anecdotal, but I lost 1/24th of a 2 year vesting on a all-cash acquisition, despite a clause that seemed to say that event would vest everything. The amount was small enough that I didn't make a fuss.

ChuckMcM 9y ago

From my own experience and people I've talked to over the years, the 'transition' in a merger or acquisition, especially for the high level employees, is always more complex than you might think. Further the complexity rises depending on the leverage (so if the acquired company is in a strong position or a weak position). That is especially true in 'feature' acquisitions where the company being acquired is going to be a new feature of the acquiring company's existing product. In those types of situations the acquiring company is probably already evaluating the feature and in a 'make' vs 'buy' sort of analysis mode, and even if they 'buy' a company that has built the feature, they really just want the technology and maybe the customer traction, rather than much more than that. It will be interesting to hear how the Delaware Chancery court sees it but my guess is that they will hold for Twilio unless those redactions obscure some really bad contract work on Twilio's legal team.