6 ms·

Need advice: A company just offered to buy my project for $6M

64 points by sllrpr 15y ago

Its not a straight-up acquisition. It is "seller financed". They are an enterprise software vendor, and it just so happens that something I've built over the past few months (with the help of my 3 partners in the project, its a 4-way split) perfectly solves a difficult problem for them. Apparently they were on the verge of acquiring another company to do the same thing, but they prefer my solution (this is why they were able to move so quickly). This, however, means that there is time pressure as they will need to cut the other company loose. This is so out-of-the-blue that we haven't even formed a company yet around the software we've written, but we have agreed an even 4-way split. The prospective acquirer has said that they are willing to do the deal with us as individuals, although I'm concerned about the lack of Limited Liability in that scenario. Basically, they don't pay immediately, but the faster they pay the lower the acquisition number (ie. they get a discount for paying quickly). Its something like $6M if it takes them 3 years to pay, but down to $2M if they can pay within a year (something they said was very unlikely given their current projections, which I've asked to see). They want me to sign an LoI within a week that will give us 45 days to finalize the deal. How typical is this deal structure? Any gotchyas I should watch out for? Should I try to negotiate on the numbers? (ie. try to go for more than $6M) Not to be rude, but please don't respond unless you know what you are talking about, I'm perfectly capable of uninformed speculation all by myself ;-)

