29 ms·

Don't Talk to Corp Dev

• noonespecial 12y ago
  Acquirers can be surprisingly indecisive about acquisitions, and their flakiness is indistinguishable from dishonesty There's some hidden gold right there. Non-malicious business as usual can be just as damaging to you as if they had actively tried to screw you over. Expect it and don't become angry or take it personally.
  • drpgq 12y ago
    On a smaller scale, this can be true for hiring decisions too.
    • Brushfire 12y ago
      It is also very similar to the FDA.
• api 12y ago
  Great essay. I'm at an earlier stage than PG's target audience for this -- still bootstrapping but experiencing 20-30% month/month growth and getting ready to go that next step (probably seed). At this stage I've gotten what after reading this essay sounds like the baby brother of this: the oddly aggressive hire attempt. These companies have been not necessarily direct competitors but people in related spaces who might want to add what I'm doing to their tech portfolio or use its techniques in their products. The interactions have been quite different from any other "job interview" I've ever had. I've said no three times so far to some version of: "your project is awesome," followed by some interesting discussion, followed by a hiring offer. The hiring offers have been decent but not outstanding, and they've included nothing for the project -- no "acquisition" to go with the hire. When I bring this up, the response is that my baby isn't "worth very much on its own," etc. In one case the response was oddly condescending even in its wording, which was discouraging until I went and read all the users raving about my stuff and then looked at my rather nice looking metrics again. In another case it was explained to me that while my product was interesting, I obviously wasn't... "business" enough? That's not how they put it but that was kind of the implication. I interpreted it as "you're not coming off as alpha male enough to run a business" or some version of that. In retrospect I saw these as negotiating tactics to shake my confidence in moving forward myself. These folks are trying to get me plus a lot (3 years) of code, users, and momentum without actually paying anything for the latter two things. Looks a lot like the kind of hardball PG is talking about-- I assume "corp dev" offers come in when you're at a bit of a later stage. Now I've got another one in the pipeline. I've decided the best way to deal with them is to go ahead and chat but otherwise to change nothing about what I am doing, to not spend much time on them, and to constantly remind myself that I am the one interviewing them and deciding whether to accept their offer. At this point given the metrics I'm seeing, the offer would have to be very good. I'd say that the advice in this essay is probably good advice. If you do have the internal discipline/experience to put these sorts of things in a "maybe but probably not" folder, it might not hurt to chat about it with them, but if you have any doubt or if you're too busy just say no and move on. If my current discussion turns out like the previous ones I will probably do the same moving forward.
  • thirdtruck 12y ago
    Sounds like they were "negging" you pretty hard. The parallels with dating seem numerous when I look through the lens of you (in a technical hire context) as "the attractive woman at the bar" and corp dev as "the pick-up artist."
    • api 12y ago
      Two out of three were. The third was polite and professional but the offer just wasn't quite good enough. When I turned it down they just kind of went dark, which I interpret as a no. Interesting the third was a big successful late-stage startup, while the rude ones were early stage startups. Negging? New to me. Shows how little I know about sleazy dating (and hiring?) tactics. http://www.urbandictionary.com/define.php?term=Negging http://www.urbandictionary.com/define.php?term=Negging Should I now worry about waking up with a headache, being unable to remember what I did the previous night, but with a folded up copy of a signed asset transfer agreement in my pocket? :)
      • oxryly1 12y ago
        > Should I now worry about waking up with a headache, being unable to remember what I did the previous night, but with a folded up copy of a signed asset transfer agreement in my pocket? :) If they literally try to wine and dine you... maybe?
      • thirdtruck 12y ago
        It sounds like you kid, but I wouldn't put it past them. :) We are talking about millions of dollars for some acquisitions, after all.
  • driverdan 12y ago
    Are you looking to be hired? Whenever a company comes to me with a "great open position you'd be a perfect fit for" I tell them no, I'm working on my startup and I'm not interested. I'm not going to waste my time talking to them.
    • 12y ago
• mark-r 12y ago
  I once worked for a company that was acquired - the founder wanted to cash in on his success and retire early. In the first all-company meeting after the closing, the CEO gloated over how cheaply he was able to get us. That was really grating. The advice about watching for unsavory tactics is spot on.
  • api 12y ago
    He gloated like this with you in the room? I'm only a little shocked... not that he'd gloat, but that he wouldn't think about the effect this might have on the morale of his new hires.
    • mark-r 12y ago
      He was back at HQ, and we were watching remotely. But the effect was the same.
      • r00fus 12y ago
        Still - how would you feel as an employee of the acquiring company? Especially knowing that the newly-acquired employees are listening in? At best, awkward. It's just complete verbal diarrhea and he should retract it (though the damage is mostly already done).
