I wanted to take a moment and expand on a tweet I made hinting about our experience selling Plancast. Even though it's now been a few years, I think it's still relevant because not much seems to change in the land of acqui-hires.

I also just wanted any fellow entrepreneurs, who find themselves in a similar situation, to know how wrong this quote from New York Magazine is:

Making offers to four-fifths of a company as part of an acqui-hire, while legal, is nearly unheard of in Silicon Valley, where mergers and acquisitions are still generally governed by a certain type of decorum.

For me, the Carrie Underwood song, You won't find this, nicely sums up the difference between your startup being bought and your startup being sold.

There's once in a lifetime
And there's once in a while
And the difference between the two is about a million miles

When your startup is being bought, The acquiring company wants something you have, so you have leverage. When your startup is being sold, you’re trying to convince the acquiring company that they need you, which completely changes the power dynamic in the favor of the acquirer.

But in an acqui-hire situation, you usually have no leverage and no power because your startup has pretty much already failed, so there isn’t anything the acquiring company wants from you except your talent. And since they only want the people, it’s in the acquirer’s best interest to cut out the investors as much as possible, in order to give more money to the employees they are buying. We had multiple acquirers refer to any money paid to the investors as dead money.

The acquirer usually accomplishes cutting out the investors by trying to basically hire away all the employees of the startup and giving each employee a bonus and retention package, thus making the startup worth nothing, but effectively performing an "acquisition" of the startup. The negotiations of an acqui-hire usually revolve around what the acquirer is willing to do to make the investors and shareholders whole¹, with the acquirer wanting to do nothing, and the founders wanting something for them so no bridges get burned.

I remember sitting next to a Google M&A guy at a small dinner, he mentioned it is usually the founders, hoping to start another startup some day and not burn their connections, who would push back to get something for the investors (Coincidently, this is exactly what we did at Plancast). I also know another entrepreneur who gave all the money he received from his acqui-hiring to his investors when the acquirer wouldn't budge on giving the investors anything².

How we started the process

When we made the decision to shop Plancast around, Mark, me, and some of our investors, gathered around a conference room table and worked out a list of companies we would approach, and the order in which we would approach them. Once we had the list made, we worked through who we knew at each potential acquirer and which one of us would make the initial approach.

One of our biggest regrets is we worked through that list serially, contacting each potential acquirer one at a time, instead of working with multiple acquirers simultaneously. This not only took a long time, making Mark’s life hell for about six months, but also meant we had no leverage to get the acquirers to hurry up and make a decision. We did it this way because we were much more bullish on the attractiveness of Plancast at the beginning of the process than at the end, I mean, who wouldn’t want to buy us?

The process

Below, in no particular order, are some thoughts about the overall selling process.

• Acqui-hires are incredibly hard to pull off and they fall apart all the time, you really, really, really can't count on your acqui-hire going through until you are either at your new desk or the money is in the bank.

• The less ambitious acquirers basically told us that they would wait for us to fold and then extend employment offers. Their M&A department had drunk so much company kool aid that they believed we would actually choose to work there after hearing something like that.

• The more ambitious acquirers tried to pick apart the team, extending offers or making overtures to just part of the team. In one of the cases, we shared a common investor with the acquirer, so Mark called him up and he basically said, “That’s the way these things work, what did you expect?”

• While Mark took the brunt of the extra work of talking to each company, we all had to go through multiple all-day interviews and divvy up the massive amounts of due diligence that caused the whole team to lose days at a time of our actual work. This was incredibly tiring and high stress, with lots of traveling for Mark, Peter, and me. On more than one occasion there were heated arguments in our conference room about how to proceed.

• It was well known among our investors and advisors that a certain large tech company was incredible picky in acquisitions. One founder told me that this particular company interviewed every single engineer in his startup, and then ultimately passed on the deal. We all went through thorough interviews there also, and they likewise passed.

• After a while, you just had to shake off the rejections, if we took personally every company that passed on us, we would still be curled on the floor sucking our thumbs and crying out for our moms. You cannot take these things personally, you just can’t. Even knowing this though, it did hurt a little when our 8th choice turned us down, even if we didn’t really want to work for them anyway³.

• We had multiple acquiring companies hint that they would’ve been much more apt to acquire us if we had more engineers. One even told us we were just flat out too small for the money it would cost to structure the deal. The magic number seems to be around 4-5 engineers with the whole team being under 10⁴.

• We ended up with multiple offers for Plancast, but passed on all of them, because the numbers just didn't make sense for us or our investors. Mark then published the best startup post mortem I’ve ever read as we were beginning the wind down process. His post prompted a whole new round of acquisition interest and we found Plancast a great home with Active Network a few weeks later.

• The post mortem also prompted a lot of approaches by other similar startups with a pitch like: "We are in the same space and we would love to merge with you guys and raise a new round of funding from your current investors." Of course they would’ve loved to raise from our investors, our investors were awesome. In regards to all those offers, Jeff Clavier gave one of the best compliments I’ve received in my career, “If Mark and Jay can’t make this work, then I don't think anyone else can either.”⁵

I'm really grateful to Mark, Peter, Jeff, and McKay for reading drafts of this and making it better.