daslee

Quick Thoughts on Acquihires/“Soft Landings”

We are now spending a decent amount of our time helping companies with acquihires and “soft landings.” Here are some quick, random thoughts:

• We think of “acquihires” and “soft landings” differently.
• In “acquihires”, investors get their money back and possibly more. Founders still have leverage and options when negotiating with acquirers.
• In “soft landings,” investors basically get no money back. Founders have no leverage. The goal is to “softly land” the employees and possibly, the assets.
• In a soft landing, the only other option is going out of business.
• The money that the acquirer pays (i.e., the “consideration”) is often different from the amount the shareholders and employees receive.
• For example, when Acquirer, Inc. says it pays “$1 million per engineer”, that may mean they pay $300K to the shareholders (i.e., investors) and $700K for the “glue” or “stay packages” (i.e., amount they allocate for stock packages). None of the “glue” goes to investors.
• As Ron Conway once told me and I have learned first-hand, how a founder conducts herself during either an acquihire or soft landing can determine if they get funding from their prior investors for their next venture.
• For example, founders who don't think of their team's welfare first in a soft landing probably won't get funding from their prior investors.
• Incredibly, we have seen founders ignore this and act selfishly or at least with little regard for their employees.
• Founders who don't think of their investors' interest in an acquihire scenario probably won't get funding from their prior investors.
• This is a completely self-interested viewpoint obviously. But a cavalier disregard for people who gave you money to start your company speaks volume. Even if you have a white-hot disdain for them, these folks gave you money and (at some point) believed in you.
• That said, in either scenario, the main priority is founders' and employees' welfare.
• Get a price range early and get it in writing. Don't be afraid of “anchoring” a price.
• It's better to understand if both parties are in the same ballpark rather than wasting a bunch of time dancing around and then realizing that expectations are way off.
• For example, don't be afraid to say “I've raised $X dollars and my investors are looking for a 2x return.”
• In both scenarios, time is your enemy. Or at least it's not your friend.
• On that note, parallel process the acquirers. Dealing with them sequentially is a time-killer.
• And don't posture or BS when you give these statements. You will lose credibility ultimately. And you are defeating the purpose - the point is to efficiently use everyone's time.
• Err on the side of over-communicating with investors. Many have been through these situations and can help.
• Either scenario suffers when the start up raised a “party round.” In each case, the bystander effect kicks in and investors either aren't incentivized to help or think the other guy is doing it.
• It's hard to give same generalized advice with employees.
• Keeping team morale up during the process can be the hardest thing. To borrow a phrase from Chris, collective bargaining is a critical asset and leverage point.
• Speak to other founders who have been through this before on the team morale issue. They are the best resource.
• If you don't understand the tax effects of the deal, you probably don't understand the deal.