What To Do When a Megacorp Wants To Buy You?

Anonymous Entrepreneur writes "I run a small technology startup company; so small that our offices are still located in a room in my home. We are just some young friends, fresh from college, and we haven't started having regular sales, as 99% of our time is invested in development. A large corporation has just approached us, trying to persuade us to sell our company. The money is fair enough, and the employment conditions would seem excellent, since they would enable us to manage good-sized motivated teams, but we are very emotionally attached to our development and we place great importance to being independent. We founded our company because we didn't want to follow rules. We wanted to be the ones who make the rules instead. Money really doesn't mean much to us as long as we can do whatever we want while excelling at our passions. We feel that by accepting the offer, we couldn't achieve the maximum of our potential, and one of us joked that if we get in contact with the corporate environment and accept their money, we risk becoming lazy. Another member is more pragmatic, saying that accepting some money now is better than waiting for the development to go gold, even though all of us agree that if we finished our thing, we'd earn more than what the corporation has offered us. We would be very interested to know your thoughts and viewpoints, especially if you have ever faced a similar dilemma."

Comments

Could you be more vague?

[seanadams.com]

You have given us nothing to go on here as far as your business case, so I'll be brief:

Money really doesn't mean much to us as long as we can do whatever we want [...]

The first you will learn about money is that it lets you do exactly that. Make sure it's enough that in case things don't work out with Megacorp, you can get back to doing whatever it is you enjoy.

Re:Could you be more vague?

[cayenne8]

"The first you will learn about money is that it lets you do exactly that. Make sure it's enough that in case things don't work out with Megacorp, you can get back to doing whatever it is you enjoy."

I could not have put it any better.

It just matters at this point to how much the offer is, and how realistic your changes are looking forward to see if you can make that much more.

It is hard to think of it, with your first company, but, while it is ok to be enthusiastic about your work maybe even a little emotional about it, you can NOT be emotional about the business itself. Work it to make money...to free yourself more and more to do what you want along the way. Many super successful people started a company, worked it up, sold and made a mint....and went on to do more and more interesting things.

Life's a journey....not a destination.

For the most part, a job is nothing more than a means to make money. Making that money allows YOU to do what YOU want to do...and if that is living a life of luxury, sleeping with lots of women, travel....or, even more work, you can't do it or anything they way YOU want to do, without sufficient funding.

Re:Could you be more vague?

[martin-boundary]

For the most part, a job is nothing more than a means to make money. Making that money allows YOU to do what YOU want to do...and if that is living a life of luxury, sleeping with lots of women, travel....or, even more work, you can't do it or anything they way YOU want to do, without sufficient funding.

Yes and no. The problem here is that what you're trading for money is *time*, which is a non-renewable quantity. You only have a limited lifespan, and there are no extensions. Moreover, the value of time is a diminishing quantity once you're an adult.

If what you want to do is something simple like sleeping with girls a lot younger than yourself, enjoying luxuries as long as they can be bought etc., then trading in a chunk of your life in exchange is a good choice.

If it's something hard to get, like a skill or comprehensive education, then making money first is typically a disaster. There aren't many basketball stars who concentrated on becoming well off before they started practicing hoops. There aren't many top surgeons who learned medicine from scratch only in their 50s. If that's the kind of thing you want to do with your life, then you should ignore the money, as it's the best way to kill your dream.

The key is to figure out what you want early in life, before you waste a chunk of it collecting the means to achieve it.

Re:Could you be more vague?

[stonewallred]

Take the cash, invest it and go to work for big evil megacorp until whatever happens, happens. You will A)have a leg up on a retirement package which may allow you to retire a decade earlier than planned, B) you have a steady income for the period of time working for megacorp C)you get a helluva resume entry D) nothing is precluding you and your friends from developing a new idea/concept while working for megacorp. The earlier you can sock cash away for retirement, the better off you are. Plus, the experience of developing and being involved in the marketing end of the idea, without it being a live or die pressure cooker will be worthwhile too.

