Open Corp Dev: An Idea Too Bold For Facebook Or Dropbox
My first experience on the selling side of the startup acquisition dance was a lot like middle school dances: awkward. I behaved as I was trained for dealing with investors: sell the dream showing no intent to stop. But companies that might buy you are different: they want you to stop and join them. The whole process is opaque, including how to begin the conversation about selling.
Fast forward to my time at Facebook, where I proposed an idea for corp dev (the people at companies that help buy other companies). It would boost transparency, and overall make the process much easier. Later at Dropbox I proposed the same idea. Both times, I heard the same objection, and I think the disagreement shows a misunderstanding of startups.
Corp Dev should openly declare a minimum price per head for the team.
For example, Yahoo could declare that the price is $1M, so a team of 7 would get at least $7M in cash and stock. You could tune this, make it different for different roles, or make it just for engineers. The details could vary but the if you did this, you would be more open and seemingly generous than every other buyer. It would be really valuable to get greater deal flow for corp dev.
This solves the awkward dance and acts as great marketing. Every founder would now know they had an option in their back pocket to sell to you. The thing is, they always had the option. Everyone in corp dev is constantly seeking great companies. And the price wouldn’t differ from what you’d pay anyway. This just makes your marketing that much better, hopefully setting the tone for the rest of the experience.
But, your normal recruiting pipeline might get hurt. That was the reaction when I proposed the idea. The theory is that people would do a startup just to get bought instead of going through the front door. That idea betrays a fundamental misunderstanding of startups.
People don’t start companies looking for an acquihire. An acquihire is a failure case, and as a founder, you are motivated to avoid it. It is just so much easier to take a job. But you already left one to do the company. It’s really hard to build a product and a team, and you need to do both to be of any value as an acquisition.
You can filter companies like always. The minimum open price is for teams that make the cut. If you think someone did a startup just to do arbitrage on your recruiting, not only would that be obvious, but the solution is simple: don’t buy them. Do you want people like that on the team?
Fast growing companies increase in value so much that joining earlier is a better bet anyway.
Consider also employee morale for those that came through normal recruiting channels. First, your stock compensation should be such that if things go well, employees get more. Companies already make it so joining earlier is disproportionately valuable. This idea wouldn’t change the price you pay for acquisitions, just the way you make them public. Instagram had around 13 people when selling for $1B to Facebook. You’re going to have issues around what your current employees think of your acquisitions anyway.
The simple fact is that teams that are gelled and proven to work well together are disproportionately valuable compared to the sum of the individuals within them. So the solution is to actively communicate the hows and whys of acquisitions. Then get your team involved! Ask about their friends that are founders and amazing, and pursue them.
Corp dev as a marketplace! This is where the idea really gets interesting. One company declaring a minimum price means better deal flow for them. How might other companies react? Would there be a list ranking the potential buyers by their open bids? I can already picture that leader-board on AngelList. This marketplace already exists but operates largely in the dark. Making things more open would just make it more efficient and easier to navigate.
You could take it further, and be open about which kinds of companies you’re seeking. Maybe you want to boost the team building your iOS app, or want a team that has experience growing in Asia. Describing the kinds of problems you want to solve is already a best practice in recruiting, and it fits to extend it to buying teams of people.
I told this idea to a friend who then asked if I would do this at my new startup, YesGraph. Of course I will, but we’re not at the scale to make acquisitions… yet.
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Thanks to Ben Stein, Dan Muriello, Gustaf Alströmer, Kenneth Berger, Michael Galpert, Tom Williams, and Tomasz Tunguz for helping refine the idea.