HackR 15y ago
I don't have much to say but congrats on the offer, I hope everything works out for you!
- sllrpr 15y ago
  Thanks! Still a lot that can go wrong :-)
  - OstiaAntica 15y ago
    Definitely let us know how it ended up!
gallerytungsten 15y ago
Have you read the book "Venture Deals"? It addresses this topic and points out a number of things to watch out for. The "can't pay $2M in a year" but "can pay $6M in 3 years" seems a bit dodgy. Is it wholly dependent on the success of your product? Do you have to work for the company as part of the deal? If you have to "earn" your earnout, the salary numbers have to make sense too.
- sllrpr 15y ago
  No, it's basically they get a discount the faster they pay. 12 months it only costs them $2M (they've said this is very unlikely). It gives them an incentive to pay me as quickly as possible. There is no "earn"out, but we do need to provide them with some support - but we get to charge whatever we want for this (they pass the cost on to their customers). We certainly don't have to work full-time for them, and they know we can do this (we all have other gigs).
  - ebaysucks 15y ago
    They will for sure pay you $2M in 12 months. The options this deal gives them make it extremely profitable to seek outside investors to lend them 2 million for a few years.
    - sllrpr 15y ago
      Yes, perhaps, if it's all going well enough. Good point, I'll have to think on that.
      - DeathfireD 15y ago
        With everything you've posted (including the comments) it sounds like the company is trying to make you and your partners believe they wont be able to pay the $2M within 12 months in order to get you to agree to the deal. You're under the impression that you'll make a cool $6M and that's what their betting on. In all honesty I think they have the money all ready. Probably more too. You mentioned they where on the verge of making a deal with another company right? Who's to say the other company didn't demand $4M+ up front and the whole reason they're bailing is because they can get it from you for $2M? I know it's depressing to hear but you really need to think about it and do some financial research on the company. Get legal advice. Don't be forced into signing anything just because the company is "short on time". Remember they want YOUR product. If they want it bad enough they'll stick around for a few weeks. Hell they may even offer more money. Best of luck!
martinkallstrom 15y ago
So much on stake, so much depends on the minute details of the agreement (under what circumstances can they pull out etc). All in all, get a lawyer.
- sllrpr 15y ago
  No question that we will have the LoI reviewed by a lawyer before we sign.
  - martinkallstrom 15y ago
    You're loaning them millions of dollars at interest. Without a down payment. With all of the interest paid at the back end. With a cap on the accumulated interest. My bet is you'll never see the money. Either there will be a clause hidden in the agreement that allows them to reverse the sale if their project doesn't pan out. Or they are on the brink of bankruptcy. Either way, they are structuring the deal as if they know they'll only have to pay if the project is a home run. Don't waste your time with HN. Get a lawyer.
    - sllrpr 15y ago
      Fear not, a lawyer will review the deal before anything is signed.
      - martinkallstrom 15y ago
        By then it will be too late. It is right now legal advice can help you. The term sheet you have in your hand looks good to you, but only someone with experience from a hundred deals that went awry can look at that term sheet and see what is missing. You have the wrong view of how you use lawyers. Your process is basically the same as having a lawyer write the code for your web app and then have a programmer review the code just before you launch. Now you are probably thinking "no that's not the same because that won't work". Well, exactly. It won't work. Reading all your answers here you come across as either very inexperienced or drunk with the prospect of striking it rich or both.
factoryron 15y ago
no direct experience but i'm betting this is where a good lawyer is worth the expense. preferably one well versed in reading term sheets.
russell 15y ago
I dont care I'm going to give you my uninformed opinion myself :-) What is the financial condition of the acquiring company? Not being able to come up with a couple of million should be a red flag. What is the reputation of the company and its principals. Unfortunately, there are plenty of players willing to string you along to get your product cheap, lock you out, whatever. Dont do anything without the advice of a lawyer. I hope I'm just being a crank but I learned these lessons from Jack Tramiel the SOB that ran Atari. Fortunately, I walked away before I got burned too badly. I wish you the best of luck.
- sllrpr 15y ago
  > What is the financial condition of the acquiring company? Not being able to come up with a couple of million should be a red flag. They have been completely open about that. They are about to close a $2.5M round, and have $10M in revenues booked for next year. > What is the reputation of the company and its principals. Good so far as I can tell, they seem like smart, honest guys. > Unfortunately, there are plenty of players willing to string you along to get your product cheap, lock you out, whatever. With this deal structure stringing us along hurts them as they have to pay more. > Dont do anything without the advice of a lawyer. Roger that.
  - solsenNet 15y ago
    hmmm, "almost" 2.5m round and $10m in revenue "booked for next year" is not that credible of a company. you are taking a lot of risk that the money does not come through. if you sign a deal w/ everything "on the come" they can jack you around pretty hard. venture backed companies _consume_ cash, they usually don't throw it off (6m extra in a few years) until later.
    - sllrpr 15y ago
      > hmmm, "almost" 2.5m round and $10m in revenue "booked for next year" is not that credible of a company. you are taking a lot of risk that the money does not come through. What is the risk? Only that we end up back where we were before their offer, so far as I can see. Their fundraising deal seems well underway, I've raised venture capital myself, and these guys know what they are doing. > venture backed companies _consume_ cash, they usually don't throw it off (6m extra in a few years) until later. It's a line item for them, they pass the cost directly to their customers.
kgc 15y ago
Get a lawyer.
dmor 15y ago
Just a character evaluation here, but if they are willing to cut this other company loose, I think you should evaluate how binding they consider contracts to be before you enter into one with them yourself. At the very least I would ask them to make a substantial (500K minimum) deposit against the balance up front. If the don't have the cash to do that, I would not deal with them as they probably shouldn't be doing acquisitions. Other crazy idea: this is HUGE validation, go raise VC against this offer and make it a real business. Also, if they are truly in the enterprise space and can afford to acquire companies to "solve a difficult problem for them" they should be able to pay you serious money and $2m in first 12 months should be no big deal. Another thought, If you are really going to get in the business of giving a $6M loan over 3 years with your 3 cofounders, you should consult a lawyer about more than the LOI. The entire corporate structure needs to be designed to make sure people get paid out correctly and that taxes are accounted for.
- sllrpr 15y ago
  > Just a character evaluation here, but if they are willing to cut this other company loose, I think you should evaluate how binding they consider contracts to be before you enter into one with them yourself I'm fairly sure they don't have a contract with the other company, the time pressure is that they were about to sign an LoI with them. > At the very least I would ask them to make a substantial (500K minimum) deposit against the balance up front. If the don't have the cash to do that, I would not deal with them as they probably shouldn't be doing acquisitions. I'm not sure, they've been open about their financial situation and I understand why they've proposed the deal structure that they have. > Other crazy idea: this is HUGE validation, go raise VC against this offer and make it a real business. Problem is that I've already got other projects that would be extremely difficult for me to abandon. > Also, if they are truly in the enterprise space and can afford to acquire companies to "solve a difficult problem for them" they should be able to pay you serious money and $2m in first 12 months should be no big deal. Like I said, I'm familiar with their finances, and that isn't an option for them. > Another thought, If you are really going to get in the business of giving a $6M loan over 3 years with your 3 cofounders, you should consult a lawyer about more than the LOI. The entire corporate structure needs to be designed to make sure people get paid out correctly and that taxes are accounted for. Lawyers and accountants will all get to have their say before anything is signed.
Joakal 15y ago
I never heard of payment plan to acquire a company. There's something fishy about this. Unless it happens sometimes (that I never heard about), get a top lawyer in acquisition deals. Make sure that they at least understand the payment plan thoroughly and you must pay them a retainer because you will need the lawyer for 3 years to ensure the company does pay every time and not try to delay it, unethical-style. I think the deal is just extra costs on both sides. Your company is taking extra risk as other posters said because the buyer may go under and you'll be SOL, retainer or not. Straight-up acquisition means only getting the lawyer for the purchase and to get company to pay one-off. Much cheaper. I would reject the deal due to the overhead but I do not know your full situation. Disclaimer: I am not a lawyer, or had an acquisition, accountant, etc.
noonespecial 15y ago
Just make sure that they don't "own" the product until its paid for. They get non-exclusive rights to use the product until they've paid for it, then they get exclusive ownership. Its like rent-to-own. Worst case scenario, they are paying licensees for a time.
- ra 15y ago
  That's good advice. But you (OP) really should talk to a lawyer who specializes in this sort of thing.
kellyreid 15y ago
Hurry, supplies are limited. Call NOW! Why are they rushing you? That was the part that bugged me. Don't play that game; take your time and do the work to get it right.