Re:Could you be more vague?

[egcagrac0]

The key is to figure out what you want early in life, before you waste a chunk of it collecting the means to achieve it.

Sadly, this is significantly harder than it seems. Many people I know (myself included) have thought they knew what they wanted, started working toward it, and then found a decade later that their priorities have changed

To address OP, rather than wailing and gnashing teeth about how my life didn't turn out like I'd hoped: if you value your autonomy and will derive benefit from the opportunity to turn your microproject into something amazing (benefits like pride), then keep doing what you're doing.

If you want to work 40 hours a week, see your family and derive benefits from things like health insurance and paid vacations, sell out and start singing the megacorporate hymn.

If you're like me, you wouldn't feel right about seeing phrases like "Your Precious Baby: a division of MegaCorporate Ventures, Inc" in the marketplace, and the nice car just wouldn't make up for that pain. A lot of people I work with have no problem with that sort of thing, however, and have much nicer cars.

TLDR: Are you an artist or a businessman? Your answer lies within.

Take the money.

[Spazmania]

If the money's good, take the money. You can always start another business but you can't always find someone willing to pay you for your current one.

Remember: you don't have to be the next Google. It only takes a few million to retire and to *anything you want to do.*

When a company wants to buy you...

[erroneus]

When a company wants to buy you, it means you are competitors otherwise and they want to stop you or otherwise control your future.

Make it clear what their expected terms are to be and whether or not you will be forced into a non-compete situation. They will bring you on as an employee as part of the agreement and at that point "all your IP are belong to us." You stand to lose plenty. And let's be clear on this -- they will hire you, but that is NO guarantee that they won't turn right around and fire you leaving you with no options for "starting up again" or working for another company doing anything similar -- remember that "non-compete" thing they required you to sign?

They have a PLAN. Make no mistake about it. They have thought this through. You should give this no less thought. Get them to disclose their ENTIRE plan to you at once including their intent to terminate you leaving you high and dry. (Of course they will never say that, but you can get them to state that they never had any such intention AND that in the event they feel they need to in the future that you have a golden parachute and get it in writing.)

Re:No advice to give

[Anonymous Coward]

Well, you know, someone (I think John Steinbeck) said that a man never asks for advice unless he's already made up his mind.

he knows what the facts is

[syrinx]

As Steve Miller says: "Some people call me Maurice."

No, wait, wrong quote.

As Steve Miller says: "Take the money and run."

Take the money if its good

[Da_Big_G]

I was in the same situation about 10 years ago (yeah, pre-1.0-burst) so I think I have some insight for you...

First, this is a business question you are asking in a techie forum, bad idea. You are running a business, possibly selling a business, go get yourself some business advisers, at a minimum that means an accountant and a lawyer who know (or at least "get") your industry, and preferably some people who have sold companies in your industry, extra points if they sold to the same megacorp and aren't involved with megacorp any more (they can tell you how it all went, but if they're still there, there's a conflict).

Second, and read carefully: TAKE THE MONEY. There's an old expression: No one ever went broke making a profit.

Caveat: after taxes it should be more money than you'd make in 10 years of working the same "job" at average pay. (e.g. if you're an engineer who could easily pull in $125k/yr, make sure you're landing at least $1.25mm cash after taxes, don't take an all-stock deal - bubbles burst) You need enough money to be able to screw around for a few years if megacorp really does turn you lazy.

BUT don't get sucked into a long term contract working for megacorp. A year or two is ok, and if you're stuck with an earnout, make sure you really can see your company meeting those numbers. After a year you could be itching to leave the megacorp lifestyle (no company is perfect) and its best to know you can part on good terms, pick up and travel for a few months, then start your next awesome company.