        • mark-r 12y ago
          This was 10 years ago, and all the acquired employees were laid off within a few years.
    • dethstar 12y ago
      Maybe in their head they thought of it like "oh you all are great I can't believe I just had to paid X for this/you, it was totally a steal!"
      • etjossem 12y ago
        Even when you rephrase it charitably, it still sounds like the acquirer's CEO is talking trash about someone these employees have followed for years. At best, it's a "you guys are great, but your ex-boss is a terrible negotiator and didn't know what you were worth." There's no reason to say that aloud.
• ph0rque 12y ago
  Imagine what it would do to you if at mile 20 of a marathon, someone ran up beside you and said "You must feel really tired. Would you like to stop and take a rest?" I wonder if PG knows about The Wall that occurs at ~mile 20 in a marathon, or if it was a lucky coincidence? http://adventure.howstuffworks.com/outdoor-activities/running/training/hitting-the-wall.htm http://adventure.howstuffworks.com/outdoor-activities/runnin...
  • Plough_Jogger 12y ago
    I think it is safe to assume he is aware of 'the wall'.
  • gaius 12y ago
    I've been at mile20 many times and every time I think next Marathon I'm going to arrange for someone to meet me here with a picnic, and have a rest, then really cane the last 10km. Never quite gotten round to it yet!
  • Todd 12y ago
    YC was founded in the Boston area.
    • hiou 12y ago
      For the downvoter(s) Around mile 20 of the Boston Marathon is "Heartbreak Hill"[0]. Origin of Y Combinator[1]. Care to elaborate on why you decided to anonymously downvote the above comment? [0] http://www.boston.com/marathon/course/stage4.htm http://www.boston.com/marathon/course/stage4.htm [1] http://old.ycombinator.com/start.html http://old.ycombinator.com/start.html
  • neilk 12y ago
    pg has talked about how his main exercise is running.
• deleted 12y ago
  [deleted]
  • ajkjk 12y ago
    It's not strictly grammatically correct but it's definitely a way people would phrase this in speech. "Why are you talking to someone from corp dev?" "That is why." "What is why?" "They are the group within companies that buys other companies."
    • deleted 12y ago
      [deleted]
  • spydum 12y ago
    Better phrased: >Corporate Development, aka corp dev, is the group within companies that buys other companies. If you're talking to someone from corp dev, that is likely the reason, whether you realize it yet or not.
• djb_hackernews 12y ago
  I think anyones answer to "Do I want to sell my company right now?" is mostly going to be "It depends, what's the offer?" There are of course circumstances where people absolutely do not want to sell their company, but for the rest of us... it depends.
  • sbov 12y ago
    I think that's where the "and (b) you're sufficiently likely to get an offer at an acceptable price." comes into play.
  • kintamanimatt 12y ago
    It's that "it depends" that initiates the chain of events that PG is cautioning against. Judiciously reining in curiosity when history has demonstrated it to be a fruitless endeavor and a distraction is the message of this essay.
    • api 12y ago
      Well if you do what to at least have the discussion, one tactic might be to throw an optimistic-but-reasonable valuation at them. "Yeah, that'll be $50 million..." Then when they push back or ask for more info, just more or less repeat that and say you're too busy managing your growth to spend more time on it unless they're willing to move forward with an offer on paper. Just turn the whole thing around. If they go away, you're done (which will probably happen 99.9% of the time). If not, maybe you'll actually get it. You could even pull the exploding term sheet trick backwards on them. "We wouldn't be interested in less than (insert biggish number here), and we'll need a response in two weeks." (Obviously word it more politely.)
      • ebiester 12y ago
        I would use a bigger number -- say $250m. Go outrageous. Honestly, it's not worth letting them see in with DD for a small enough amount.
      • LoSboccacc 12y ago
• ilamont 12y ago
  It would be great to have some examples. I was also wondering about how the acquihire scenario typically works out. Is it corporate development, or some other business unit making contact?
• deleted 12y ago
  [deleted]
• chollida1 12y ago
  > Corporate Development, aka corp dev, is the group within companies that buys other companies. If you're talking to someone from corp dev, that's why, whether you realize it yet or not. Can someone piece this together? > I remember once complaining to a friend at Google about some nasty trick their corp dev people had pulled on a YC startup. "What happened to Don't be Evil?" I asked. "I don't think corp dev got the memo," he replied. [3] Hey, Paul Graham not afraid to call out Google! Good for him.
  • par 12y ago
    yes the 'thats why' is referring to the previous sentence, 'is the group within companies that buys other companies'. So he's saying 'hey this is the group that buys other companies, if you're talking to them it's because they [maybe] want to buy you'. Not really clear though.
