The five killers of early start-up companies "quitting the deal"

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Yesterday (February 10), the tiger sniffed an article about how entrepreneurs deal with big company teams and help with the successful completion of acquisitions after startups are bought by big companies. Today, we recommend an article, about the start-up companies through the purchase of the way out of several obstacles. For those who are pondering the acquisition of a withdrawal from the entrepreneur reference. This article comes from venturebeat.com, which is compiled by Tiger sniffing:

Early startups have a lot of talented engineers, but not enough resources to invest in other areas. A small "acqui-hire" deal (perhaps less than 10 million dollars) is often considered a rare top talent signing an employment contract. The details are not known to outsiders and are large; larger-scale deals tend to be "acquisitions and builds" (Buy vs. built) Part of the strategy, large companies can not only pick the tested teams but also gain market-recognized products, even those that are critical to their development plans.

In the context of a start-up company with only "team" or "team and technology", many of the acquisitions that withdrew as a result ended in failure. There are many reasons for the failure of exit trading, and this article lists the five most common people I have seen in the entrepreneurial team:

Important founders, key employees (e.g., core engineers) or investors do not support "early" exit deals

The first question is: are your core developers/technicians or other co-founders ready to continue spending time and energy on the company's technology and business? Most importantly, are you willing to co-operate with your new employer after the acquisition is completed? In the early case of exit, the acquirer usually will be the founder of the acquired company, Developers and strategic teams are treated as part of "must keep".

Second, the company's "intellectual property" is not done

When starting a business, the company should have the intellectual property of any technology that the founder "contributes" to the company, and requires an effective and audited transfer agreement. The signed agreement separates the intellectual property acquired from the work of the company from the current and past founders (e.g., the invention Transfer agreement and the confidentiality clause). Your team will also have to obtain a similar agreement from a separate contract worker, who usually retains most of the intellectual property rights without a specific assignment. It is also important to retain a record of third party confidentiality agreements, which many technology companies use computer software to do.

Best case: There is no need to disclose the company's intellectual property rights to the buyer, or even some of the content to be disclosed, can give a comprehensive explanation.

Worst case scenario: in due diligence, the acquirer discovers significant issues that are not known to the start-up company.

For many internet and mobile companies, technology is code that is unlikely to register a patent, or even if the application is not ideal, it has little value in early exit deals. So most of the early startups are mainly relying on trade secrets and copyright protection when dealing with intellectual property. Based on this, the acquirer would like to demonstrate that the file's complete software code can be integrated into the acquirer's own technology and be used by the acquirer's technical team, and that the developer of the start-up company will be able to comply with its own intellectual property agreement (open source, free software, public copyright, etc.).

Note that free software and open source software often cause the most concern because of the complexity of the terms of the agreement, the potential risk of loosely defined documents, and the "Deal Terminator" (show stopper) for large buy-out firms.

Similarly, it is particularly important for the business of a network company to be ready for data privacy, process processing, security measures, and policy.

The company's capital statement (that is, data reflecting the interests of all) is incomplete or inaccurate

The commitment to issue equity to contract workers or employees was not documented and failed to materialize and was not approved by the Board of Directors of the company and signed by the assignee, when this happened. The inability to handle paper work (paperwork in order) can cause serious problems, triggering verbal discussions (or worse: email exchanges) and other risks, such as employees or contract workers claiming to have been promised a higher amount of equity, equity terms (vesting terms), etc. Disgruntled resignation founders, contract workers and employees can only complicate matters during due diligence.

Iv. the transfer of control rights of the Company's core resources requires the consent of the third party

If a key agreement requires the consent of a third party to take effect, once the failure to meet the conditions will endanger the entire acquisition, at least the higher purchase price is hopeless. Contacting a key customer or strategic partner before a merger may be a bit of a problem, especially when it comes to intellectual property, which is the core of the business, and selling companies is usually unwilling to do so. But without knowledge, the ongoing negotiations could be halfway around, with more lawyers and consultancy fees, and, worse, other important businesses that could affect the previous one.

As in articles second to third and four, each situation requires the sale of the company to troubleshoot potential problems and to correct them in a timely manner so as not to affect the acquisition process. Once the acquirer offers a solicitation or a letter of intent and the board and shareholders of the company to be sold are negotiated and ultimately agreed, and these issues have not been properly resolved, exposure to due diligence may ruin the entire transaction.

Start-up companies (sometimes inadvertently) only contact with the only potential acquirer, or only with the only interested companies in technical or business cooperation

Intent on the sale of the team (where the word "intent" is emphasized), contact with only one potential buyer tends to end in disappointment. For the shareholders of a company to be sold, a consensual exit is often not the result of a merger negotiated by the company, and more often an opportunity created by different strategic partners, clients or other forms of business cooperation.

That is to say, no matter how good the deal is or how sincere the acquirer is, the buyer's CFO or a similar deal-approving committee is prepared to haggle (if they feel they have a chance), and a few more rivals will make the situation more advantageous to the company they sell.

When the focus of the negotiations turns from a business transaction to a potential takeover, pause a little and look at the situation of the opponents around you. Keeping in touch with other potential buyers will bring you a better exit deal.