7 ms·

We were a few days away from being settled for life

118 points by daolf 5y ago

ckdarby 5y ago
They're already settled for life with the existing business. The feedback they got from the potential buyer is what is missing, the business is too dependent on them and if they're able to remove themselves from the equation more and more it'll be a great lifestyle business where they're set for life. The other factor is the buyer probably looked around at competitors and noticed there was another business less valued that they could pump the same capital into and outgrow this business.
- happyhardcore 5y ago
  Agreed. If I ran a SaaS startup with a team of three and $1m ARR I'd feel pretty confident that things are gonna be alright for me.
- _old_dude_ 5y ago
  Or, less charitably, they have provided a trove of documents to the buyer so the buyer can outgrow their business using a competitor.
  - Rufhfhs3747rhe7 5y ago
    Is it a common practice to provide that level of detail to a potential buyer who can just walk away with no penalty? How is this position not abused? Reputation damage?
    - tedmiston 5y ago
      Yes. See Silicon Valley, Season 2, Episode 2. https://m.youtube.com/watch?v=JlwwVuSUUfc https://m.youtube.com/watch?v=JlwwVuSUUfc https://www.quora.com/Silicon-Valley-Season-2-Episode-2-Runaway-Devaluation-Do-large-companies-and-VC-firms-really-brain-rape-early-stage-startups https://www.quora.com/Silicon-Valley-Season-2-Episode-2-Runa... https://en.m.wikipedia.org/wiki/Silicon_Valley_(season_2) https://en.m.wikipedia.org/wiki/Silicon_Valley_(season_2)
      - gojomo 5y ago
        I don't recall those episodes, but I would say that in real life, yes, larger companies can 'kick the tires' for a long time, costing the target immense amounts of focus/time, then walk away. Older incumbent companies, especially, may have giant 'business development' teams who almost recreationally do deep x-rays of emerging threats/opportunities. All their staffing/trips/flirtatious-discussions/legally-drafted-non-binding-letters-of-intent may be a rounding error in their bottom line, a cheap research expense. They can go through all the motions of an acquisition, appearing serious to the hopeful founders, with a negligible interest in actually completing the deal. I mean sure, they'd bite if they saw a can't-lose bonanza - their talks are panning for gold in your stream, before buying or even renting your land. Even if 99/100 envisioned deals eventually fall-through, they're just happy to learn all the proprietary business internals. See also: ~pg's 'Don't Talk To Corp Dev': http://www.paulgraham.com/corpdev.html http://www.paulgraham.com/corpdev.html
        tempnow987 5y ago
        Great write-up, and I see PG also had a separate post that overlaps with my other comment here: "When a sufficiently high-up decision maker decides he/she wants to buy your startup, he/she will attempt to meet with you constantly and put time pressure on you, so as to prevent you from shopping the deal and getting a better offer. The absence of this behavior indicates the other company is not serious about acquiring your business."
        tedmiston 5y ago
        That Silicon Valley episode and PG's Don't Talk to Corp Dev essay have a very similar takeaway. Interesting that they both came out around the same time in 2015 as well. One counter I would make to PG's essay is: investors, whether accelerators, VCS, or otherwise, predominantly benefit from big exits... and so they have that effect of pushing towards polarized outcomes ($0 or big). But "small" exits can still be very meaningful for founders.
jbluepolarbear 5y ago
Twitter is the worst way to deliver this kind of information.
- happyhardcore 5y ago
  > Please don't complain about tangential annoyances—things like article or website formats, name collisions, or back-button breakage. They're too common to be interesting. [0] e: in any case, there are a number of ways of telling this story I can think of that'd be far worse than Twitter, even if I do agree that a series of tweets doesn't feel like the best way of communincating a small blog post. Plus, I feel like you end up with more engagement between the author and commenters on Twitter, such as in [1] [0] https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html [1] https://twitter.com/PierreDeWulf/status/1508476780583206918 https://twitter.com/PierreDeWulf/status/1508476780583206918
  - jbluepolarbear 5y ago
    This isn’t tangential annoyance. This is a social media post that was to be treated as an article. If there was a link to a single article that’s what should have been posted.
- criddell 5y ago
  Here's the same text in a single post: https://typefully.com/PierreDeWulf/mN1NgeKp1r6I https://typefully.com/PierreDeWulf/mN1NgeKp1r6I
- AlwaysRock 5y ago
  He added a link at the end which puts it all in one post.
  - psyc 5y ago
    > at the end
    - 5y ago
geocrasher 5y ago
Correction: "How we thought wewere a few days away from being settled from life" A healthy dose of pessimism helps a lot in cases like this. Getting your hopes up does nobody any good. Leave the money out of it, and treat it like any other customer transaction. When the money actually comes, then you have something to talk about :)
- Dylan16807 5y ago
  > Correction That depends on whether you view "a few days" as a schedule or a distance, doesn't it?
- deleted 5y ago
  [deleted]
tempnow987 5y ago
A bit of a flag are the timelines here? 6 months? 7 LOI's? This of course depends on your options, if you must raise funds and have no one else talking with you, take all the time in the world of course. GREAT that the investor provider feedback. Fantastic to take it and improve product (of course, investor could have done this when they had a board seat as well). Not clear that they couldn't have ID'd these issues a LOT earlier. That said, going through this once will have given you HUGE insight into what it will take to go through it again. And you will almost certainly get a better price if the metrics / ARR etc all are going the right way, and your docs are in order. But deals that someone really wants to have happen tend to move a bit quicker (Facebook buying Instagram might be an example?) That said, until the wires hit, nothing is solid.