  • phkahler 12y ago
    I deleted my comment with the same complaint. He means if someone from another company's corp dev is talking to you it's because they may want to buy your company. This was unexpectedly unclear coming from PG.
    • AnimalMuppet 12y ago
      The (unstated) context is that PG is talking to startups. They don't have CorpDev of their own, because they're startups. So the only CorpDev they could be talking to is someone else's. I'll agree that it could have been clearer. But it was probably clear enough to be workable for the target audience.
  • jamoes 12y ago
    > Can someone piece this together? I think he means this: If you're talking to someone [from another company] from corp dev, [they want to acquire you], whether you realize it yet or not.
  • DavidWanjiru 12y ago
    I think he means it this way: "...if you're talking to corp dev (as opposed to anyone else, or the person you expected to talk to), it's because they're the ones in charge of buying other companies...."
• danielweber 12y ago
  Earnest: Aren't there other things that corp-dev does, like arrange strategic partnerships and reseller agreements, that can be very valuable for a business? (My personal experience is that these partnerships never live up to their hype, but my feeling is that one time out of a hundred they give the company a huge boost.)
  • api 12y ago
    I'd love to hear PG and other knowledgable folks around here talk a bit about partnerships: when, whether, why? My experience too is that most partnerships are only valuable for social proof. Often nothing much else happens, maybe one or two customer connections. At the same time with some partnerships there is a risk of brand dilution. If you are letting someone re-sell or bundle, there's a risk that they might downplay your brand in favor of theirs and sort of appropriate your brand equity. These sorts of things do sometimes make me feel out of my depth as I try to put on biz-dev shoes as someone who's primarily technical.
    • pquerna 12y ago
      In my experience partnerships in a SaaS-like thing tend to be binary: 0) Press-release and a few links on a website: Basically worthless. 1) Sales-team integration: you train the partners sales force, they get quota retirement (somehow, this can be complicated), this has some great customer outcome -- you give them margin on re-selling/kickbacks/discounts/whatever to get access to their sales/marketing machines, making it worth their time/effort.
    • dsugarman 12y ago
      In my opinion, it is often useful to take the meetings but most won't be fruititious. You are likely to gain industry knowledge especially from other startups. If you are talking to a big company and you get to a meeting with an hour+ powerpoint, you have to really reconsider whether it is a good use of your time. If the deal is really you selling your SaaS software, it is probably worth it, otherwise probably not. Definitely don't take a sharp turn and sit in startup no-man's land while considering some big new partnership that will likely never work within the scope of your current vision.
• programminggeek 12y ago
  I think this is good advice, especially considered that corp dev could also be seen as a kind of corporate espionage program.
  • api 12y ago
    I had the same thought when I started reading, but didn't see any overt references to this. I am quite curious: has anyone around here experienced a case where it seemed like the objective wasn't to acquire/hire at all but to derail, tar-pit, or gather intel? I can imagine this happening if the approaching company is a direct competitor or is thinking of entering the space.
    • jonnathanson 12y ago
      Intel gathering happens all the time. Corp dev people go on lots of fishing expeditions under the ostensible guise of acquisition talks. Sometimes they don't even need to mention an acquisition; they know that most startups will hear "BigCo wants to talk to you," and will leap at the chance to take the meeting. Bingo bango, they get free market intelligence, and all it cost them was a few hours of their time. Things get messier when you talk about intentionally "derailing" companies. I'm sure this has happened before, but this is legally murky water. BigCo doesn't want to be perceived as anticompetitive, or as acting in bad faith. (Of course, it's very hard to show that they are acting in bad faith. Keep that in mind if you smell anything fishy.)
    • photorized 12y ago
      Happened to me once or twice when I was young and naive.
    • programminggeek 12y ago
      I imagine that corp dev would probably get enough info to determine if the company would be better off building or buying to get in whatever space they want to enter. What happens after that I suppose depends on the company. The other side is if you could get enough information about customer acquisition or some of the metrics that govern the business, you could likely jump ahead of where you would be if you build from scratch without having to learn from time and experience.