- sllrpr 15y ago
  Yeah, I suspected it might be artificial pressure, but the pressure is only to sign an LoI, and their justification is plausible (we need to cut the other deal loose). After signing the LoI there is 45 days to complete the deal during which everyone will do due-diligence.
papaver 15y ago
i'm sure i'll get down voted for this, but i'll say it anyway. what is the point of posting this on hacker news? are you just trying to show off? i mean you are smart enough to have made a product that seems to be worth a significant amount to an third party. what advice can anyone here offer without knowing the exact details of the deal, doing a little research on the company, reading the loi, etc? i seems obvious that the only route of action to take would be to talk to a lawyer (or possibly two) that can advise you. i think a better question to ask would have been: anyone know a lawyer that would be willing to discuss this with me and give me a little advise?
- sllrpr 15y ago
  Not trying to show off, I mean, this is a throwaway account FFS! I'm posting it here because I was told to: http://www.reddit.com/r/startups/comments/loylh/need_advice_a_credible_company_just_offered_to/c2ufuc9 http://www.reddit.com/r/startups/comments/loylh/need_advice_... > what advice can anyone here offer without knowing the exact details of the deal, doing a little research on the company, reading the loi, etc? i seems obvious that the only route of action to take would be to talk to a lawyer (or possibly two) that can advise you. Just because I'm asking you lot doesn't mean that I won't also seek advice elsewhere.
mikeryan 15y ago
Get a lawyer, someone local and good. Talk to him. Everything else is just noise.
jvehent 15y ago
Any company that doesn't have cash, and is struggling for survival, will tell you that their revenue will explode "next year". They might very well be covered in debts and try to acquire you to generate more revenue. In which case, you take the risk of losing your product and your revenue. I'd ask for money up front, like 30% of the total, to see their reaction and then negociate the financing.
- sllrpr 15y ago
  > Any company that doesn't have cash, and is struggling for survival, will tell you that their revenue will explode "next year". They aren't struggling for survival, where did you get that idea? > In which case, you take the risk of losing your product and your revenue. Nope, if they don't pay the agreed amount we get the product back. > I'd ask for money up front, like 30% of the total, to see their reaction and then negociate the financing. I might seek more up-front, but I can see why that would be tricky from their side.
cbarry 15y ago
I would be concerned. Seller financing is generally used when the acquirer will have a stable business with concrete underlying assets (factories, real estate, etc.). I don't think this is the case for you. Your acquirer is a venture-backed startup. They only pay you in states of the world where they blow up, and you have little recourse if they don't blow up. More generally, you are taking on the risk of your acquirer's business (they may fail to get traction in the market, they may fail to develop their product, etc.) without getting compensated like an equity holder. This is a bad situation to be in -- entrepreneurs do all kinds of things (take VC money, incorporate rather than form partnerships, etc.) explicitly to shift risk to OTHER people. Not only are you taking on additional risk by taking the offer, but you are also not getting reimbursed appropriately for that risk. Other issues: - You get paid more if they take longer to pay => You're going to work for a company that you hope doesn't blow up tomorrow (because you get paid more if they blow up in 4 years). => This is a dangerous spot to be in; your incentives are not aligned with theirs. - It might be tempting to think that the acquirer could pay you with the proceeds of their next round even if their business does not take off. But $6M in short-term debt will likely scare off VCs who might fund them in their next round...
- sllrpr 15y ago
  I think you make a good point regarding taking the risk of their business, without getting compensated like an equity holder. I may be able to use that to negotiate for some equity as part of the deal. The risk to us is relatively limited though, as we get the technology back if they can't pay for it. The main risk is that we won't have made progress on it during that time, but that could have happened regardless (given it's experimental nature, we didn't really have much of an idea how we would market it).
  - cbarry 15y ago
    Great points. Another thing to think about: unsure about the exact repayment circumstances. But financially, the current offer has some similarities to venture debt, and that may be a useful way to think about what you're getting into. Key consideration about venture debt: the lender (you) is basically making a bet about financing risk. If the venture (your acquirer) gets a subsequent round of VC money, they will pay you back. If they do not get another round, they will not. Venture lenders typically don't look at their borrowers' business fundamentals too much, but they are very careful about who else is investing with them and how many rounds the venture has raised. Basically, if a new venture is (1) raising their first round and (2) backed by a big-name VC firm (Kleiner Perkins, Bessemer, etc.), the venture will almost always get another round of funding and the loan is safe. Other investors are always willing to give a KPCB-backed venture another shot. If (1) or (2) is not true, the loan is much riskier.
gtb 15y ago
May I ask what problem does your project solve?
- sllrpr 15y ago
  Ugh, I'm trying to keep this anonymous-ish. May I ask why you'd like to know?
  - gtb 15y ago
    Just looking for opportunities and ideas. Transplant your idea to another market, another industry ... and make 6 millions myself :)
arctangent 15y ago
If your product is worth $X million to this company, it may be worth $Y million to one of their competitors - and one of those competitors may have the cash on hand to make a much more compelling offer...
mrschwabe 15y ago
I might recommend you get in touch with someone like Sandy Kory. http://www.horizonpartners.com/users/show/skory http://www.horizonpartners.com/users/show/skory He specializes in brokering technology deals and has done some pretty major deals involving figures well north of what you are looking at now. I bring him up only because I recalled a Mixergy interview he did: http://mixergy.com/sandy-kory-horizon-interview/ http://mixergy.com/sandy-kory-horizon-interview/ Import thing to know at this point: your focus should now be on a separate negotiation entirely. The one you will be having with a lawyer and/or broker to help make this deal happen. What you have right now is tremendous leverage. You have a multi-million dollar business deal on the table. And that can get you top priority with lawyers & brokers. You can leverage that not only to get appointments and your phonecalls answered promptly - but you can leverage this to offset perhaps all or most of the up front costs you would typically have to fork out to deal with these professionals. What they'll be looking for however is a significant cut % of the deal so that is what you have to think about next. The ball is in your court. Goodluck.
- sllrpr 15y ago
  > What they'll be looking for however is a significant cut % of the deal so that is what you have to think about next The thing is that I've got a termsheet on the table that doesn't look half bad. What is my RoI on engaging someone like this if they are going to take a significant portion of this deal?
  - mrschwabe 15y ago
    That is why this is your new focus of negotiation. Cause its up to you. And by the way, you can go to the professional with this same question. You're the one with the hot deal. If he wants in, he'll have to give you a compelling reason to bring him in. And perhaps that could be a combination of experience, legal assistance and a reasonably modest commission. You're looking for win/win.
JoachimSchipper 15y ago
One thing that I haven't seen mentioned: you don't want the acquirer to pay you until they've found a market and then build a clone. Some kind of noncompete may be desirable.
- sllrpr 15y ago
  This may sound arrogant, but I don't think they could build a clone. Our stuff is pretty sophisticated and non-obvious.
  - brudgers 15y ago
    Could they hire someone to do it for $1.75m?
luckydude 15y ago
Hi, really hard to evaluate based on the info you've laid out. As a 49 year old guy who's been in the Valley since ~1988 or so, running his own company, been courted by the VC's (Hummer-Winblad), had a buy out offer from Borland (yeah, I know), I'm happy to pay things forward with free advice that might be worth slightly more than you paid for it :) Email in my profile if you want to talk. Send me a phone number if so. If not, best of luck. BTW, this sounds sketchy to me based on what little I know.
thrill 15y ago
This is a good sign - they think your software and their expertise, whatever it is, can make money. I'd recommend that rather than selling it all for $6MM, that you evaluate it for a couple of days, and if you are comfortable with them, suggest selling 60%, perhaps for the same $6MM, which gives them the control they seem to want, and retain 10% each, with the option for each of you to negotiate a sale of that 10% later, with them getting first dibs. If the product does very well, it'd be good to have some skin in the game. If it fails to grow as much, then you have secured some upfront cash.
cvinson 15y ago
As someone who has received >$5m offer that fell through, here's what I learned: 1) until the final documents are signed, don't consider any offer to be a done deal. There are many reasons for it to not happen at this stage. 2) Keep the project running as normal, and try not to get too distracted by this. You have something of value, don't jeopardize that by taking your eye off the ball. 3) As others have mentioned, get a lawyer who is experienced with these types of deals ASAP -- before discussing any more terms. Without help, you may be leaving a lot on the table, or conversely souring the deal.
teyc 15y ago
they can't buy you with money they don't have. What have they got? Technology or just vc money?
- sllrpr 15y ago
  They have technology and customers.
  - teyc 15y ago
    Did they "acquire" the technologies or develop it themselves? How do they even figure out the price to offer you?
