corpdev.html
Don't Talk to Corp Dev

January 2015Corporate Development, aka corp dev, is the group within companies
that buys other companies. If you're talking to someone from corp
dev, that's why, whether you realize it yet or not.It's usually a mistake to talk to corp dev unless (a) you want to
sell your company right now and (b) you're sufficiently likely to
get an offer at an acceptable price.  In practice that means startups
should only talk to corp dev when they're either doing really well
or really badly.  If you're doing really badly, meaning the company
is about to die, you may as well talk to them, because you have
nothing to lose. And if you're doing really well, you can safely
talk to them, because you both know the price will have to be high,
and if they show the slightest sign of wasting your time, you'll
be confident enough to tell them to get lost.The danger is to companies in the middle.  Particularly to young
companies that are growing fast, but haven't been doing it for long
enough to have grown big yet.  It's usually a mistake for a promising
company less than a year old even to talk to corp dev.But it's a mistake founders constantly make.  When someone from
corp dev wants to meet, the founders tell themselves they should
at least find out what they want.  Besides, they don't want to
offend Big Company by refusing to meet.Well, I'll tell you what they want.  They want to talk about buying
you.  That's what the title "corp dev" means.   So before agreeing
to meet with someone from corp dev, ask yourselves, "Do we want to
sell the company right now?"  And if the answer is no, tell them
"Sorry, but we're focusing on growing the company."  They won't be
offended.  And certainly the founders of Big Company won't be
offended. If anything they'll think more highly of you.  You'll
remind them of themselves.  They didn't sell either; that's why
they're in a position now to buy other companies.
[1]Most founders who get contacted by corp dev already know what it
means.  And yet even when they know what corp dev does and know
they don't want to sell, they take the meeting.  Why do they do it?
The same mix of denial and wishful thinking that underlies most
mistakes founders make. It's flattering to talk to someone who wants
to buy you.  And who knows, maybe their offer will be surprisingly
high.  You should at least see what it is, right?No.  If they were going to send you an offer immediately by email,
sure, you might as well open it.  But that is not how conversations
with corp dev work.  If you get an offer at all, it will be at the
end of a long and unbelievably distracting process.  And if the
offer is surprising, it will be surprisingly low.Distractions are the thing you can least afford in a startup.  And
conversations with corp dev are the worst sort of distraction,
because as well as consuming your attention they undermine your
morale.  One of the tricks to surviving a grueling process is not
to stop and think how tired you are.  Instead you get into a sort
of flow. 
[2]
Imagine what it would do to you if at mile 20 of a
marathon, someone ran up beside you and said "You must feel really
tired.  Would you like to stop and take a rest?"  Conversations
with corp dev are like that but worse, because the suggestion of
stopping gets combined in your mind with the imaginary high price
you think they'll offer.And then you're really in trouble.  If they can, corp dev people
like to turn the tables on you. They like to get you to the point
where you're trying to convince them to buy instead of them trying
to convince you to sell.  And surprisingly often they succeed.This is a very slippery slope, greased with some of the most powerful
forces that can work on founders' minds, and attended by an experienced
professional whose full time job is to push you down it.Their tactics in pushing you down that slope are usually fairly
brutal. Corp dev people's whole job is to buy companies, and they
don't even get to choose which.  The only way their performance is
measured is by how cheaply they can buy you, and the more ambitious
ones will stop at nothing to achieve that. For example, they'll
almost always start with a lowball offer, just to see if you'll
take it. Even if you don't, a low initial offer will demoralize you
and make you easier to manipulate.And that is the most innocent of their tactics. Just wait till
you've agreed on a price and think you have a done deal, and then
they come back and say their boss has vetoed the deal and won't do
it for more than half the agreed upon price. Happens all the time.
If you think investors can behave badly, it's nothing compared to
what corp dev people can do.  Even corp dev people at companies
that are otherwise benevolent.I remember once complaining to a
friend at Google about some nasty trick their corp dev people had
pulled on a YC startup."What happened to Don't be Evil?" I asked."I don't think corp dev got the memo," he replied.The tactics you encounter in M&A conversations can be like nothing
you've experienced in the otherwise comparatively 
upstanding world
of Silicon Valley.  It's as if a chunk of genetic material from the
old-fashioned robber baron business world got incorporated into the
startup world.
[3]The simplest way to protect yourself is to use the trick that <NAME>, whose grandfather was an alcoholic, used to protect
himself from becoming one.  He once told a Sunday school class

  Boys, do you know why I never became a drunkard?  Because I never
  took the first drink.

Do you want to sell your company right now?  Not eventually, right
now.  If not, just don't take the first meeting.  They won't be
offended.  And you in turn will be guaranteed to be spared one of
the worst experiences that can happen to a startup.If you do want to sell, there's another set of 
techniques
 for doing
that.  But the biggest mistake founders make in dealing with corp
dev is not doing a bad job of talking to them when they're ready
to, but talking to them before they are.  So if you remember only
the title of this essay, you already know most of what you need to
know about M&A in the first year.Notes[1]
I'm not saying you should never sell.  I'm saying you should
be clear in your own mind about whether you want to sell or not,
and not be led by manipulation or wishful thinking into trying to
sell earlier than you otherwise would have.[2]
In a startup, as in most competitive sports, the task at hand
almost does this for you; you're too busy to feel tired.  But when
you lose that protection, e.g. at the final whistle, the fatigue
hits you like a wave.  To talk to corp dev is to let yourself feel
it mid-game.[3]
To be fair, the apparent misdeeds of corp dev people are magnified
by the fact that they function as the face of a large organization
that often doesn't know its own mind.  Acquirers can be surprisingly
indecisive about acquisitions, and their flakiness is indistinguishable
from dishonesty by the time it filters down to you.Thanks to <NAME>, <NAME>, <NAME>, and <NAME> for reading drafts of this.
