TheFunded.com Open Letter
Posted by Anonymous on 2011-10-26
I've been a member of TheFunded from the very beginning and it has provided a source of information and at times solace through the entire life cycle of my startup. The information about terms and VCs are very valuable; however, I've found that there are areas where I was left with very little information. One in particular is surrounding acquisitions. An entrepreneur can spend years of his or her life building a company, bootstrapping, etc., they could survive unscrupulous investors only to wind up selling to an unscrupulous acquirer.
I believe it is time for TheFunded to add a section that rates acquirers just like it provides VC ratings; after all, these are also buyers of a company's equity. The section should cover the following:
1. Acquisition Terms - This may include multiples on revenue, escrow, who pays for legal fees, earn-out structure, etc.
2. Earn Out Outcome - I've heard some real horro stories of founders getting screwed by how companies handle the earn out, which essentially enabled an acquirer to gain control of a founder's company for significantly less (or nothing) than agreed to.
3. Promises Kept - Acquirers often make promises to founders and startups as part of the acquisition process, e.g., promises about product strategy control, about independence, etc. Were those promises kept? Often, founders make decisions fro reasons other than money, and these promises about fulfilling a vision often induce a founder to select one acquirer over another. If a particular companies has a tendency to make promises and not follow through, then the startup community should know about it.
4. Individual Ratings. There are lots of people within a company that impact how an acquisition is handled and the post acquisition integration (e.g. CEO, corp dev, etc). People come and go at companies. Just like VCs, we should have individual ratings so if there is a particularly untrustworthy corp dev exec we can be careful in dealing with them.
TheFunded has done a lot to improve the environment for founders/startups by ensuring the VCs who add the most value and behave with honesty and integrity are well known. By rewarding good behavior, the TheFunded has forced a change in the VC culture for the better.
It is time to expand on that to include acquirers because there is nothing worse that killing yourself for 5 years, making incredible personal and family sacrifices, building something of value, and then getting ripped off at the end. If we want startups to continue to provide innovation and create jobs then we need to have some accountability around this to ensure folks still go out there and try to start companies.