xrd 15y ago
(I sold my company a year ago for $0.5M with me at 67% owner in a similar structure as you are describing, and another company six months ago for low six figures.) Do it as a "stock" sale, rather than "asset" sale. You get double taxed as an asset sale: first as corporate income, then as dividends which are taxed at zero-basis (unless you were very smart about how you paid into the company), meaning the whole thing will be taxed twice and at bad rates rather than capital gains, which are modest. This is regardless of whether you lived in ramen for the last few years building it, which is probably as you described not having yet formed a company. The buyers will probably want to do it as an asset sale, because this reduces liability; they are buying only the assets, not the entire company. If you have customers, a stock sale has them purchasing the liabilities of those customers. And, they can depreciate the assets, not stock. But, you can state that you should get a higher price under an asset sale, or at least have it in your pocket when you ask them to give something up. Make sure you have a good lawyer. I know a great one in Seattle, contact me privately if you want his information. You need to make sure you have good contracts. Remember, the buyer will be less motivated in a year. Excitement and possibility have a bad half life. What leverage do you have if they decide to pay late, or tell you they cannot pay you the next year? This situation is happening to me with the first of my deal. The structure of my buyout was a three year deal, with a new company formed, with one of the buyers putting in a large cash payment up front to purchase 40% of the new company, and then the other buyer buying the rest over three years. He has been perpetually late, and I am unclear if taking him to court makes sense, or waiting it out as the payments trickle in. Make sure you have clauses which indicate what happens on late payments. It sounds like this structure is there basically, not sure if you are unhappy were they to pay you $2M early. Sounds like a fine deal to me. I would recommend getting to know your buyers and their history. In the second startup I sold they were very motivated to pay me because they did not want to scuttle a round of investments. If you have good contracts and they start waffling on payments and you know they are trying to keep their nose clean at that moment that can be an additional motivator to following through on paying you. Always a great idea to have a second buyer. Even if you have to make them up. Said a different way, look around and see who else would want what you have, and give them an opportunity to get in on the bidding. Good luck!
brudgers 15y ago
I've never done a deal any where near as big, but I've wrangled the bulk of my income over the past twenty years from clients rather than employers - you won't hurt my feelings if you decide I don't know what I'm talking about. My opinion, the LOI in a week is fishy. A cursory glance at your situation should be enough to scare them off such a tight timeline until you guys have your shit together regarding corporate structure and IP ownership - right now, there is all kinds of risk associated with your acquisition because there are no formal relationships between your team's members. Nothing personal, but you guys sound like a litigation clusterfuck waiting to happen. Not just for them, but for their enterprise customers as well. The $2m now or $6m later is also suspect. Notice that you've pegged the deal at the higher figure in your title? The four of you are thinking low Fuck You money, but do you think they're really going to cough up an additional $4m when they can't raise half that? And if you are worth $6m, you can bet your ass someone will probably loan them $2m pretty damn quick. Of course that's assuming you ever get paid at all. Ever heard the expression, "Borrow a thousand dollars from the bank and the bank owns you. Borrow a million from the bank and you own the bank?" These guys are going to own you. Once you have several million riding on their success, their problems become your problems - even those outside the scope of your software. So now for the answers to your questions: 1. Screwy deal structures are not uncommon in the industry I'm in, people getting screwed is not uncommon either. 2. The biggest gotchya's are greed and an unwillingness pass on a sketchy deal. If your team and project is really worth something, this won't be the last deal you ever see in your life. 3. The starting point for negotiation should be to put all the cash in your pocket today. The reason they are "able to move so quickly" is because it won't cost them anything to try out your software - and they can probably get you guys to throw in a bunch of effort to make things work without any additional cost as well. Take it for what it's worth and good luck.
devs1010 15y ago
Find a lawyer who specializes in this field that you can trust and hire him to oversee the deal, there really isn't any other advice to give on a matter like this, its a complicated business dealing and you need someone on your side to make sure you don't get screwed
plasma 15y ago
A few red flags (I know nothing about startup acquisition myself though). 1) Time pressure to have the deal happen quickly (that's not your fault) 2) 6m vs 2m is a big difference. I would be very careful. I think asking for a fixed price (and letting them worry about how quickly they can pay back their lenders) is better. Their price difference is way too fuzzy. 3) "something they said was very unlikely given their current projections" yeah... Look, then they should be fine accepting a deal of say 4.5m (or whatever), because according to their current projections, they will end up paying that amount anyway. If they refuse, then you need to ask yourself why they are doing so (perhaps they really do expect to later buy your company for $1). 4) Get your own lawyer. Their lawyers are for their interests, not yours. Personally, the thought of not even knowing how much you are being bought for (and that it could be dramatically less based on "X reason") is very bad to me.
bootload 15y ago
"... Its not a straight-up acquisition. It is 'seller financed'. ...within a week that will give us 45 days to finalize the deal." You have not made it clear if you really need the money? Independence is good #5 ~ http://www.paulgraham.com/fundraising.html http://www.paulgraham.com/fundraising.html I also see potential founder fights #17 ~ http://www.paulgraham.com/startupmistakes.html http://www.paulgraham.com/startupmistakes.html and ... "... Shielding your optimism is nowhere more important than with deals. If your startup is doing a deal, just assume it's not going to happen. The VCs who say they're going to invest in you aren't. The company that says they're going to buy you isn't. The big customer who wants to use your system in their whole company won't. Then if things work out you can be pleasantly surprised. ..." Good luck #7 "Dont get your hopes up" ~ http://www.paulgraham.com/startuplessons.html http://www.paulgraham.com/startuplessons.html
- sllrpr 15y ago
  We don't really need the money, we each have other incomes that we're comfortable on. This was a speculative side-project.
  - bootload 15y ago
    "... We don't really need the money ..." Then consider, who has the power in the negotiations?
    - alwaysclosing 15y ago
      Screw the variable payout notion. It's a hook (as said). - $6m in 3yrs is a substantial risk and unlikely due to what everyone else said. - $4m in 2yrs is still a decent time horizon, but as mentioned, they are trying to lure you in for on the promise that it will be hard to pay in 1 year and probably more than they are prepared to spend. - Try $3m in 18 months with $1.5M upon close and $500k divided over the next 18 months. You get 75% upfront and can hedge on their success/failure. Waiting and anticipating checks to arrive is a nightmare and if you are like most, you will be highly bothered by this - whether or not you get your code back. (At which point, it will likely be duplicated elsewhere or deemed irrelevant.)
petervandijck 15y ago
Definitely talk to a tax laywer.
petervandijck 15y ago
It sounds like a good deal to me. I would (uninformed opinion): - call everyone you know to find someone experienced who can advise you through this - get an experienced laywer to review the deal, and also talk to a good tax laywer - tell them you need 3 weeks before signing: you need to get an LLC and your internal agreements on paper before signing something.
chris_dcosta 15y ago
Seller financed is one of the oldest tricks in the book. It means you (the seller) pay yourself for the sale from the proceeds of any furture profits. There are a couple of other red flags in what you wrote above, like time pressure (always a bad sign) and "the ratchet". Of course you may be informed and able to speculate, but there's nothing better than getting yourself a very good legal firm. Good ones are very honest about the downsides to any situation, which is what you need. Nothing is worse than being told everything is fine only to find out later that there were foreseeable issues. You should go into this with a take-it-or-leave-it approach and call the shots so that it's what you want, and not what they want to give you. But you'll have to get a standard position from everyone of your partners, and the only way to do that is to say NO to dealing with individuals. The reason is divide and conquer. That's another thing they'll do. Also DO YOUR RESEARCH. Who are the buyers? Can they give you personal guarantees to pay you even if what they're doing does not work out? Who is this mysterious competitor? Why didn't you know about them when you started your project? Again good lawyers will help you out here. So form a company, set your equity, get the best legal advice there is, and do not have multiple positions on your side when you go into negotiations. Be prepared to walk when you don't get what you want.
- sllrpr 15y ago
  Thanks, good feedback. Actually, after seeking a lot of advice I'm starting to think of the deal differently - I'll update the story so everyone can benefit.
chris_dcosta 15y ago
I'm going to add another comment because I've read the bulk of the responses here from the asker, and I think they are being deliberately provocative to wind people up. I'm not sure if its to get Kudos or what. Nobody is as downright arogant as the asker seems to suggest he is, without wanting to be provocative. Go ahead take the deal, ignore the advice here and don't come back for any more.