• 7Figures2Commas 12y ago
  Can talking to corporate development be a huge distraction? Sure. But talking to investors can be a huge distraction as well, and a lot of the things that PG writes about corporate development folks are true of investors. Is PG next going to suggest that startups avoid the Sand Hill Road dog and pony show? I don't think so. Broadly-speaking, investors today are overvauling startups. Seven figure valuations and ridiculous convertible deals are being handed out like candy to early-stage companies with way more potential than proof. It's a hot market and investors want dealflow, so they're not quibbling. There's also a greater fool dynamic at play. This in turn leads founders to believe that their companies are worth more than they really are. In many cases, the "surprisingly low" acquisition offers these companies might receive are only "surprisingly low" when viewed through the lens of the angel and VC environment. On their own, they might be quite reasonable. The big challenge for founders is that a high valuation can be a friend made enemy. It's great to raise a bunch of cash on favorable terms, but lots of companies will eventually fail to live up to their valuations. Once your valuation reaches a certain point and the structure of investments is more complex (liquidity preferences, etc.), founders can easily find themselves in a no-win situation even with a moderately successful business. As they say, a bird in the hand is worth two in the bush. This post seems intended to get founders to forget this.
  • jordanthoms 12y ago
    Actually PG says to avoid investors unless you are in fundraising mode: http://www.paulgraham.com/fr.html http://www.paulgraham.com/fr.html
• clairity 12y ago
  i appreciate this as a first approximation of what a founder should do, but it presumes some specific clarity that is somewhat rare (which i'd guess even pg would concede). for example, sometimes you don't know that the person contacting you is corp dev, sometimes founders differ on when they should sell, and sometimes you may have differing feelings from day to day. in my limited experience, these kinds of discussions usually end in email. they likely wouldn't give you a number, but would it hurt to ask for an offer to see if they're serious before taking a meeting? the "we're focused on growing" answer can always be thrown out to end the discussion if it's not solidly serious.
  • mark-r 12y ago
    Nobody's going to throw out even a ballpark without due diligence, and that's the distraction factor. You really don't want to be roped into that unless you're serious.
• joegosse 12y ago
  Some companies also call this role "Business Development" or "Biz Dev"
  • frandroid 12y ago
    That's just regular sales.
  • etjossem 12y ago
    Biz Dev positions tend to focus on relationship management and strategic planning across multiple companies. They close deals for cross-promotion, partnership, and endorsement. What pg is talking about ("Corp Dev") is different; at any large corporation that does acquisitions, there's going to be person or department strictly focused on due diligence.
• gaius 12y ago
  Remember a VC doesn't want a company to have a 10% chance at a million dollars, they want a 1% chance of a billion, because that's how it works. But if you are a founder, a million dollars is probably the best deal for you, and your people, and you should grab it with both hands. Numbers made up but you get the idea.
  • emmett 12y ago
    This is completely, 100%, wrong about how YC thinks about things. If you've not advised a large number of fledgling startups, you wouldn't know, but really truly talking to corpdev is demoralizing and dangerous. If they really want you they'll reach out with an dollar figure (albiet probably a low one). If they haven't done that, they aren't serious. Don't waste your time. If actually you've raised from a VC, a small acquisition means you'll not clear preferences, which means you get nothing other than retention. The VC/founder conflict only comes up when you have a medium successful company that could be really successful. But in that case you can almost certainly sell secondary stock, lock in your $1 million today, and still go for it. But more than that, YC (and Paul) truly want to support the founders whatever they want. We celebrate the small sales as well as the big ones. It's simply not true this is selfish advise that you should disregard.
    • droopyEyelids 12y ago
      Do you think YC represents the general VC industry?
      • lifeisstillgood 12y ago
        It's probably fair to say YC represents best practise in the VC industry and so any startup with options would be able to use them as a marker against which to persuade the general industry to improve.
    • lifeisstillgood 12y ago
      Can I just clarify, the selling of secondary stock and locking in a million, is that actually having cash in the founders personal bank account, or is that some cash on some future funding event? I seem to remember this as a discussion some years ago - where YC was set against the "keep them hungry" mentality. I am assuming it has not changed?
• cpncrunch 12y ago
  I think if anyone pulls the "my boss won't do the deal for the price we've already agreed on" I'd just tell them to politely fuck off. If they really want to buy you, they'll pay the agreed price. Or you might decide you don't want to do business with immoral fuckers :) Although given that this was google, I would probably just contact one of the higher-ups and tell them "I'm still interested in discussion the acquisition, but I was screwed around by your corp dev guy".
  • gaius 12y ago
    Their boss didn't say this - it's purely a negotiating tactic.
    • cpncrunch 12y ago
      That's even more reason to go directly to the boss (or someone even higher up). Lowballing is one thing, but outright lying should be unacceptable for any kind of business deal. I did catch one of my customers lying to me - he claimed he couldn't afford the normal fee (which was only a few hundred bucks, or $1000 at most), and I later discovered he had millions of dollars in funding for this project. We had a big blow up about it, and the project died. Later, he came begging to me, as his clients really, really wanted my product. He paid the full price (and I would have charged him more if I could have gotten away with it). Overall, lying to get business is a very bad idea. It will backfire and you'll end up spending more, and perhaps losing your job (at least, it will if you deal with someone who has morals and ethics, like me :)
      • sukilot 12y ago
        In your story, I don't see how lying hurt the person. Seems it helped get a discount for a while.