tima101 5y ago
No evidence for this particular case but can investors or competitors just gain private information about a company by pretending to buy it? It's free and the info is very detailed.
- wahnfrieden 5y ago
  Yes it happens
- peppertree 5y ago
  I agree the reason for backing out was total fluff. A likely scenario is financing on buyer side fell through.
IMTDb 5y ago
> The buyers were nice enough to give us the precise reason for their drawback: - churn - business too dependant on us > About the second point, I was also surprised because we already talked about it a lot. > And this is why we agreed to stay as long as 18 months to train a new team. Wow, that sound so short. When acquiring a business for multiples of the ARR, you need long term success to break even. If the founding team wishes to leave ASAP after selling, barley giving enough time to find a train a replacement, I can understand that the buyer has cold feet. Especially if churn is a concern. I wasn't in the discussion, but I bet you could have closed the deal, by negotiating (potentially bigger) earn outs on a longer period (3 to 5 years), showing confidence in the long term success of the company. But to me, 18 month sounds like a bare minimum where objective can be achieved by aggressively pushing the company potentially even hurting it on the long term.
- mchusma 5y ago
  Re: Earn out. 1. My understanding is the earn out was discussed upfront, so not a reason to back out of a LOI. 2. I've been through an acquisition (different circumstances). IMO 1 year is critical to a good transition and honestly, weird but fun. Year 2 the main integration stuff is done, and you should be out, so things start to get akward. Year 3 you probably shouldn't be involved, you want the business to be sustainable on its own. Situations vary, but I think all parties would be better off with a "1 year full time then 1 hour/week for another 2 years." 1 hour/week should be easy to give, even if you take another gig, and is enough time to help continuity.
WinterMount223 5y ago
That’s why you also do due diligence on your prospective buyer. Also when talks are reasonably advanced, ask for a non-refundable advance as a proof of love.
paxys 5y ago
A deal which stretches on for this long (6+ months) in limbo is almost never getting closed. If you are the party with greater interest (whether buyer or seller), you need to focus on getting a public commitment ASAP. Due diligence, audits and all other details can be worked on after that.
- Terretta 5y ago
  That was my take away. "No, you weren't."
paulpauper 5y ago
Require money upfront. If someone is going to spend high 7figure, what is $10-20k for your time, especially if they are serious.
Simon_O_Rourke 5y ago
I really like the guys from ScrapingBee, they're completely transparent, how they got to where they are is there for all to see, and the product is quite good too. It's a pity that deal didn't work out for them, but I'm sure a big exit is on the cards for them soon.
- daolf 5y ago
  Thank you very much! That is very nice of you :)
TedShiller 5y ago
“Hey are you available for a quick chat tomorrow?” Only Americans know how to wrap horrible news into such a casual statement
- marban 5y ago
  Undervalued comment
- Terretta 5y ago
  See also: (home) We need to talk. (work) We should touch base. I'd be surprised if “We need to talk” was only an American relationship thing.
- supertofu 5y ago
  "Quick chat" is definitely a euphemism for "very bad news," especially if it must be done in person or over the phone.
  - nunez 5y ago
    Some job offers I've gotten were introduced this way; it's not universally bad, but it's usually bad lol
alberth 5y ago
This happens way more often than you'd expect. Think of it like dating. How any people did you date before you actually got married. For most, it wasn't the first person. Seller beware.
dredmorbius 5y ago
https://threadreaderapp.com/thread/1508450449745096709.html https://threadreaderapp.com/thread/1508450449745096709.html
cjlars 5y ago
I've been on the other side as a buyer. Although I work with 'main street' companies, not high tech, I think there's a lot of generalizable lessons. One thing to keep in mind is that some buyers have substantially all of their eggs in your basket and others will constantly have multiple deals in the pipeline. When you enter into the LOI phase with someone, you want them to be very motivated to close in order to make the time / disclosure / trade secrets risk worth it, so I would encourage sellers to attempt to enter LOI only with motivated buyers that have a high likelihood of closing the deal. A few hallmarks of motivated buyers per my experience: - The buyer will also be the CEO: the more the buyer looks like he/she will package your business up and pass it along, the lower the likelihood that they close (and the worse your earn out is likely to perform) - Good buyer / company fit: similar to point one, do not let people tell you they can run this company. Grill them just like you would if you were hiring a CEO to replace yourself. Buyer / company fit is huge and when they say 'the owner is too important to the company' what they often mean is 'I don't think I can run this well'. Someone who knows and is building a portfolio in your space will often be a better buyer than someone looking for 'diversification'. - Avoid tire kickers: Background in your space is good, but being a competitor to you is bad. If they could potentially gain valuable insider information as part of diligence, be wary of moving forward. - Small team size: smaller firms have less in the pipeline and more motivation to close on the deal in front of them. Remember that they have the same KPI (IRR primarily) and runway problems that startups have. For them, no company = no ROI. - Ensure they're well funded: The caveat to the above is that small teams or solo buyers may not have the funds lined up, so be very sure that they actually have the investors / NW to buy the business before moving forward.
nunez 5y ago
Yeah, I would never tell my family about a potential windfall until well after it settles within my bank account.
- blitzar 5y ago
  I would never tell my family (details) about a potential windfall even after it settles within my bank account

