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Comment by chundicus | Hacker News Reader

As someone not too familiar with the ins and outs of acquisitions or IPOs... is it unusual to get acquired after laying off a big chunk of your staff? Is that an indicator that they probably accepted a lower valuation than they would have before that layoff?

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Not a rule of thumb but undisclosed acquisition prices are many times an indication of a poor exit.

I worked for a startup that basically let 90% of its engineering team quit due to low morale over the course of a year without making any effort to (a) stop the exodus, or (b) replace them. When they exited about 6 months later, it became pretty clear that it was intentional.

Sorry for my daftness, but what is the incentive behind intentionally losing a bunch of staff before 'exiting'? Just to reduce your cash burn?

Mostly to get better profitability numbers to show to potential acquirers

Exactly. A small number of us were offered packages to incentivise us to stay (ironically we still left), but the vast majority weren't. Which led us to conclude that the plan was to just keep everything afloat long enough to sell.

It can depend. Valuation is based on SaaS business metrics like Cost to Acquire Customer, Average Contract Size, Average Lifetime, and Margin.

Reducing headcount or doing a hiring freeze is a way to improve your metrics ahead before you go shopping yourself for an acquisition.

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