        • cpncrunch 12y ago
          I just checked my records, and he didn't actually get as far as even paying for the service at the reduced rate. He just got a month or two free trial, which I would give to anyone. He lost out by pissing off his clients because they wanted to use my product. I just looked him up on linkedin, and I see he's now got a job at the university of San Diego, so I guess his business ventures didn't work out.
• hnriot 12y ago
  This seems to be written very much from the perspective of a VC backer and not the company itself. There are lots of reasons to sell a company, many are ignored by this blog article which does little more than make the M&A guys look like a bunch of used car salespeople. Having been on both sides of the arrangement, getting acquired (twice) both times by Fortune 50 tech companies, and then buying companies I really haven't seen the robber-baron tactics. Obviously every M&W guy worth his salary will try to get the best deal for his company and any CEO getting bought out should have the experience to know the way deals go down. If you're worth X to one Fortune 500, odds are you're worth that to another, meaning the acquiring company has leverage to walk away. This either helps set the price, or the price was artificially inflated in the first place. There are a lot of very naive startup CEOs out there, that's the real problem, from the Fortune 500 side of the table it's like babysitting most of the time.
• rokhayakebe 12y ago
  YC should have someone in staff to handle these requests. For others there should be a company that exists for the sole purpose of handling these types of conversations, letting you focus on your product while they do the do. If a buying founder has their biz dev, corp dev, contact a founder then it is safe for the receiving founder to forward that request to his corp dev, inside or outside their company.
  • deleted 12y ago
    [deleted]
• peterjancelis 12y ago
  I think the more important advice is: If you do talk to corp dev, insist on a breakup fee upfront, payable if no minimum price has been offered: "We can talk but I am looking for at least $xxx million and will need $xxxK / $x million if you walk away during or after due diligence, to compensate for my time." It's only without a breakup fee that Corp Dev can smoke you out...
  • hyperliner 12y ago
    This is unrealistic. There are many startups that are worthless (product is terribly architected, teams don't get along, they cannot track their customers revenue, etc.). A company cannot be expected to offer money for something without some minimum level of due diligence. again, if you absolutely are not selling, then say that and move on.
    • AndrewKemendo 12y ago
      There are many startups that are worthless...again, if you absolutely are not selling, then say that and move on. Except the problem is, most founders have a "I wouldn't sell for $X but would for $Y" and the harsh terms for discussion immediately let the founder find out if CorpDev is 1. Serious not just doing business intel and 2. Willing to pay the right amount. If the firm was totally worthless then generally no one would be calling anyway.
      • TheOtherHobbes 12y ago
        >If the firm was totally worthless then generally no one would be calling anyway. Sadly, not so. Especially in a bubble. Internet history is littered with the wreckage of Big Corps divisions that paid well over the odds for Small Corpses. Corp Dev may be serious, but that doesn't mean they know what you're worth. No one may know what you're worth - not even you. But a Corp Dev offer gives you a market estimate, which is the next best thing.
    • wodenokoto 12y ago
      I'd say that Corp Dev, shouldn't be looking at your company in the first place unless they have some confidence in you, and the break up fee you ask for sets the level of confidence you require for any kind of talks.