64 points by sllrpr 15y ago

HackR 15y ago

I don't have much to say but congrats on the offer, I hope everything works out for you!

sllrpr 15y ago
Thanks! Still a lot that can go wrong :-)
- OstiaAntica 15y ago
  Definitely let us know how it ended up!

gallerytungsten 15y ago

Have you read the book "Venture Deals"? It addresses this topic and points out a number of things to watch out for. The "can't pay $2M in a year" but "can pay $6M in 3 years" seems a bit dodgy. Is it wholly dependent on the success of your product? Do you have to work for the company as part of the deal? If you have to "earn" your earnout, the salary numbers have to make sense too.

sllrpr 15y ago
No, it's basically they get a discount the faster they pay. 12 months it only costs them $2M (they've said this is very unlikely). It gives them an incentive to pay me as quickly as possible. There is no "earn"out, but we do need to provide them with some support - but we get to charge whatever we want for this (they pass the cost on to their customers). We certainly don't have to work full-time for them, and they know we can do this (we all have other gigs).
- ebaysucks 15y ago
  They will for sure pay you $2M in 12 months. The options this deal gives them make it extremely profitable to seek outside investors to lend them 2 million for a few years.
  - sllrpr 15y ago
    Yes, perhaps, if it's all going well enough. Good point, I'll have to think on that.
    - DeathfireD 15y ago
      With everything you've posted (including the comments) it sounds like the company is trying to make you and your partners believe they wont be able to pay the $2M within 12 months in order to get you to agree to the deal. You're under the impression that you'll make a cool $6M and that's what their betting on. In all honesty I think they have the money all ready. Probably more too. You mentioned they where on the verge of making a deal with another company right? Who's to say the other company didn't demand $4M+ up front and the whole reason they're bailing is because they can get it from you for $2M? I know it's depressing to hear but you really need to think about it and do some financial research on the company. Get legal advice. Don't be forced into signing anything just because the company is "short on time". Remember they want YOUR product. If they want it bad enough they'll stick around for a few weeks. Hell they may even offer more money. Best of luck!

martinkallstrom 15y ago

So much on stake, so much depends on the minute details of the agreement (under what circumstances can they pull out etc). All in all, get a lawyer.

sllrpr 15y ago
No question that we will have the LoI reviewed by a lawyer before we sign.
- martinkallstrom 15y ago
  You're loaning them millions of dollars at interest. Without a down payment. With all of the interest paid at the back end. With a cap on the accumulated interest. My bet is you'll never see the money. Either there will be a clause hidden in the agreement that allows them to reverse the sale if their project doesn't pan out. Or they are on the brink of bankruptcy. Either way, they are structuring the deal as if they know they'll only have to pay if the project is a home run. Don't waste your time with HN. Get a lawyer.
  - sllrpr 15y ago
    Fear not, a lawyer will review the deal before anything is signed.
    - martinkallstrom 15y ago
      By then it will be too late. It is right now legal advice can help you. The term sheet you have in your hand looks good to you, but only someone with experience from a hundred deals that went awry can look at that term sheet and see what is missing. You have the wrong view of how you use lawyers. Your process is basically the same as having a lawyer write the code for your web app and then have a programmer review the code just before you launch. Now you are probably thinking "no that's not the same because that won't work". Well, exactly. It won't work. Reading all your answers here you come across as either very inexperienced or drunk with the prospect of striking it rich or both.

factoryron 15y ago

no direct experience but i'm betting this is where a good lawyer is worth the expense. preferably one well versed in reading term sheets.

russell 15y ago

I dont care I'm going to give you my uninformed opinion myself :-) What is the financial condition of the acquiring company? Not being able to come up with a couple of million should be a red flag. What is the reputation of the company and its principals. Unfortunately, there are plenty of players willing to string you along to get your product cheap, lock you out, whatever. Dont do anything without the advice of a lawyer. I hope I'm just being a crank but I learned these lessons from Jack Tramiel the SOB that ran Atari. Fortunately, I walked away before I got burned too badly. I wish you the best of luck.

sllrpr 15y ago
> What is the financial condition of the acquiring company? Not being able to come up with a couple of million should be a red flag. They have been completely open about that. They are about to close a $2.5M round, and have $10M in revenues booked for next year. > What is the reputation of the company and its principals. Good so far as I can tell, they seem like smart, honest guys. > Unfortunately, there are plenty of players willing to string you along to get your product cheap, lock you out, whatever. With this deal structure stringing us along hurts them as they have to pay more. > Dont do anything without the advice of a lawyer. Roger that.
- solsenNet 15y ago
  hmmm, "almost" 2.5m round and $10m in revenue "booked for next year" is not that credible of a company. you are taking a lot of risk that the money does not come through. if you sign a deal w/ everything "on the come" they can jack you around pretty hard. venture backed companies _consume_ cash, they usually don't throw it off (6m extra in a few years) until later.
  - sllrpr 15y ago
    > hmmm, "almost" 2.5m round and $10m in revenue "booked for next year" is not that credible of a company. you are taking a lot of risk that the money does not come through. What is the risk? Only that we end up back where we were before their offer, so far as I can see. Their fundraising deal seems well underway, I've raised venture capital myself, and these guys know what they are doing. > venture backed companies _consume_ cash, they usually don't throw it off (6m extra in a few years) until later. It's a line item for them, they pass the cost directly to their customers.

kgc 15y ago

Get a lawyer.

dmor 15y ago

Just a character evaluation here, but if they are willing to cut this other company loose, I think you should evaluate how binding they consider contracts to be before you enter into one with them yourself. At the very least I would ask them to make a substantial (500K minimum) deposit against the balance up front. If the don't have the cash to do that, I would not deal with them as they probably shouldn't be doing acquisitions. Other crazy idea: this is HUGE validation, go raise VC against this offer and make it a real business. Also, if they are truly in the enterprise space and can afford to acquire companies to "solve a difficult problem for them" they should be able to pay you serious money and $2m in first 12 months should be no big deal. Another thought, If you are really going to get in the business of giving a $6M loan over 3 years with your 3 cofounders, you should consult a lawyer about more than the LOI. The entire corporate structure needs to be designed to make sure people get paid out correctly and that taxes are accounted for.