Third, can I repeat #1? Find a better place than slashdot to get this sort of advice. If you're really strapped, try your college's career center network, or SCORE (.org)

Be careful of spies and pretenders

[rollingcalf]

Sometimes a big business or somebody posing as one comes along offering to buy up a small startup company, when in reality they only want to get inside information so they can copy the ideas and technology.

So you really need to find out if these people are actually capable of buying your company for millions (anything less, and by the time you split it up between all of you and take out taxes it won't be worth it), and that they are genuinely interested in buying the company, before you even think about selling it to them. Then if you think they're real, get a lawyer ASAP with experience in these type of deals, and be very careful of how much information you reveal to the buyer.

You answered your own question

[CSMatt]

Here are the arguments you made in favor of selling:

The money is fair enough, and the employment conditions would seem excellent, since they would enable us to manage good-sized motivated teams,

Here are the ones you made against selling:

but we are very emotionally attached to our development and we place great importance to being independent. We founded our company because we didn't want to follow rules. We wanted to be the ones who make the rules instead. Money really doesn't mean much to us as long as we can do whatever we want while excelling at our passions. We feel that by accepting the offer, we couldn't achieve the maximum of our potential, and one of us joked that if we get in contact with the corporate environment and accept their money, we risk becoming lazy.

Judging by both the quality and quantity of the arguments in both scenarios, it is pretty clear that you really don't want to sell, and are just pondering the benefits of selling rather than seriously considering it. I can understand this kind of dilemma, but it sounds like you really just want someone to convince you that selling is good or bad rather than actually asking about it. You either want someone to go into a detailed rational response in favor of selling, or a simple emotional one against it.

I say do what you think is right for you and your company, rather than listening to a bunch of random Internet users.

Make Decision Executive-style

[soloport]

Most important: Decide quickly. Also important: Try to put as little emotion into the process as possible. When you have made your decision, consider the following:

If you decide in favor, make certain the process moves as quickly as possible. Make sure you have put in place -- before taking each and every step -- provisions for backing out (at no cost to you). At the slightest sign of foot-dragging, stop the process and pull out. Decide from the beginning what your triggers will be for backing out. Then stick to the plan.

Being bought out is time-consuming. Think of it as a huge distraction to your business. A huge distraction could be the only thing Magacorp wants to "buy". If they're earnest, they'll understand and appreciate caution as well as haste. (Time is money.)

If you decide against, let Magacorp know immediately. Then get back to work, pronto. Looking back, second thoughts and re-negotiations are distractions, too. Let Megacorp know that your decision is final.

Good luck!

Re:Make Decision Executive-style

[BrokenHalo]

If the OP hasn't even started getting sales, now might be an excellent time to accept the offer. He is spared the pain of getting one startup off the ground, and the sale should provide him with useful collateral to pursue some other opportunity if he so chooses.

Anyone who is able to get a venture to the point where people are queuing up to buy it (especially in this economic climate) should have no trouble coming up with an equally interesting idea to pursue.

I Am Not An MBA, but it seems intuitive that knowing when to get out of a business must be a large part of the strategy. To harvest a good offer while having had to put in a relatively small amount of work sounds like a winner to me.

Depends on the Megacorp and on you

[jvin248]

I've lived at Big Fortune-10-types, small mom-and-pop-places, and the medium companies in between. I've worked for myself, I've started companies, and I've closed companies down. Here is what you should consider.

Have you worked in a big corporation before? And for a few years where you're well past the 'new kid on the block, not a threat to anyone, we don't know if he's a maverick or a loyalist but we're worried he might be a slacker yet we don't know' time? Big corporations are populated by people who don't know what to do with mavericks.

Starting your own company is a very big act of non-conformism. You might do it again, they will fear. So you're time there will only be short or you'll be locked into a 'certain level' and promotions (aka bigger money) will be difficult. You'll yearn for the simple days in a small office.

So TAKE THE MONEY, agree to work to transition the new team to the project over 12 to 18 months, set up and train a traditional manager-leader and then gracefully exit. You'll want to get stock options that vest when you exit.

