This is a very familiar story with a lot of startups. While I am not privy to the exact details of the communication between the two companies, I am surprised the company played all its cards without getting to see any of the acquirer’s card. This is a great lesson in “what not to do” in negotiations, particularly with a player who has greater resources than you.
As a side note, I highly recommend all startups read “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” by Brad Feld and team. It details the entire financing process and is a great read.
Originally posted on VentureBeat:
The founder was home in his kitchen cooking dinner when the call came. It was one of those moments when the color seems to drain out of the food in front of you. The voice on the other line was the contact at the company that has been trying to acquire his small startup for several months. “Our engineers looked at what you showed us during the due diligence and told our CEO, ‘It doesn’t look so hard, we can build it ourselves.’”
His thoughts flashed to the NDA the two companies had signed. He tried to focus on not exploding in a stream of curses. What about the fancy dinner with the top brass? The handshake deal not to shop his company around to any other bidders? The 12-month roadmap he had laid out for the board? The quickly dwindling cash reserves in his own bank account?
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