5 ms·

I do this for a living, bringing companies up to speed when they're lacking in DD. You can definitely tell when this is not the leadership's first acquisition.

by jdhawk 12y ago

I do this for a living, bringing companies up to speed when they're lacking in DD. You can definitely tell when this is not the leadership's first acquisition. They're well versed in what records to maintain and archive. It doesn't mean they always have them packaged and ready to go, but at least they've kept them somewhere logical. Tip for startups - buy a filing cabinet and a bunch of folders. Come up with some system - any system - it doesn't really matter. The worst one is better than none at all. Put everything in there and don't worry about cleaning it out. I'm talking about all your insurance crap, leases, property records, blah blah...things that are not "core business" If you want to go paperless, get a Fujitsu ScanSnap for $400 and scan everything to Evernote - or a Directory Tree - or some other DMS. You'll make life EASY EASY when compared to the alternative of having someone like me in your office for 3 weeks keeping you from running your company while I piece back together everything you've shredded. EDIT: oh yeah - don't try and "hide" shit. M&A guys are experts at sniffing out things you're not telling us, intentional or simply forgotten. I've got forensic accountants who are incredible at their job sifting through everything under the sun finding this stuff. Most of the time, you just forgot, and thats fine. Everyone does. If you're trying to hide a skeleton, we're gonna find it. Talk to the M&A guy who's on your side (the sellers side) and be honest. We've got a better chance of presenting the information honestly that won't alter the deal.

jmvoodoo 12y ago
This. And get any skeletons out as early as possible. M&A people love to use them during DD to knock down valuations. If you've already disclosed them, especially before entering exclusivity, then you have a much stronger negotiating position during the process.
- jdhawk 12y ago
  ding ding ding.
- bsaul 12y ago
  I'm curious : do you have any example of what "skeletons" look like ? Apart from the obvious "we're not working as well as we say". I'd be curious to read some (anonymized) real world example.
  - reeses 12y ago
    A fun one is finding loans from friends and family that involved any sort of strings, whether convertible or interest that has accrued because Aunt Bertha forgot about the $50k she gave you. It's easy to forget these loans from the early days, especially if there were 20 people who gave the founder little bits of money, especially if it was before he or she set up the corp accounts, etc. Other than that, one of the worst I've knocked down uncovered a lack of assignment of IP (an early rich-media MUA) from a contractor that effectively meant the candidate company had zero value. "Who's Bob Smith of Bob Smith, Inc.? Can I talk to him about this shitty code? Oh, he owns it..." Some commonly involve artificially boosting turnover by trying to be clever and using in-house developers as a separate concern, billing or paying through companies owned by family members. Sometimes this sort of setup is kosher (you want to smooth out and isolate capex and a friend has office space and a couple devs, or there's an overseas component, or whatever) but if money is moving between them in a semi-closed ecosystem, it's often a bad sign. Usually, as stated, it's sloppy stuff, but sometimes you get a real weasel. As for being a founder, having an accountant/CFO makes a huge difference. The first contract CFO I hired was a revelation. The commitment was low and the upside was huge. We were too small for a FT CFO and I was a babe in the woods and didn't even realize these people existed.
    - JustARandomGuy 12y ago
      Other than that, one of the worst I've knocked down uncovered a lack of assignment of IP (an early rich-media MUA) from a contractor that effectively meant the candidate company had zero value. "Who's Bob Smith of Bob Smith, Inc.? Can I talk to him about this shitty code? Oh, he owns it..." What happens in that case? Does the acquisition stop in its tracks, or does the company try to contact Bob Smith and buy the rights?
      - reeses 12y ago
        In general, of course, it depends. In the case I mentioned above, we left the candidate site immediately, arranged earlier flights, and flew back to Seattle. There may have been exec communication but I was just the technical DD guy at the time. But I never heard from them again. Had the code been stellar, we may have given them time to sort it out so that the package was clean.
unclesaamm 12y ago
There was a HN thread a few weeks ago where a bunch of people shared stories about data loss on EverNote. If it's sensitive information, I'd stay away from that, but otherwise good points.
CamperBob2 12y ago
Tip for startups - buy a filing cabinet and a bunch of folders. I did that and it was a total waste of time and space. Nowadays I just throw everything into a plastic bin marked with the current year. The bins are stacked, current year on top, and relabeled/recycled on a five-year LRU basis. It's 100x more painful to access the information than it would be if I used a formal filing system, but retrieval happens at about 1/1000 of the rate of insertion, so it's still a big win. The worst one is better than none at all. And sometimes better than the best one.

by jdhawk 12y ago

jmvoodoo 12y ago

This. And get any skeletons out as early as possible. M&A people love to use them during DD to knock down valuations. If you've already disclosed them, especially before entering exclusivity, then you have a much stronger negotiating position during the process.

jdhawk 12y ago
ding ding ding.
bsaul 12y ago
I'm curious : do you have any example of what "skeletons" look like ? Apart from the obvious "we're not working as well as we say". I'd be curious to read some (anonymized) real world example.
- reeses 12y ago
  A fun one is finding loans from friends and family that involved any sort of strings, whether convertible or interest that has accrued because Aunt Bertha forgot about the $50k she gave you. It's easy to forget these loans from the early days, especially if there were 20 people who gave the founder little bits of money, especially if it was before he or she set up the corp accounts, etc. Other than that, one of the worst I've knocked down uncovered a lack of assignment of IP (an early rich-media MUA) from a contractor that effectively meant the candidate company had zero value. "Who's Bob Smith of Bob Smith, Inc.? Can I talk to him about this shitty code? Oh, he owns it..." Some commonly involve artificially boosting turnover by trying to be clever and using in-house developers as a separate concern, billing or paying through companies owned by family members. Sometimes this sort of setup is kosher (you want to smooth out and isolate capex and a friend has office space and a couple devs, or there's an overseas component, or whatever) but if money is moving between them in a semi-closed ecosystem, it's often a bad sign. Usually, as stated, it's sloppy stuff, but sometimes you get a real weasel. As for being a founder, having an accountant/CFO makes a huge difference. The first contract CFO I hired was a revelation. The commitment was low and the upside was huge. We were too small for a FT CFO and I was a babe in the woods and didn't even realize these people existed.
  - JustARandomGuy 12y ago
    Other than that, one of the worst I've knocked down uncovered a lack of assignment of IP (an early rich-media MUA) from a contractor that effectively meant the candidate company had zero value. "Who's Bob Smith of Bob Smith, Inc.? Can I talk to him about this shitty code? Oh, he owns it..." What happens in that case? Does the acquisition stop in its tracks, or does the company try to contact Bob Smith and buy the rights?
    - reeses 12y ago
      In general, of course, it depends. In the case I mentioned above, we left the candidate site immediately, arranged earlier flights, and flew back to Seattle. There may have been exec communication but I was just the technical DD guy at the time. But I never heard from them again. Had the code been stellar, we may have given them time to sort it out so that the package was clean.

unclesaamm 12y ago

There was a HN thread a few weeks ago where a bunch of people shared stories about data loss on EverNote. If it's sensitive information, I'd stay away from that, but otherwise good points.

CamperBob2 12y ago

Tip for startups - buy a filing cabinet and a bunch of folders. I did that and it was a total waste of time and space. Nowadays I just throw everything into a plastic bin marked with the current year. The bins are stacked, current year on top, and relabeled/recycled on a five-year LRU basis. It's 100x more painful to access the information than it would be if I used a formal filing system, but retrieval happens at about 1/1000 of the rate of insertion, so it's still a big win. The worst one is better than none at all. And sometimes better than the best one.