sllrpr 15y ago
> Just a character evaluation here, but if they are willing to cut this other company loose, I think you should evaluate how binding they consider contracts to be before you enter into one with them yourself I'm fairly sure they don't have a contract with the other company, the time pressure is that they were about to sign an LoI with them. > At the very least I would ask them to make a substantial (500K minimum) deposit against the balance up front. If the don't have the cash to do that, I would not deal with them as they probably shouldn't be doing acquisitions. I'm not sure, they've been open about their financial situation and I understand why they've proposed the deal structure that they have. > Other crazy idea: this is HUGE validation, go raise VC against this offer and make it a real business. Problem is that I've already got other projects that would be extremely difficult for me to abandon. > Also, if they are truly in the enterprise space and can afford to acquire companies to "solve a difficult problem for them" they should be able to pay you serious money and $2m in first 12 months should be no big deal. Like I said, I'm familiar with their finances, and that isn't an option for them. > Another thought, If you are really going to get in the business of giving a $6M loan over 3 years with your 3 cofounders, you should consult a lawyer about more than the LOI. The entire corporate structure needs to be designed to make sure people get paid out correctly and that taxes are accounted for. Lawyers and accountants will all get to have their say before anything is signed.

Joakal 15y ago

I never heard of payment plan to acquire a company. There's something fishy about this. Unless it happens sometimes (that I never heard about), get a top lawyer in acquisition deals. Make sure that they at least understand the payment plan thoroughly and you must pay them a retainer because you will need the lawyer for 3 years to ensure the company does pay every time and not try to delay it, unethical-style. I think the deal is just extra costs on both sides. Your company is taking extra risk as other posters said because the buyer may go under and you'll be SOL, retainer or not. Straight-up acquisition means only getting the lawyer for the purchase and to get company to pay one-off. Much cheaper. I would reject the deal due to the overhead but I do not know your full situation. Disclaimer: I am not a lawyer, or had an acquisition, accountant, etc.

noonespecial 15y ago

Just make sure that they don't "own" the product until its paid for. They get non-exclusive rights to use the product until they've paid for it, then they get exclusive ownership. Its like rent-to-own. Worst case scenario, they are paying licensees for a time.

ra 15y ago
That's good advice. But you (OP) really should talk to a lawyer who specializes in this sort of thing.

kellyreid 15y ago

Hurry, supplies are limited. Call NOW! Why are they rushing you? That was the part that bugged me. Don't play that game; take your time and do the work to get it right.

sllrpr 15y ago
Yeah, I suspected it might be artificial pressure, but the pressure is only to sign an LoI, and their justification is plausible (we need to cut the other deal loose). After signing the LoI there is 45 days to complete the deal during which everyone will do due-diligence.

papaver 15y ago

i'm sure i'll get down voted for this, but i'll say it anyway. what is the point of posting this on hacker news? are you just trying to show off? i mean you are smart enough to have made a product that seems to be worth a significant amount to an third party. what advice can anyone here offer without knowing the exact details of the deal, doing a little research on the company, reading the loi, etc? i seems obvious that the only route of action to take would be to talk to a lawyer (or possibly two) that can advise you. i think a better question to ask would have been: anyone know a lawyer that would be willing to discuss this with me and give me a little advise?

sllrpr 15y ago
Not trying to show off, I mean, this is a throwaway account FFS! I'm posting it here because I was told to: http://www.reddit.com/r/startups/comments/loylh/need_advice_a_credible_company_just_offered_to/c2ufuc9 http://www.reddit.com/r/startups/comments/loylh/need_advice_... > what advice can anyone here offer without knowing the exact details of the deal, doing a little research on the company, reading the loi, etc? i seems obvious that the only route of action to take would be to talk to a lawyer (or possibly two) that can advise you. Just because I'm asking you lot doesn't mean that I won't also seek advice elsewhere.

mikeryan 15y ago

Get a lawyer, someone local and good. Talk to him. Everything else is just noise.

jvehent 15y ago

Any company that doesn't have cash, and is struggling for survival, will tell you that their revenue will explode "next year". They might very well be covered in debts and try to acquire you to generate more revenue. In which case, you take the risk of losing your product and your revenue. I'd ask for money up front, like 30% of the total, to see their reaction and then negociate the financing.

sllrpr 15y ago
> Any company that doesn't have cash, and is struggling for survival, will tell you that their revenue will explode "next year". They aren't struggling for survival, where did you get that idea? > In which case, you take the risk of losing your product and your revenue. Nope, if they don't pay the agreed amount we get the product back. > I'd ask for money up front, like 30% of the total, to see their reaction and then negociate the financing. I might seek more up-front, but I can see why that would be tricky from their side.

cbarry 15y ago

I would be concerned. Seller financing is generally used when the acquirer will have a stable business with concrete underlying assets (factories, real estate, etc.). I don't think this is the case for you. Your acquirer is a venture-backed startup. They only pay you in states of the world where they blow up, and you have little recourse if they don't blow up. More generally, you are taking on the risk of your acquirer's business (they may fail to get traction in the market, they may fail to develop their product, etc.) without getting compensated like an equity holder. This is a bad situation to be in -- entrepreneurs do all kinds of things (take VC money, incorporate rather than form partnerships, etc.) explicitly to shift risk to OTHER people. Not only are you taking on additional risk by taking the offer, but you are also not getting reimbursed appropriately for that risk. Other issues: - You get paid more if they take longer to pay => You're going to work for a company that you hope doesn't blow up tomorrow (because you get paid more if they blow up in 4 years). => This is a dangerous spot to be in; your incentives are not aligned with theirs. - It might be tempting to think that the acquirer could pay you with the proceeds of their next round even if their business does not take off. But $6M in short-term debt will likely scare off VCs who might fund them in their next round...

