1) With a VC you have someone in your corner with considerable connections and pull( The VC), to advocate for you. As someone who has been on the acquiring side of the table I think alot of people would be very surprised to see just how many aquihires are either "favors" to the VC or deals that came about because the VC is able to get ahold of the correct person at the acquiring company to make the deal happen.
No VC, no favor.
2) VC funding is a signalling mechanism. Someone, who is presumably a good judge of ideas and talent, has blessed you as worthy and therefore you've passed this bar. The bootstrap company, has not had the blessing and therefor is unproven. Think about it, who would you hire, someone you've never met before or someone who has been vouched for by someone you respect and trust.
Again this is all other things being equal.
So if I'm the acquirer, my question to you is, why am I paying you a per employee premium when I can wait two months for you to shut down and then offer each employee on your team a job at a market salary. That seems to save me a lot of money. Heck why not give each person at your company a blanket offer of employment right now.
If you want to get paid, you need to give the acquirer a reason to pay a premium to aquihrie you. Like others have said, the first, second and third rule of negotiating is to always have a BATNA.
https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiat...
An acquihire is generally a buyout of the team, not the technology, the product, or its business prospects. As the team, I would think about how uniquely skilled you are in the domain for which you're presumably being acquihired. Think about your own BATNA, but also think about the acquirer's BATNA. How many yous are out there? How crucial is your team to the acquirer's business objectives? Do you have a sense for specifically why they want you? Is it to build out a new business practice or vertical strategy? A new product? Are you better qualified to do that than the market at large? How much better? How long would it take a deep-pocketed company to assemble a comparable team?
Many (most?) acquihires are indeed VC-mediated. The rest are usually because a team has managed to distinguish itself as a uniquely valuable and concentrated source of talent or domain expertise, such that finding an alternative on the open market, or building one internally, would take a lot of time, money, and false starts. In that case the acquirer's corp dev team probably has a specific calculus it uses to value acquired teams versus building new ones, multiplied in some way by the business upside of the domain or skill in question. If your team operates in a domain with major or mission-critical upside to the acquirer, expect a more generous offer. If your team operates in a nice-to-have, but supporting or uncritical domain for the acquirer, you have less leverage.
ie they offer you $1m, you can't say "Well, that's far below our last valuation of $5m" or "in order to make our investors from our last round whole, at an absolute minimum, we would need to meet our last valuation of $5m".
Depends what you're optimizing for. Price is only one factor.
This question is all about how valuable you are to that company. Does hiring the team and getting the technology increase their profits by 10%, 100%, 1000%? How much value are you bringing to the new company?
And don't devalue yourself because you aren't VC funded. Don't negotiate against yourself into saying a lower number. Find out how much you think your worth and come with your thoughts to the table and negotiate with the acquihiring company.
People pay a lot more for 'ancient grains' than 'hard winter red'.
A much better way to start this process is to do a fund raising exercise. How much would you expect the company to be pre-money and post-money, and why? If you have been unsuccessful raising money it is possible your post money valuation expectation is too high. At the end of the day though its value not a 'rule of thumb' for these things.
People will use the 'rule of thumb' to cross check the value of their offer. If they feel like they are only in it for the employees and offering more than a 'typical' acquihire they will need to understand why that is. If less then that is another data point.
No investor would accept less than their principle back, and so an venture-funded acqui-hire is always going to take into account previous rounds of investments.
All this said, a $10m acquisition of a vc-funded co with 10 employees will probably include at least 25%-30% return to investors depending on preference, or else they won't accept.
I would expect to see a 1/3 to 1/2 price discount on a bootstrapped startup, or even more depending on how short a time you've been working on the product.
> All this said, a $10m acquisition of a vc-funded co
> with 10 employees will probably include at least
> 25%-30% return to investors depending on preference,
> or else they won't accept.
> I would expect to see a 1/3 to 1/2 price discount
> on a bootstrapped startup, or even more depending
> on how short a time you've been working on the product.
If that is the case, then the assertion boils down to "VCs will hold out for more money", and they get it, so where did the "extra" value come from? We could speculate that BigCo is doing a 'favor' for the VC but really? And from an economic standpoint BigCo is not looking at a material impact on their books. My assertion is that the value proposition for BigCo is the same, VC or not, so the price they are willing to pay "should be" the same. I get that they may want to haggle more, but the acquisition target should understand the game here. There are many BigCo's that are buying engineering teams.
Acquihire is 30% about getting a team with proven ability to execute and 70% about paying back investors as a favor or a down payment on maintaining a good relationship with them. If your dream is really to get acquihired your best bet is to pull together enough traction to raise seed funding and then invest that money in hiring the best engineers possible before shopping it around to get acquired.
