Ask HN: Acquihire early stage bootstrapped SaaS advice
Hi,
I'm running a bootstrapped SaaS service in the software engineering space. It's really early and slowly getting some traction. A pretty big player in this market has approached me about a possible acquisition / acquihire. My service would become part of their portfolio of services. I've had talks with C-level and we're moving to a technical due diligence. I'm open to an offer, depending on the terms of course. Any tips from people who went through the same process? Should I have an NDA in place for the DD? Thanks!
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Haven’t been through an acquihire process myself, but I am familiar with this sort of thing.
Yes, you should have an NDA and other agreements (e.g. an MoU) before you divulge serious details. Think of it like this: there are two possiblities, and you can’t know in advance which is true: 1)BigCo is acting in good faith, 2) BigCo is acting in bad faith. In the first you have nothing to worry about. But if it is the second, after they’ve figured out exactly how you’ve implemented things, what exactly stops them from having their own techs build in a few weeks/months? An NDA/MoU or any other agreement doesn’t mean you’ll definitely sue them if they screw you over (mainly because you’re not that rich), but it will give them just cause to think long and hard before doing so. If you have signed paperwork validating your stand, you can (theoretically, but also practically) raise a stink about the whole business, if they turn out to be “dishonest”.
The more potential leverage (i.e. legal documents) you have, the greater the opportunity cost for them to screw you over - much easier to simply buy you out instead of copying your tech, and risking a furore in the media, and possibly with customers.
Understand that this is just business - just cost and benefit. They obviously have much to benefit from your tech, else they wouldn’t be pursuing you. Make sure the potential cost of possibly screwing you over is high enough. If it is cheaper for me to simply copy you and profit, and know that you can’t do a damn thing about it, I’d be damn stupid not to.
That being said, don’t be a dick to an acquirer if you want to get acquired. Be upfront and ask for the paperwork. Call it a proof of good intentions. If they are genuine, they’ll appreciate your situation and arrange it quickly. If they don’t that’s your first sign of trouble.
Good luck.
I've been through this process. Everything came out alright, but had some bruises.
It's easy for the acquirer to take their sweet time. Some here suggest ignoring them completely. I think it's fine to go down this road if it's what you want and you like them well enough, but, first, understand that they want you and your team, so you should treat your interactions like a normal two-way job interview. Do you like and respect the company? Do you like and respect the people? Could you work there for five years?
A competitive situation is for the best--that encourages the acquirers to move swiftly and to ignore immaterial imperfections. If you can't create a competitive situation, then be sure to do the following: 1) reserve enough time and/or sandbox the rest of the team so that the business continues to advance during discussions; 2) if you sign a no-shop provision (it'll be hard not to), make sure it expires in 30-45 days; 3) do not extend the no-shop provision. If they can't close in the initial timeframe, it's fine to let them keep going so long as you still like them, but be very firm about not extending the no-shop.
Be sure to be professional and courteous throughout, even if things don't go through. It's good practice and you'll want a good reputation. Always remember your BATNA.
One thing I've said to acquirers in the past is: "You're a big company that can afford to dedicate a person full-time to this deal for months with no impact to your company's focus and bottom line. We're not. I'm excited about this opportunity, can we brainstorm how to limit the cost of exploring this? And perhaps how we could share the cost a bit more equally?"
When we get into brainstorming mode, two things I navigate towards are: time-boxing the exercise (setting and sticking to an condensed schedule) and earnest money from them after some amount of diligence or discussion.
If a suitor can't commit to getting to a handshake/LOI after X weeks, I wouldn't pursue it.
Unrelated advice: try to hack your own brain and your team into believing that the default result of this is "no deal, time wasted". Many/most deals fall through, which can feel pretty brutal if you get optimistic about it.
Understand that your compensation can take many possible forms. It's all up for negotiation. Don't hamstring yourself by assuming you must be paid in cash, or that the payment must all be upfront, etc. Consider the myriad other possible options and variables that you can tweak to get the the outcome you desire. If you can, talk to people who can help you ballpark what a reasonable level of compensation is for others at the company in roles similar to yours.
If the process goes far enough (i.e. you like the offer), get a lawyer. I got a lawyer when my company was acquired, and she was great. She'd seen similar deals in the past, and she worked very hard over the course of a month to look out for my interests. There are all sorts of little clauses in this type of paperwork that are negotiable and worth negotiating. In the end, her bill turned out to be something like $2,500, which was more than worth it. I was expecting 4-5x that.
I've been through a small acquisition/acquihire twice. The first time, it was part of a small team. The second time it was my own bootstrapped one-person startup.
My biggest piece of advice is if you believe in your product and that it's a good fit for the acquiring company, you should ask for an earn out as a sliding percentage of sales over 3 or 4 years. For example, you get 75% of sales the first year, 50% the second year, etc. In my experience, the earn out is a common part of product acquisitions. It aligns everyone on the goal of promoting and building on the technology being acquired.