• grellas 12y ago
  Founders build value and then want to realize upon that value. But the typical road to success in the startup world is far from easy. Therefore, founders are vulnerable to manipulation and one of their softest spots is precisely the time when they think BigCo wants to acquire them. I can't tell you how many times in these cases founders have caved to lowball offers with horrid terms once they have gone multiple cycles with the prospective acquiring company. How does this happen? They ask for what they think they deserve and they get an offer far below that. Having concentrated their efforts on a possible exit, they sound out other channels and find there is no immediate interest. They are then high-pressured by the prospective acquirer to do the deal on a short fuse or the offer will go away. They then begin to contemplate the risks of continuing down the path of uncertainty and begin to contrast this with how nice it will be to continue the effort under the rubric of BigCo, where they will draw a steady salary and no longer have to deal with entrepreneurial risks. By this time, they are hooked. Then the details come in. It turns out that, low as that $10M (or whatever amount) was, they as founders will have to earn all or a significant part of it all over again by having to vest their interest over xx years once they begin working with BigCo. Do they have protection from termination and the possible forfeiture of their interest? Well, no, not really - company policy forbids this. So, if they want the deal, they will just have to take their chances and, if BigCo terminates them early, that is just the risk they take. What about elimination of risks? Well, here they must represent and warrant that certain things are true as of the date of closing on the acquisition. For example, they must warrant that their IP doesn't infringe. OK, fine. But what does this mean? In a typical blanket warranty, it means that, if you sell your company and you know you haven't done anything whatever to steal code or otherwise compromise its integrity, you still bear all the risk of financial liability if someone later comes along and asserts, say, a patent infringement claim against your IP. With a multitude of trolls infesting the world these days, this is of course possible. What does BigCo say about this? It puts on its official corporate suit and weightily intones that it expects founders to stand behind their IP and will not allow them to hedge responsibility for it. Therefore, it doesn't matter that you didn't know about the potential infringement claim - if it hits, you pay the price for any liabilities and for any attorneys' fees in defending against it. Is there a cap on this? Well, maybe, but at a high level (e.g., 50% of proceeds received on the deal). As a founder, you wind up agreeing to this once you are committed to the deal because, after all, it is not likely to happen. But as to uncertainty and risk? Well, that still belongs to you on some pretty important issues. And this is just one issue. The point is this: once you as a founder start to rationalize, there is no bottom. You have rationalized that you can live with the low price. You have accepted the liability risk. You have accepted the renewed vesting terms without protections. Maybe you also agree to an outsized holdback on the purchase price. And who knows what else. The point is, by this time you are fried. You have no will to fight back. You have no leverage. You are stuck with the wishful thought that it will nonetheless be great to be working for BigCo and to have a chance to continue to realize your dream, even if it does involve some serious compromises. I have witnessed this sort of thing for years and it always comes about when founders deal with professional acquisition teams from a perspective of relative weakness. They suck you in and then you need to fight like hell to get back into a mindset where you can tell them to take a hike. Most founders in this position just can't do it. That is certainly my experience. This essay by PG captures the perils of this process in a way that is spot on and extremely valuable as a warning to founders who might succumb to temptation. Be warned. It is exactly as PG says. A truly important essay for all founders.
• leroy_masochist 12y ago
  I used to be an investment banker and dealt with corp dev guys (gendered pronoun used intentionally and accurately) all the time. PG's article is spot-on. One additional thing to note is that the diligence process can be an intelligence-gathering bonanza for a larger acquiror. The information they glean can be either harmless to you (data points on employee shares/salaries allows them to build knowledge of early-stage compensation, which is very useful when poaching engineers from other companies) or harmful to you (they see your private information and act on it in a way that damages your business). For what it's worth, I would advise people approached by Corp Dev types to not only say no as PG suggested, but do so in 10 words or less. The email response should be "No, not interested. Sorry" -- no greeting, no pleasantries, no signature. You won't hurt their feelings and a longer email is just an invitation to them to start a conversation that is going to suck up your time and energy. If you are interested I would demand a break-up fee as others here have noted, as well as an aggressively worded NDA and a non-hire agreement that stops them from poaching your employees. Finally, I would also consider the effects that knowledge of an explored-but-abandoned acquisition would have on your employees' motivation if they found out. Generally not good for culture and/or long-term goal orientation.
  • jtreminio 12y ago
    > and a non-hire agreement that stops them from poaching your employees. Isn't that similar to what Google/Apple/etc were doing recently, and were rightfully lambasted for? My employer does not own me, they should have absolutely no say over what company can offer me a new position.
    • markdown 12y ago
      If they sign the agreement, they're saying they don't want you, so you never had a hope anyway. In any case, non-hire agreements aren't forever.
    • fecak 12y ago
      I believe non-poaching agreements between companies discussing an acquisition would be less inclined to harm employees than the agreements you mention. A non-solicit in this case would be unilateral, and not the bilateral agreements that Google et al had.
• balls187 12y ago
  > ...otherwise comparatively upstanding world of Silicon Valley. Ask women what they think of this statement. ETA: http://www.bloomberg.com/news/2014-11-13/code-of-silicon-valley-minority-you-can-t-be-angry-.html http://www.bloomberg.com/news/2014-11-13/code-of-silicon-val...
• AndrewKemendo 12y ago
  If you think investors can behave badly, it's nothing compared to what corp dev people can do. I didn't think it could get worse. Jesus, what is going on with this system?
• robot 12y ago
  I have been in this position once and the biggest lesson I had for myself was to aim for profitability and self-support in the company from the start. When you do that you have a much stronger position. One could replace profitability here with lots of user growth + VC money.
• rocky1138 12y ago
  I wonder which company it was who recently, mistakenly, spoke to a corp dev, and inspired Mr. Graham to write this!