Your responsibility, assuming you did get the big cash, is to put a portion of that money toward starting someone else's startup - just a little seed money to get it going, not so much they get drunk on it, but also enough that you're going to stay interested in their success. Help them along. Teach them what you know.

The next portion of your cash you need to shoe-string your next venture. You should be thinking about what that needs to be while you're transitioning that big company in your old project. And it's old already. Big companies are slow, they think they are fast, but they are not. And if they think your idea is great enough to acquire then you've slipped away from the front of the wave already.

The last part of your cash should be put into a diversified portfolio outside of the companies and markets you work in. Seek a professional wealth manager on how to place those bets relative to your age and needs horizon. This is your safety net.

Then focus on that next idea and the next startup. You did what you did because you couldn't take the boredom of a typical large company. You shouldn't stay in one. I had an early mentor once tell me "When it's not fun anymore, get out of the business" if you've lost your passion you're done.

So negotiate a reasonable price, take the money, get them set up for a smooth transition, and get working hard on that next business startup.

Re:Depends on the Megacorp and on you

[Anonymous Coward]

This is good advice.

I had a startup 10 years ago with a similar situation and a head full of ideals. We passed over two such opportunities.

With experience, we now know that was a mistake.

Developing a product and making real money is 100 x harder than anyone realises, no matter how talented you are.

If you take a good chunk of money now, it will set you up and free you to explore bigger and better things. Plus, the big corporate may teach you a valuable business lesson or two.

Consider that to make $100k clear cash, your company would have to sell c. $1M of product taking into account staff costs, taxes, cost of sale, legal fees, etc.

Work out how long it would take you right now to generate $1M revenue and that is how much time $100k cash would save you.

Believe me, if you can save 2-5 year's of grind, do it. Anything can happen to your product including total failure in the Market. So if someone's willing to put a value on it now, cash in.

As a startup you have no idea how hard it is to turn great code into hard cash. Take the cash now and get where you want to be quicker.

P.S. just because you work with suits doesn't mean you have to become one. But it's surprising how some business methodology can bring order to creative chaos.

binge for 5 years straight....

[Simonetta]

You think a few million will cover that? I think not.

Of course it will. Get the money, transfer it out of the USA to the Caymans or Luxembourg, and move to a nice beautiful discrete villa on the outskirts of some major city in or near a cocaine-producing country where the blow is cheap. Like say, Lima Peru.

Marry a beautiful young proper landed old-family upper-class girl who likes to have sex and who's family is experiencing a cash flow problem. Learn Spanish, meet your neighbors, learn the local customs, go to local cultural events, have your wife's family and friends teach you all that you need to say and do to be treated respectfully in your newly-adopted country. Go to Mass once or twice a year. Make some noticeable donations to local respected charities. Make a few unnoticeable donations to local police department's widows and orphans fund. Keep up appearances and indulge your appetites discretely. Know your limits but keep expanding them.

  Do this and your millions will last a long, long time. Party Hardy, dude.

Re:Michael Scott Paper

[Anonymous Coward]

EMC purchased a small IT service management company and screwed the directors. And EMC are actually not to bad as a mega-corporation (except they are inefficient, and don't give very good service to their customers). Yes, the directors got a lot of money, but unfortunately for at least one of them, they had expected to stay on and help manage the company to greater heights. They all got shafted and soon left. If you want to continue to have a hand in managing your teams, then I would advise not selling the company. If you don't mind leaving and starting up another company, go for it. Just make very sure a competent lawyer reads the contracts so you can, in fact, start a similar company, or a company within the same field!

Oh, and I'm going to post this anonymously, though I suspect that I've said enough that I can be identified. But you have been warned!

Hot Buyout

[PopeRatzo]

What To Do When a Megacorp Wants To Buy You?

This is the business school version of a Penthouse Forum story.