118 points by daolf 5y ago

They're already settled for life with the existing business. The feedback they got from the potential buyer is what is missing, the business is too dependent on them and if they're able to remove themselves from the equation more and more it'll be a great lifestyle business where they're set for life. The other factor is the buyer probably looked around at competitors and noticed there was another business less valued that they could pump the same capital into and outgrow this business.

happyhardcore 5y ago
Agreed. If I ran a SaaS startup with a team of three and $1m ARR I'd feel pretty confident that things are gonna be alright for me.
_old_dude_ 5y ago
Or, less charitably, they have provided a trove of documents to the buyer so the buyer can outgrow their business using a competitor.
- Rufhfhs3747rhe7 5y ago
  Is it a common practice to provide that level of detail to a potential buyer who can just walk away with no penalty? How is this position not abused? Reputation damage?
  - tedmiston 5y ago
    Yes. See Silicon Valley, Season 2, Episode 2. https://m.youtube.com/watch?v=JlwwVuSUUfc https://m.youtube.com/watch?v=JlwwVuSUUfc https://www.quora.com/Silicon-Valley-Season-2-Episode-2-Runaway-Devaluation-Do-large-companies-and-VC-firms-really-brain-rape-early-stage-startups https://www.quora.com/Silicon-Valley-Season-2-Episode-2-Runa... https://en.m.wikipedia.org/wiki/Silicon_Valley_(season_2) https://en.m.wikipedia.org/wiki/Silicon_Valley_(season_2)
    - gojomo 5y ago
      I don't recall those episodes, but I would say that in real life, yes, larger companies can 'kick the tires' for a long time, costing the target immense amounts of focus/time, then walk away. Older incumbent companies, especially, may have giant 'business development' teams who almost recreationally do deep x-rays of emerging threats/opportunities. All their staffing/trips/flirtatious-discussions/legally-drafted-non-binding-letters-of-intent may be a rounding error in their bottom line, a cheap research expense. They can go through all the motions of an acquisition, appearing serious to the hopeful founders, with a negligible interest in actually completing the deal. I mean sure, they'd bite if they saw a can't-lose bonanza - their talks are panning for gold in your stream, before buying or even renting your land. Even if 99/100 envisioned deals eventually fall-through, they're just happy to learn all the proprietary business internals. See also: ~pg's 'Don't Talk To Corp Dev': http://www.paulgraham.com/corpdev.html http://www.paulgraham.com/corpdev.html
      - tempnow987 5y ago
        Great write-up, and I see PG also had a separate post that overlaps with my other comment here: "When a sufficiently high-up decision maker decides he/she wants to buy your startup, he/she will attempt to meet with you constantly and put time pressure on you, so as to prevent you from shopping the deal and getting a better offer. The absence of this behavior indicates the other company is not serious about acquiring your business."
      - tedmiston 5y ago
        That Silicon Valley episode and PG's Don't Talk to Corp Dev essay have a very similar takeaway. Interesting that they both came out around the same time in 2015 as well. One counter I would make to PG's essay is: investors, whether accelerators, VCS, or otherwise, predominantly benefit from big exits... and so they have that effect of pushing towards polarized outcomes ($0 or big). But "small" exits can still be very meaningful for founders.