sllrpr 15y ago
I think you make a good point regarding taking the risk of their business, without getting compensated like an equity holder. I may be able to use that to negotiate for some equity as part of the deal. The risk to us is relatively limited though, as we get the technology back if they can't pay for it. The main risk is that we won't have made progress on it during that time, but that could have happened regardless (given it's experimental nature, we didn't really have much of an idea how we would market it).
- cbarry 15y ago
  Great points. Another thing to think about: unsure about the exact repayment circumstances. But financially, the current offer has some similarities to venture debt, and that may be a useful way to think about what you're getting into. Key consideration about venture debt: the lender (you) is basically making a bet about financing risk. If the venture (your acquirer) gets a subsequent round of VC money, they will pay you back. If they do not get another round, they will not. Venture lenders typically don't look at their borrowers' business fundamentals too much, but they are very careful about who else is investing with them and how many rounds the venture has raised. Basically, if a new venture is (1) raising their first round and (2) backed by a big-name VC firm (Kleiner Perkins, Bessemer, etc.), the venture will almost always get another round of funding and the loan is safe. Other investors are always willing to give a KPCB-backed venture another shot. If (1) or (2) is not true, the loan is much riskier.

gtb 15y ago

May I ask what problem does your project solve?

sllrpr 15y ago
Ugh, I'm trying to keep this anonymous-ish. May I ask why you'd like to know?
- gtb 15y ago
  Just looking for opportunities and ideas. Transplant your idea to another market, another industry ... and make 6 millions myself :)

arctangent 15y ago

If your product is worth $X million to this company, it may be worth $Y million to one of their competitors - and one of those competitors may have the cash on hand to make a much more compelling offer...

mrschwabe 15y ago

I might recommend you get in touch with someone like Sandy Kory. http://www.horizonpartners.com/users/show/skory http://www.horizonpartners.com/users/show/skory He specializes in brokering technology deals and has done some pretty major deals involving figures well north of what you are looking at now. I bring him up only because I recalled a Mixergy interview he did: http://mixergy.com/sandy-kory-horizon-interview/ http://mixergy.com/sandy-kory-horizon-interview/ Import thing to know at this point: your focus should now be on a separate negotiation entirely. The one you will be having with a lawyer and/or broker to help make this deal happen. What you have right now is tremendous leverage. You have a multi-million dollar business deal on the table. And that can get you top priority with lawyers & brokers. You can leverage that not only to get appointments and your phonecalls answered promptly - but you can leverage this to offset perhaps all or most of the up front costs you would typically have to fork out to deal with these professionals. What they'll be looking for however is a significant cut % of the deal so that is what you have to think about next. The ball is in your court. Goodluck.

sllrpr 15y ago
> What they'll be looking for however is a significant cut % of the deal so that is what you have to think about next The thing is that I've got a termsheet on the table that doesn't look half bad. What is my RoI on engaging someone like this if they are going to take a significant portion of this deal?
- mrschwabe 15y ago
  That is why this is your new focus of negotiation. Cause its up to you. And by the way, you can go to the professional with this same question. You're the one with the hot deal. If he wants in, he'll have to give you a compelling reason to bring him in. And perhaps that could be a combination of experience, legal assistance and a reasonably modest commission. You're looking for win/win.

JoachimSchipper 15y ago

One thing that I haven't seen mentioned: you don't want the acquirer to pay you until they've found a market and then build a clone. Some kind of noncompete may be desirable.

sllrpr 15y ago
This may sound arrogant, but I don't think they could build a clone. Our stuff is pretty sophisticated and non-obvious.
- brudgers 15y ago
  Could they hire someone to do it for $1.75m?

luckydude 15y ago

Hi, really hard to evaluate based on the info you've laid out. As a 49 year old guy who's been in the Valley since ~1988 or so, running his own company, been courted by the VC's (Hummer-Winblad), had a buy out offer from Borland (yeah, I know), I'm happy to pay things forward with free advice that might be worth slightly more than you paid for it :) Email in my profile if you want to talk. Send me a phone number if so. If not, best of luck. BTW, this sounds sketchy to me based on what little I know.

thrill 15y ago

This is a good sign - they think your software and their expertise, whatever it is, can make money. I'd recommend that rather than selling it all for $6MM, that you evaluate it for a couple of days, and if you are comfortable with them, suggest selling 60%, perhaps for the same $6MM, which gives them the control they seem to want, and retain 10% each, with the option for each of you to negotiate a sale of that 10% later, with them getting first dibs. If the product does very well, it'd be good to have some skin in the game. If it fails to grow as much, then you have secured some upfront cash.

cvinson 15y ago

As someone who has received >$5m offer that fell through, here's what I learned: 1) until the final documents are signed, don't consider any offer to be a done deal. There are many reasons for it to not happen at this stage. 2) Keep the project running as normal, and try not to get too distracted by this. You have something of value, don't jeopardize that by taking your eye off the ball. 3) As others have mentioned, get a lawyer who is experienced with these types of deals ASAP -- before discussing any more terms. Without help, you may be leaving a lot on the table, or conversely souring the deal.

teyc 15y ago

they can't buy you with money they don't have. What have they got? Technology or just vc money?

sllrpr 15y ago
They have technology and customers.
- teyc 15y ago
  Did they "acquire" the technologies or develop it themselves? How do they even figure out the price to offer you?

xrd 15y ago

(I sold my company a year ago for $0.5M with me at 67% owner in a similar structure as you are describing, and another company six months ago for low six figures.) Do it as a "stock" sale, rather than "asset" sale. You get double taxed as an asset sale: first as corporate income, then as dividends which are taxed at zero-basis (unless you were very smart about how you paid into the company), meaning the whole thing will be taxed twice and at bad rates rather than capital gains, which are modest. This is regardless of whether you lived in ramen for the last few years building it, which is probably as you described not having yet formed a company. The buyers will probably want to do it as an asset sale, because this reduces liability; they are buying only the assets, not the entire company. If you have customers, a stock sale has them purchasing the liabilities of those customers. And, they can depreciate the assets, not stock. But, you can state that you should get a higher price under an asset sale, or at least have it in your pocket when you ask them to give something up. Make sure you have a good lawyer. I know a great one in Seattle, contact me privately if you want his information. You need to make sure you have good contracts. Remember, the buyer will be less motivated in a year. Excitement and possibility have a bad half life. What leverage do you have if they decide to pay late, or tell you they cannot pay you the next year? This situation is happening to me with the first of my deal. The structure of my buyout was a three year deal, with a new company formed, with one of the buyers putting in a large cash payment up front to purchase 40% of the new company, and then the other buyer buying the rest over three years. He has been perpetually late, and I am unclear if taking him to court makes sense, or waiting it out as the payments trickle in. Make sure you have clauses which indicate what happens on late payments. It sounds like this structure is there basically, not sure if you are unhappy were they to pay you $2M early. Sounds like a fine deal to me. I would recommend getting to know your buyers and their history. In the second startup I sold they were very motivated to pay me because they did not want to scuttle a round of investments. If you have good contracts and they start waffling on payments and you know they are trying to keep their nose clean at that moment that can be an additional motivator to following through on paying you. Always a great idea to have a second buyer. Even if you have to make them up. Said a different way, look around and see who else would want what you have, and give them an opportunity to get in on the bidding. Good luck!

