Comment by Exuma | Hacker News Reader

Comment by Exuma | Hacker News Reader

This is very painful to hear. I've tried selling my main company to 4 different buyers now... every single time we get past the LOI phase, they see all our financials in plain sight, and there's always some stupid hangup/ghosting/sketchiness exactly like in this article.

Very disappointing, considering how transparent we are up front sending every financial, and there's no real 'discoveries' later that would change their mind. It's just general terrible flakiness.

One guy's excuse was that his brother had put all his money into collateral without his knowledge, and that discovery phase was a waste of 5 months.

This last one, we thought we learned our lesson so we demanded proof of funds, as well as much more thorough checks....... and they just magically ghosted us LITERALLY after I FedExed the signed agreement... so after months and months of due diligience. They change their mind after about 100 confirmations from their lawyers, accountants, financers... and just ghost hours after I send it.

It has been greatly discouraging to me, as the 3 serious attempts to sell have essentially crushed our momentum, and now the company is dying/dead. I won't say that its a direct result of it, but we ran it very conservatively during these times as not to upset anything, and those were the times we needed to be running more aggressively to keep up with competition.

The company is essentially insolvent now, with a large amount of debt. I also made the bad mistake (I was quite young) to originally put the company card on an Amex applied for by me (I had 820 credit at the time). Because of inability to pay back debt on this company, my personal credit is now destroyed.

So.. going from 820 credit, making hundreds of thousands profit per month... to freelancing to pay bills with a 590 credit. Such is the life of an entrepreneur and the brutal lessons one learns along the way.

PS... I found out later our accountant had dementia, and did all our taxes wrong. My biggest advice, have an accountant who is really on point, and accept absolutely nothing less. Don't fall for the illusion of the pain of having to "retrain" someone if you don't think your accountant is 100%. Just find someone who is fucking good, and if they show a red flag, find someone you fully trust. My business partner has also been ruined in the past by incompetent accountants.

Require 10% of the deal in escrow after the first 2 weeks in the discovery phase. If the deal doesn't go through, the amount in escrow defaults to you. If they jerk you around on the escrow, cut them loose, they're not actually interested in acquisition

Great point. This is what happens in a real estate. A letter of intent should have earnest money deposited into an escrow (because the offer is being made in "earnest") and each contingency should have an expiration date. Upon expiration of the due diligence contingency, for example, the earnest money deposit becomes non-refundable and credited towards the purchase price. If the buyer defaults after the due diligence contingency then the earnest money goes to the seller.

Does anyone have a link to a sample LOI for selling startups or M&A in general?

bump. also looking for this.

I've handled a decent volume of small tech startup m&a and I've never seen an escrow. Better advice is for the sellers to spend a decent amount of time in person with the buyers. Get to know who you are dealing with. It's a lot easier for a buyer to mislead (intentionally or otherwise) via email as opposed to in person lunches and dinners.

You're advising people to play poker (guess intentions face to face), but only have your side put chips on the table?

Actually the opposite. If chips represent time, I'm advising that the seller force the buyer to spend time (in person) with them to reflect commitment. A classic example is whether or not the seller can get a meeting with the buyer's CEO (depending on the relative sizes of the two companies, it could be a lower level exec too). A CEO will not waste his or her time on a dozen meetings with a dozen different companies to support an m&a fishing expedition. But if the list is narrowed down to just 1 candidate, and certainly if the deal is progressing, then the CEO (or other C level exec) is usually eager to meet with the seller's management team.

This still requires the selling side to guess the buying side's time commitments/availability and intentions. The escrow cuts through all the bullshit.

Clearly we will disagree with eachother here; but I am truly at a loss for how a 1 hour lunch is commensurate with a month+ of discovery effort.

This is how I approach any serious business deals – put up or shut up. Either you agree to this kind of deal or you pull out. Either one is fine, but make it clear.

I'm very sorry for your circumstances, but are the "every buyer ghosted me when they saw our financials" and "our accountant had dementia" elements of this related? How could millions of dollars of net income go to insolvent so quickly?

There are two sides to this general issue, and while there are bad buyers there are people dishonestly presenting their companies. Not that you are, but it seems like a very low-trust business environment in both directions. More lately than it used to be.

There's obviously a lot more nuance to the situation. I'm here just posting my in-passing rambling, glossing over most details. In general, any mistakes made were clearly presented, and no numbers were deceivingly absent or misrepresented.

The accountant issue is related because there were a number of major issues that lead to the downfall. One being the entire year-long+ selling debacle, the other other was accounting issues.

FWIW, both brokers (2 deals on 1, 1 on another) both said "we've never seen anything like this in the entire time of doing this." I think a lot of it was just bad luck, or low quality buyers and not having experience to see certain red flags.

As far as insolvency so quickly, we were a 2 man company with 0 employees. I started the company several years ago with zero business experience and we grew it to 11 million per year. So there were many mistakes along the way (all of which were clearly laid out to potential buyers btw). We re-invested almost all our money to grow bigger and quickly.

I'm so sorry. I hope you bounce back and have an exit on your next try such that you don't worry about fico.

Thank you, I appreciate it Mr. 5752

"I found out later our accountant had dementia, and did all our taxes wrong"

Holy shit. I can't even imagine if that happens to my business. But really, you always want a second set of eyes to review your taxes, always. Even if you are not the expert, never trust the accountant. I always manually verify the drafts myself even if I don't quite understand everything on it. But I have a high level idea of the important line items. I have caught errors by my CPA (without dementia). So always verify yourself before taxes are filed.

Yes.. great advice. They're all fixed now, thankfully, but yes that lesson was a painful one.

Even if you don't understand something you can always phone your accountant and ask them to explain it.

So so sorry to hear this. It reminds me of this post from pg: http://www.paulgraham.com/corpdev.html

I am sorry to hear that you experienced that. I am curious to know why you did not run the business as a profitable going concern instead of selling?

After years of doing it, I was very very sick of it and just wanted out. I'm a developer by "heart" and I just want to build and tinker. I do love spreadsheets, and I love the thrill/ups/downs of business, but the monotony is what kills me. I have another company I'm investing all my time into that I am optimistic of, and it's new and fresh again.

Sounds like you are going in with eyes wide open this time. Best of luck with the new venture. Thank you for sharing your story.

Thanks friend, I appreciate it. It's been quite brutal, but who I am at the end and at the start are very different, and I'm very thankful for that, even if I quite literally have nothing to show for it.

May I ask you what was your business?

Thanks for sharing this, a lot to learn from here. I hope you're doing well (sounds like it despite the circumstances).

Also: I wanted to say kudos for your profile link.

Hahahaha.. I had forgotten about that.

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