jbluepolarbear 5y ago

Twitter is the worst way to deliver this kind of information.

happyhardcore 5y ago
> Please don't complain about tangential annoyances—things like article or website formats, name collisions, or back-button breakage. They're too common to be interesting. [0] e: in any case, there are a number of ways of telling this story I can think of that'd be far worse than Twitter, even if I do agree that a series of tweets doesn't feel like the best way of communincating a small blog post. Plus, I feel like you end up with more engagement between the author and commenters on Twitter, such as in [1] [0] https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html [1] https://twitter.com/PierreDeWulf/status/1508476780583206918 https://twitter.com/PierreDeWulf/status/1508476780583206918
- jbluepolarbear 5y ago
  This isn’t tangential annoyance. This is a social media post that was to be treated as an article. If there was a link to a single article that’s what should have been posted.
criddell 5y ago
Here's the same text in a single post: https://typefully.com/PierreDeWulf/mN1NgeKp1r6I https://typefully.com/PierreDeWulf/mN1NgeKp1r6I
AlwaysRock 5y ago
He added a link at the end which puts it all in one post.
- psyc 5y ago
  > at the end
  - 5y ago

geocrasher 5y ago

Correction: "How we thought wewere a few days away from being settled from life" A healthy dose of pessimism helps a lot in cases like this. Getting your hopes up does nobody any good. Leave the money out of it, and treat it like any other customer transaction. When the money actually comes, then you have something to talk about :)

Dylan16807 5y ago
> Correction That depends on whether you view "a few days" as a schedule or a distance, doesn't it?
deleted 5y ago
[deleted]

tempnow987 5y ago

A bit of a flag are the timelines here? 6 months? 7 LOI's? This of course depends on your options, if you must raise funds and have no one else talking with you, take all the time in the world of course. GREAT that the investor provider feedback. Fantastic to take it and improve product (of course, investor could have done this when they had a board seat as well). Not clear that they couldn't have ID'd these issues a LOT earlier. That said, going through this once will have given you HUGE insight into what it will take to go through it again. And you will almost certainly get a better price if the metrics / ARR etc all are going the right way, and your docs are in order. But deals that someone really wants to have happen tend to move a bit quicker (Facebook buying Instagram might be an example?) That said, until the wires hit, nothing is solid.

tima101 5y ago

No evidence for this particular case but can investors or competitors just gain private information about a company by pretending to buy it? It's free and the info is very detailed.

wahnfrieden 5y ago
Yes it happens
peppertree 5y ago
I agree the reason for backing out was total fluff. A likely scenario is financing on buyer side fell through.