• nkozyra 12y ago
  As neophyte founders, my partner and I talked to Corp Dev of two top 8 tech companies. In retrospect, I don't think either had any intention of acquisition despite spending months at a time with us. We shouldn't have talked to them, but as I said, we didn't know what we were doing. One of them basically had us reverse engineer our stuff through demos for six months and then abruptly ended contact. We heard through the grapevine they had decided to develop their own version, which came to fruition. The takeaway is they probably did this with a few of our competitors and simply took the good stuff. A lot of awful, sleepless nights working with their tech team under the misguided impression we'd see a nice exit. The next one came not six months later, another one of the big (although aging) ones. As part of the dating process they gave us free access to a bunch of their APIs but nothing else happened or happened incredibly slowly. The takeaway there is they weren't serious, they just wanted to keep us on the hook. When we talked with VCs later (yes, later), they laughed at our naïveté and offered essentially the same advice - don't do it. Don't do it unless someone is talking numbers, very, VERY soon after the MNDA.
  • drzaiusapelord 12y ago
    >. One of them basically had us reverse engineer our stuff through demos Why are you protecting them? Name them. It blows my mind that there's so much abuse out there but we're willing to cover for terrible companies.
    • nkozyra 12y ago
      I'm not protecting them, I'm protecting myself ;) I said both were "top 8," they both probably top 5. I doubt there's a lot of difference between those companies, frankly. Look, when you're one of these companies and you can go to 90% of startups and just say "hello" and have them on the verge of sending you their source code, that's a critical tactical advantage. The lesson is simply - when you get this call, take a breath and realize they're as likely to threaten to sue you as they are to acquire you as they are to let you linger on the hook for months on end. Be upfront, ask explicitly what this is about and where it might be going.
• ig1 12y ago
  A couple of things this doesn't address: 1) Corp dev can also do strategic investment; you probably don't want this at an early stage but can be worth considering at a later stage. 2) Corp dev teams don't magically know that they want to acquire you, assuming they're not connecting to you via an existing investor (in which case they probably have some inside knowledge on you already), they may well just be at the stage of trying to figure out what you actually do and how you fit into the ecosystem. So it might be worth having a conversation but not necessarily giving away any secrets, 3) Acquisitions are like investments, having a warm relationship helps. But they can be time-sinks and you have to judge how much time you want to invest when you're not actively seeking.
• LargeCompanies 12y ago
  Love to tell my horror story re: my experience dealing with a Fortune 50 company. Under a NDA til May. We are an east coast start-up and two months into creating our tech/product a large entity in the valley found out about us. This big name invited us out and talked about buying us. Well we have zero strong connections to such people like Paul Graham, but we did reach out to our network. They said, "I don't know if you should go or not, we've never had a billion dollar company like that make such an offer." I wish I had found this post before wasting 4k on a trip and filing a provisional patent. We're a bootstrapped start-up. Well when we flew out/got there to demo, this Goliath treated David like crap on a shoe. They invited us to demo, but when we went to demo at their offices in the valley they were blocking our tech from working(worked perfectly throughout every place we tested in the Valley including outside their building). Then they baited us with, "We'd like to work with you, please tell us how you achieved this technological feat." We took the bait and told them our trade secret. They soon left our meeting, then came back and promptly kicked us out! Right before leaving/being shown the door, one of these not so nice big wigs from X company said, "The race is on, better hurry!" Ok, there was no guarantee of you buying us. We were cool with that. We weren't cool with being treated like crap on shoe and then stepped on and disrespected! It's hard to fathom that X company treats the little innovator guy as they did us. Is this the normal?
  • kika 12y ago
    It was better for us, they didn't have engineers skilled enough to understand what we were saying and asked for a second meeting with their top notch tech people. But I've smelled something fishy and just forcefed them with top grade tech-looking bullshit under very heavy pressure. Top notch tech folks were confused, corp dev guys were pissed off, but they didn't have a nerve to ask "just repeat what did you say in the last meeting". Then they've asked for the code and I gave them the code! We had brilliant C macro library for memory management, hash tables, list traversal, etc developed by my cofounder. Very nice piece of code, elegant, efficient and reliable. They've got all of it :-) When they came back confused I told them that I thought they want to check the clarity and quality of the code and this piece of code is quite representative. They had to specifically ask for the trade secret (and I would have refused) but again didn't have the nerve. It was a big name in the industry, $5B yearly revenue back then.
• kika 12y ago
  Happened to me. I didn't sell the company in the end (mtg meltdown, tech acquisition department got dismissed altogether, etc) and the company never recovered from me taking the "rest". Wasted 3 years of my life and $250K of angel money. Guilty as fuck.
• orph 12y ago
  Something not mentioned but which is very important is the price anchoring that happens once you get a serious figure out of corpdev. Future talks will be anchored on the initial figure regardless of your success in the meantime.
