How to Not Get Acquired

Building something new from 0 → 1 is hard, so it requires your full attention. Given that, a key part of creating a new product is limiting distractions – anything that pulls your attention away from finding product-market fit. There are a lot of things a founder can be distracted by, but one of the most distractive distractions has become more common in recent months: the acquisition inquiry.

Here are some tips on how to avoid these¹.

Trade offer

A year into my first startup, we got our first legit inquiry about an acquisition.² This was very exciting! It feels validating to be wanted by somebody you respect, a company you find interesting.

Back then, I sat down with my then co-founder and worked through a huge new question: Did we want to give up our mission, relocate to the Bay Area, and join a FAANG company?

This is the kind of question that consumes not only work hours, but in-between hours. At lunch, we talked about the acquisition idea. When I talked to my wife, we would discuss it. When I was lying in bed or taking a shower or walking around, instead of thinking about how to build a great product and team, I was instead thinking about building products for this whole other company.³

In time, we came to a conclusion: we didn’t want to stop, and we didn’t want to move, but the prospective company and mission were compelling enough that there was indeed an amount of money we’d be willing to do the deal for.

With trepidation, we met for the follow-up call with the Big Deal Company. We heard out their much-anticipated offer, which was, basically, to just offer us jobs. If we gave up on Steamclock, we could become IC developers at their company, at the normal salaries we would make if we’d applied to work there with our dang resumes, and a typical signing bonus.

We politely declined, then sat back to reflect on what had just happened. We’d been distracted for weeks by an opportunity that never was. Or, maybe more accurately, an opportunity we already knew was there (get hired at a big company) but had been repackaged as something that initially sounded novel.

This experience, and others, have led me to simply decline most such inquiries since.

Still, though, every year or two an inquiry will be interesting enough that I can’t just say no. On occasion, the email about “discussing opportunities to work together” is not automated outreach, but a thoughtful question from a founder or leader I am deeply curious to learn more from, at a company I find intriguing. When the problem they’re tackling is fundamentally one we’re already obsessed with, just at a far larger scale, I’m gonna want to talk to them!

In these cases – when I can’t bring myself to just politely say no thank you, we’re busy building – I’ve developed a simple approach for responding in a way that maximizes learning yet minimizes distraction: meet them, then advise them against acquiring you.

A simple algorithm

Firstly, when taking these exploration calls it’s worth getting something for your time. While naturally you’ll be sharing about your work, also seek to learn about their business. While I’ve kept these conversations short and sweet, they’ve still enabled me to learn about some fascinating businesses, and even made friends. Every person who considers buying your business is a potential mentor – doubly so in the unlikely case they actually pull the trigger and become your new boss.

If you’re not careful, though, an acquistion inquiry will fractal into a long distracting back-and-forth. Most big companies have professionals whose full-time job is to learn about startups and try to acquire them at competitive prices – affectionately referred to as Corp Dev. The asymmetry here is why the Pocket Guide of Essential YC Advice flatly says “Don’t talk to corp dev.” This is an oversimplification, but the plausibility of any deal will indeed hinge not on the M&A folks, but on a champion – a product leader or founder who wants you on their team.

Your key point of contact for sanity-checking an inquiry is this “exec sponsor” in acquisition jargon. The idea is to talk through, together, the big opportunity or problem on their plate, and why they think buying you might be the best and/or fastest way to pursue it. I’ve had some fascinating conversations with tech execs in this context. Sometimes they haven’t even thought it through and you can easily convince them it doesn’t make sense. Other times they’ve done some really thoughtful analysis, and you learn some useful things about the business and the market.

As much as I enjoy these conversations, it’s still best to be disciplined and limit them until you have a ballpark number in writing. This is because, very likely, the number will be disappointing, and you can get back to work.

Here’s a way to get a number.

Explain that it’s your policy not to have more than one or two calls about an acquisition unless there’s a ballpark number to consider, and agreement on some basic non-negotiables⁴. Explain that you do this because, in your experience, the amounts acquirers can justify don’t generally match up with how much you and your team value the company. (Of course if this isn’t true then don’t lie, though you can say you’ve heard that this is typically the case.)

If they really want you, they’ll give you a number. Optionally you can expedite things by seeding them with an anchor. You could say, “Well, this early we would need to consider anything exceeding $50M but most acquirers can’t justify something like that given our stage” or “Well our valuation at last round was $10M, so we don’t expect to consider any offers until we’ve substantially exceeded that level.” Being transparent might not maximize how much you get if they do acquire you, but it speeds things up, and statistically they’re not gonna acquire you anyway! So you’re instead optimizing for the more important thing: getting back to building with minimal distraction.

When asked for a number, their corp dev person might push to collect a lot more info about your business, or even interview all your team members – basically derailing your startup so they can get more confidence in the number. This disruption is not worth improving the accuracy of a number that you’re probably going to decline anyhow. Instead, have them give a range based on what they do know, then just consider the bottom end of their provided range.

Attempt to decline the offer

If you fail to convince them not to acquire you, you’ll get a number – which (probably) does not meet your “hell yeah” threshold. Then you can thank them for their time, appreciate having had a couple calls where you learned about a scaled tech company and one of their execs, and get back to work.

If the number seems almost good enough to be compelling but you’re not sure, I would encourage you to turn it down. Day 1 is probably the best that number will ever feel. If you agree to it in principle, that begins a process where the acquirer’s full-time staff of expert acquisition analyzers will halt your forward progress by assessing you every way from Sunday, considering ways to negotiate down the number, and lawyering you into submission. If $10M doesn’t sound awesome now, it will sound less awesome when it’s been walked back significantly, divided among your investors and cofounders and team, spread over 4 years, then finally taxed.

Naturally, if you have investors, you are obligated to consider their perspective, which will probably be that they want you to keep building for the long term, and if need be they’d prefer you took the deal with the biggest financial upside. For early-stage deals, though, the non-financial aspects matter too. Once you’ve made enough money to no longer have a mortgage, you’re going to get more happiness from a deal that accelerates you and the awesome team you’ve assembled to put that dent in the universe, rather than a 20% higher offer that would disassemble your people and spread you across the Legacy Settings Screen Maintenance org at IBM. If the offer feels like the latter, get your heads back down.

Get back to building

A lesson I’ve re-learned starting up for a second time is that when you’re trying to do something very difficult, it’s all too easy to find yourself distracted by less-difficult opportunities, even if they’re not the thing that really matters.

Talking to leaders at big companies about the problems on their plate can absolutely support your mission – they often have a wealth of experience, and they could make for great customers, or even someday hires. Just be well aware of the asymmetry. It costs them nothing to ask if you’ve thought about selling, but it can cost you a lot if you don’t have a quick algorithm for getting to, “Sorry – we’ve still got a lot of work to do.”