IMTDb 5y ago

> The buyers were nice enough to give us the precise reason for their drawback: - churn - business too dependant on us > About the second point, I was also surprised because we already talked about it a lot. > And this is why we agreed to stay as long as 18 months to train a new team. Wow, that sound so short. When acquiring a business for multiples of the ARR, you need long term success to break even. If the founding team wishes to leave ASAP after selling, barley giving enough time to find a train a replacement, I can understand that the buyer has cold feet. Especially if churn is a concern. I wasn't in the discussion, but I bet you could have closed the deal, by negotiating (potentially bigger) earn outs on a longer period (3 to 5 years), showing confidence in the long term success of the company. But to me, 18 month sounds like a bare minimum where objective can be achieved by aggressively pushing the company potentially even hurting it on the long term.

mchusma 5y ago
Re: Earn out. 1. My understanding is the earn out was discussed upfront, so not a reason to back out of a LOI. 2. I've been through an acquisition (different circumstances). IMO 1 year is critical to a good transition and honestly, weird but fun. Year 2 the main integration stuff is done, and you should be out, so things start to get akward. Year 3 you probably shouldn't be involved, you want the business to be sustainable on its own. Situations vary, but I think all parties would be better off with a "1 year full time then 1 hour/week for another 2 years." 1 hour/week should be easy to give, even if you take another gig, and is enough time to help continuity.

WinterMount223 5y ago

That’s why you also do due diligence on your prospective buyer. Also when talks are reasonably advanced, ask for a non-refundable advance as a proof of love.

paxys 5y ago

A deal which stretches on for this long (6+ months) in limbo is almost never getting closed. If you are the party with greater interest (whether buyer or seller), you need to focus on getting a public commitment ASAP. Due diligence, audits and all other details can be worked on after that.

Terretta 5y ago
That was my take away. "No, you weren't."

paulpauper 5y ago

Require money upfront. If someone is going to spend high 7figure, what is $10-20k for your time, especially if they are serious.

Simon_O_Rourke 5y ago

I really like the guys from ScrapingBee, they're completely transparent, how they got to where they are is there for all to see, and the product is quite good too. It's a pity that deal didn't work out for them, but I'm sure a big exit is on the cards for them soon.

daolf 5y ago
Thank you very much! That is very nice of you :)

TedShiller 5y ago

“Hey are you available for a quick chat tomorrow?” Only Americans know how to wrap horrible news into such a casual statement

marban 5y ago
Undervalued comment
Terretta 5y ago
See also: (home) We need to talk. (work) We should touch base. I'd be surprised if “We need to talk” was only an American relationship thing.
supertofu 5y ago
"Quick chat" is definitely a euphemism for "very bad news," especially if it must be done in person or over the phone.
- nunez 5y ago
  Some job offers I've gotten were introduced this way; it's not universally bad, but it's usually bad lol

alberth 5y ago

This happens way more often than you'd expect. Think of it like dating. How any people did you date before you actually got married. For most, it wasn't the first person. Seller beware.

dredmorbius 5y ago

https://threadreaderapp.com/thread/1508450449745096709.html https://threadreaderapp.com/thread/1508450449745096709.html

cjlars 5y ago

I've been on the other side as a buyer. Although I work with 'main street' companies, not high tech, I think there's a lot of generalizable lessons. One thing to keep in mind is that some buyers have substantially all of their eggs in your basket and others will constantly have multiple deals in the pipeline. When you enter into the LOI phase with someone, you want them to be very motivated to close in order to make the time / disclosure / trade secrets risk worth it, so I would encourage sellers to attempt to enter LOI only with motivated buyers that have a high likelihood of closing the deal. A few hallmarks of motivated buyers per my experience: - The buyer will also be the CEO: the more the buyer looks like he/she will package your business up and pass it along, the lower the likelihood that they close (and the worse your earn out is likely to perform) - Good buyer / company fit: similar to point one, do not let people tell you they can run this company. Grill them just like you would if you were hiring a CEO to replace yourself. Buyer / company fit is huge and when they say 'the owner is too important to the company' what they often mean is 'I don't think I can run this well'. Someone who knows and is building a portfolio in your space will often be a better buyer than someone looking for 'diversification'. - Avoid tire kickers: Background in your space is good, but being a competitor to you is bad. If they could potentially gain valuable insider information as part of diligence, be wary of moving forward. - Small team size: smaller firms have less in the pipeline and more motivation to close on the deal in front of them. Remember that they have the same KPI (IRR primarily) and runway problems that startups have. For them, no company = no ROI. - Ensure they're well funded: The caveat to the above is that small teams or solo buyers may not have the funds lined up, so be very sure that they actually have the investors / NW to buy the business before moving forward.

nunez 5y ago

Yeah, I would never tell my family about a potential windfall until well after it settles within my bank account.

blitzar 5y ago
I would never tell my family (details) about a potential windfall even after it settles within my bank account