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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

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.

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.