brudgers 15y ago

I've never done a deal any where near as big, but I've wrangled the bulk of my income over the past twenty years from clients rather than employers - you won't hurt my feelings if you decide I don't know what I'm talking about. My opinion, the LOI in a week is fishy. A cursory glance at your situation should be enough to scare them off such a tight timeline until you guys have your shit together regarding corporate structure and IP ownership - right now, there is all kinds of risk associated with your acquisition because there are no formal relationships between your team's members. Nothing personal, but you guys sound like a litigation clusterfuck waiting to happen. Not just for them, but for their enterprise customers as well. The $2m now or $6m later is also suspect. Notice that you've pegged the deal at the higher figure in your title? The four of you are thinking low Fuck You money, but do you think they're really going to cough up an additional $4m when they can't raise half that? And if you are worth $6m, you can bet your ass someone will probably loan them $2m pretty damn quick. Of course that's assuming you ever get paid at all. Ever heard the expression, "Borrow a thousand dollars from the bank and the bank owns you. Borrow a million from the bank and you own the bank?" These guys are going to own you. Once you have several million riding on their success, their problems become your problems - even those outside the scope of your software. So now for the answers to your questions: 1. Screwy deal structures are not uncommon in the industry I'm in, people getting screwed is not uncommon either. 2. The biggest gotchya's are greed and an unwillingness pass on a sketchy deal. If your team and project is really worth something, this won't be the last deal you ever see in your life. 3. The starting point for negotiation should be to put all the cash in your pocket today. The reason they are "able to move so quickly" is because it won't cost them anything to try out your software - and they can probably get you guys to throw in a bunch of effort to make things work without any additional cost as well. Take it for what it's worth and good luck.

devs1010 15y ago

Find a lawyer who specializes in this field that you can trust and hire him to oversee the deal, there really isn't any other advice to give on a matter like this, its a complicated business dealing and you need someone on your side to make sure you don't get screwed

plasma 15y ago

A few red flags (I know nothing about startup acquisition myself though). 1) Time pressure to have the deal happen quickly (that's not your fault) 2) 6m vs 2m is a big difference. I would be very careful. I think asking for a fixed price (and letting them worry about how quickly they can pay back their lenders) is better. Their price difference is way too fuzzy. 3) "something they said was very unlikely given their current projections" yeah... Look, then they should be fine accepting a deal of say 4.5m (or whatever), because according to their current projections, they will end up paying that amount anyway. If they refuse, then you need to ask yourself why they are doing so (perhaps they really do expect to later buy your company for $1). 4) Get your own lawyer. Their lawyers are for their interests, not yours. Personally, the thought of not even knowing how much you are being bought for (and that it could be dramatically less based on "X reason") is very bad to me.

bootload 15y ago

"... Its not a straight-up acquisition. It is 'seller financed'. ...within a week that will give us 45 days to finalize the deal." You have not made it clear if you really need the money? Independence is good #5 ~ http://www.paulgraham.com/fundraising.html http://www.paulgraham.com/fundraising.html I also see potential founder fights #17 ~ http://www.paulgraham.com/startupmistakes.html http://www.paulgraham.com/startupmistakes.html and ... "... Shielding your optimism is nowhere more important than with deals. If your startup is doing a deal, just assume it's not going to happen. The VCs who say they're going to invest in you aren't. The company that says they're going to buy you isn't. The big customer who wants to use your system in their whole company won't. Then if things work out you can be pleasantly surprised. ..." Good luck #7 "Dont get your hopes up" ~ http://www.paulgraham.com/startuplessons.html http://www.paulgraham.com/startuplessons.html

sllrpr 15y ago
We don't really need the money, we each have other incomes that we're comfortable on. This was a speculative side-project.
- bootload 15y ago
  "... We don't really need the money ..." Then consider, who has the power in the negotiations?
  - alwaysclosing 15y ago
    Screw the variable payout notion. It's a hook (as said). - $6m in 3yrs is a substantial risk and unlikely due to what everyone else said. - $4m in 2yrs is still a decent time horizon, but as mentioned, they are trying to lure you in for on the promise that it will be hard to pay in 1 year and probably more than they are prepared to spend. - Try $3m in 18 months with $1.5M upon close and $500k divided over the next 18 months. You get 75% upfront and can hedge on their success/failure. Waiting and anticipating checks to arrive is a nightmare and if you are like most, you will be highly bothered by this - whether or not you get your code back. (At which point, it will likely be duplicated elsewhere or deemed irrelevant.)

petervandijck 15y ago

Definitely talk to a tax laywer.

petervandijck 15y ago

It sounds like a good deal to me. I would (uninformed opinion): - call everyone you know to find someone experienced who can advise you through this - get an experienced laywer to review the deal, and also talk to a good tax laywer - tell them you need 3 weeks before signing: you need to get an LLC and your internal agreements on paper before signing something.

chris_dcosta 15y ago

Seller financed is one of the oldest tricks in the book. It means you (the seller) pay yourself for the sale from the proceeds of any furture profits. There are a couple of other red flags in what you wrote above, like time pressure (always a bad sign) and "the ratchet". Of course you may be informed and able to speculate, but there's nothing better than getting yourself a very good legal firm. Good ones are very honest about the downsides to any situation, which is what you need. Nothing is worse than being told everything is fine only to find out later that there were foreseeable issues. You should go into this with a take-it-or-leave-it approach and call the shots so that it's what you want, and not what they want to give you. But you'll have to get a standard position from everyone of your partners, and the only way to do that is to say NO to dealing with individuals. The reason is divide and conquer. That's another thing they'll do. Also DO YOUR RESEARCH. Who are the buyers? Can they give you personal guarantees to pay you even if what they're doing does not work out? Who is this mysterious competitor? Why didn't you know about them when you started your project? Again good lawyers will help you out here. So form a company, set your equity, get the best legal advice there is, and do not have multiple positions on your side when you go into negotiations. Be prepared to walk when you don't get what you want.

sllrpr 15y ago
Thanks, good feedback. Actually, after seeking a lot of advice I'm starting to think of the deal differently - I'll update the story so everyone can benefit.

chris_dcosta 15y ago

I'm going to add another comment because I've read the bulk of the responses here from the asker, and I think they are being deliberately provocative to wind people up. I'm not sure if its to get Kudos or what. Nobody is as downright arogant as the asker seems to suggest he is, without wanting to be provocative. Go ahead take the deal, ignore the advice here and don't come back for any more.