• marcamillion 12y ago
  I think one of the more interesting aspects to this is how much PG has followed his own advice with YC. i.e. he made something people (founders) wanted with YC. That allowed him to craft the entire experience around what is good for founders which worked out to be great for others (including investors and acquirers). So much so that this advice he is giving, I am sure many other investors have wanted to give publicly before - but they don't want to piss off people who can provide an exit for their portfolio. The whole fiduciary responsibility thing. But YC companies are encouraged to think of things quite differently - so much so that even if someone as might as Google (who PG pointed out) thumbed it's nose at YC companies to spite PG....they would be much worse off, because of the quality of companies coming out of YC. That is the power of seeing "make something people want" to it's natural, logical conclusion. Being able to say and do what you want, to force behaviour change in an industry to benefit your organization and your goals. This is also why PG is so well respected by those of us on the outside looking in, is because we see the sheer audacity of him giving blunt advice, about specific tactics that only benefit founders. Even if it may hurt him temporarily. Thanks again for constantly doing this PG. We appreciate it.
  • aragot 12y ago
    Yes, thank you PG, it lands on the very day I'm supposed to have one of those meetings. But PG sold ViaWeb to Yahoo, didn't he? So if we shouldn't talk to CorpDev, how should those deals happen?
    • saturdayplace 12y ago
      That's addressed in the essay: > It's usually a mistake to talk to corp dev unless (a) you want to sell your company right now and (b) you're sufficiently likely to get an offer at an acceptable price. In practice that means startups should only talk to corp dev when they're either doing really well or really badly If you're sure you want to sell, and are convinced you'll get the price you want, talk to them. Actually, that second qualifier seems REALLY useful here. I imagine that its easy for founders to get stars in their eyes about a potential acquisition. Forcing yourself to think rationally about what price you might realistically be offered might help you evaluate wether a meeting would be worth the time or just a distraction you can't afford.
• lazyjones 12y ago
  This article is a useful warning. We got talked into a DD with a large german telecom (by our VC who owned 50% back then!) less than 2 years after we started. They looked at our contracts, our internal documentation, asked strange questions and never talked to us in a direct manner. No acquisition happened, they didn't even bother to talk to us afterwards. We felt violated, unappreciated, insufficient. It took 10 years until we were willing to talk about an acquisition again - and only with someone who we knew was a perfect fit due to corporate culture and standing in the industry. I can imagine that corp dev people know very well that founders who are willing to talk to their kind frequently in a short time must be desperate or greedy and not very passionate about their company.
• porter 12y ago
  The problem is that most founders would sell for the right price. Everyone's got a price. How do you know what someone will offer you if you don't engage in these conversations?
• deleted 12y ago
  [deleted]
• holograham 12y ago
  I used to work in corp dev at a big tech company (not a typical silicon valley). This is pretty much spot on by Paul Graham per usual. I was typically the one doing the initial contact with companies (as a junior analyst on the team). I always found it interesting how many HUGE replies I got back from startups. I rarely ever saw a company take PG's advice and say not interested. Companies that were over-zealous were definitely thought less of while companies that played a more aloof game were chased. Also I can say first hand all of the shady deal playing is absolutely true. The members of the due-diligence team and even the corp dev director you are dealing with are NOT the final decision makers. We are building an internal package that makes it appealing to the corp dev VPs/CFO to bless (and take to the CEO to bless sometimes). It's several layers of vetting and it's just as tedious and bureaucratic as it sounds. I will say that the due diligence team typically will want the deal to be successful. No one wants to put in all that work to not buy a company. Corp Dev's job is to buy companies so having deals reach the 11th hour and fall through is NOT good. They pride themselves on stats like companies evaluated/year (wide funnel) and having a small fraction actually go to due diligence and the buying process. At the end of the day though, they want to buy businesses.
  • dustingetz 12y ago
    "Companies that were over-zealous were definitely thought less of while companies that played a more aloof game were chased." Do you think mediocre companies tend to be over-zealous, or are you implying that appearing socially proofed is an important signal? In the "hot girl at the bar" analogy, playing games is +EV, but I would expect the big league players are too smart for that, am I wrong?
    • holograham 12y ago
      A bit of both actually. No one is immune to some of that bias even the big league players. The over-zealousness wasnt necessarily a turn off but it put the corp dev department in the drivers seat. We could then respond and shape a deal to our advantage as much as possible.
• golemotron 12y ago
  > And that is the most innocent of their tactics. Just wait till you've agreed on a price and think you have a done deal, and then they come back and say their boss has vetoed the deal and won't do it for more than half the agreed upon price. Ex-car salesmen?
• rpwverheij 12y ago
  thank you pg