"Acqui-hire" has a strong implication of, "we don't need your technology, and will likely discard/discontinue your product... but we want your engineers, as a cohesive team with relevant domain experience."
This is far more about negotiation than market rates. Who cares how much VC funded companies get, start by asking for 3 to 5 times what they are getting.
Flip the conversation, being bootstrapped, and having a dedicated team means you have no pressure to leave, so they must entice you with more money because you have no market forces acting against you.
Also, your team is there because they love you, not because your paying them, again another reason for them to give you more money.
VC repayment is tangible, it's easy to figure out how much VCs need to be made whole, loyalty and dedication are far more intangible and valuable.
If you negotiate like that you'll figure out pretty quickly whether they really want your team or whether they are trying to fill 4 seats.
Recommend reading Roger Dawson > http://www.summarist.net/book/secrets-of-power-negotiating-1...
I would focus on how much money you make on deal close. You might think to yourself, "Hey, I'm totally going to vest that 2 year period, why wouldn't I?" But the post acquisition phase can be extremely depressing and stressful. I developed bruxism and ended up leaving in less than a year. My health is more important to me than my bank account balance, but it still stings only vesting 18% of a deal. If it weren't for the cash on close provision, we'd have made much less.
-Do you still believe in your idea to the extent you want to grind it out and see some serious upside?
-If there is serious upside potential and you want to bake that into the price to still see a nice reward then do that.
-If you're okay with not pushing through on this startup and realize it's not going to take off (or likelihood is low) AND you want to work for this company, be happy taking some lower multiple on your salary. $1MM per employee is probably a high amount if you have no revenue or customers or investors, but if you don't care about losing out on $200K, then shoot for the moon and negotiate as hard as you can.
Bootstrapped or not, VC funded or not, profitable or not, a company's value is given by its potential. This potential will be measured (with different metrics, some of them quite subjective) by both parties, then negotiated hopefully to somewhere in between. In your case, you need to come up with your number by best estimating what the value of your team will be once acquired and assigned your new task.
Ie. you are making a cool AI board but you got no traction (hence no VC, revenue or customers). Now Intel wants to acquihire you to make their next generation of synaptic chips something cool. Just lately IBM closed a deal valued at $100M with a Chinese manufacturer for their synaptic chips. Since they are looking at an internal BP for the acquihire of a $100M potential, a 10x ROI puts you all at $10M. Now you have your own BP that you can use to support your intended price for the deal.
Once you have that potential value, you will want to figure your opportunity cost and BATNA by looking at the potential value of your product or company in X reasonable years. This will be your leverage for negotiating.
Your acquirer will have some sort of price formula they use for these things and will have a price in mind usually. It's also hard to pin down exact numbers as they vary wildly by who is doing the acquiring.
You should dig a little and see if they've acquired anyone of a similar size and peg to that.
Does $1M include salary over X years? Is it just the retention? How much is paid up front?
How mature is the product you've been working on? Is it something you've been doing on the side with your co-founders? How much time has been put into what you've done; both as a product and as a team.
You'll have to see what they're going to offer. I imagine you don't have much leverage though so the final price will be in the ballpark of their offer.
My email is in my profile, feel free to ping me for personal experience with this.
Let's say you've built some product capable of receiving millions of http connections a minute from thousands of servers and then distributing those to thousands of servers as they request a new batch. But you can't find a market. However this is (was of course) a real-world problem for Twitter.
Suddenly you are a really attractive aquihire. Maybe they'll use your tech, but more likely they value your problem solving experience in their specific problem domain.
Thats your base.
Now you need to find a multiplier for the opportunity you're giving up. Have fun with it. Say you'd think you could sell your company in 2 years for $20M. Say there's a 10% chance of that happening. That $2M. Divide that by number of founders/employees. There's your markup. Maybe you add some padding to leave room for negotiation.
At the end of the day you need to also find some sort of bottom line. How much are you willing to take to give up to take a normal job (noting you're probably locked in for a year or two)? With my business it's enough to pay off my house. Thats the least amount I'd take to sell my business (not a startup, bootstrapped services)
This is very important if your company is already making money/providing you with a salary/dividends.
You're not just being acquihired, but you're essentially losing control of an asset that makes you money. In the wrong circumstances, you could be hired, fired within months, and have no income, so the acquisition needs to be enough to cover thriving through that worst case.
> How much has doing the startup cost you. If you're
> bootstrapped you've probably both put personal funds in as
> well as a salary opportunity costs. Thats your base.
It boils down to some combination of three things: people acquisition costs, domain expertise value, and technology worth. There's a fourth factor of inherent value of the business itself (outside of technology and people), but the OP stated they have neither revenue nor customers so that's likely a zero. All these are values that the acquiring company can put a number on. Price accordingly.
Just say the number you want, and see what happens.
I think that this is a question that is impossible to answer.