How do I know if an offer is good for my startup?

MeesseekMeesseek subscriber Posts: 1 Member
Just to give a little context... we're one year into development, my team has 5 members and we have a good product with a handful of beta testers. We're self funded. Next quarter we would be opening for new users in a controlled manner. Since we started our business we've we created a good relationship with a company that offers a similar solution to ours and now they made us an offer.

The company that made the offer has 20k+ users (which is a lot in our field) and a billion dollar VC investment.

Their proposal is to create a new company that they would own 85%. They would give us their whole user base, pay for events, conferences and product marketing, cover all expenses (hiring, equipment, office, reallocation) and IF we could reach 20k users in one year, our 15% would be transformed into a equivalent % of ownership of their holding company.

We couldn't compete with them. We could just bug them a little bit if we were not to accept their offer. We have a good expertise in a area they are total noobs because what we are building is kind of new.
They need us to beat their biggest competitor that is going to launch a similar product soon.

But to me looks like they are charging us 85% to develop a product, and if that product turns out to be good we may have some profit. We would be competing with their biggest competitor, which is the biggest company of this field in our country. If we don't sell, we can bug them a little bit and consequently help their biggest competitor. So it would be of their best interest to buy us, but it seems to me they are not giving us a fair offer.

If we don’t sell, we have a plan B,C and D. They are all pretty ok.

Me and my team was thinking about asking for 30% of this new company and a minimum of 3% on their holding, if we reach the 20k user goal.

It's the first time we receive an offer and we have no experience on this. Our mentor/advisor is the CEO of the company that is trying to buy us.

Any opinions of someone that has trailed a similar path, or even that knows how a similar situation turned out is welcome.

Disclaimer: I have 0 experience in startup acquisition/selling.
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Answers

  • Ryan O'BlenessRyan O'Bleness Birmingham, Mich. administrator Posts: 1,133 Site Admin
    @Meesseek, do you mind sharing a little more about the business or industry you're in?
    Ryan O'Bleness
    Community Manager
    StartupNation, LLC
  • McCandlessMcCandless Boca Ratonsubscriber Posts: 52 Bronze Level Member
    edited December 2017

    You asked,

    How do I know if an offer is good for my startup?

    You can’t stop smiling about it…

    The only thing that truly matters in an offer is whether or not you will be satisfied about it before, during and after you sell.

    That’s it.

  • Mohit ChauhanMohit Chauhan subscriber Posts: 23 Bronze Level Member

    You can easily figure that out if you keep these factors in mind while evaluating the offer:

    • The offer contributes well with respect to the services and solutions provided by your company
    • Evaluate on the stock options
    • Negotiate on the counter offers
    • Check on the financial, operating, and business history
    • Note if the company is reluctant to provide references- if they are reluctant to disclose information now, how will they be once they are a client
    • The pressure to start work quickly – can be a sign that they do not want you looking into their background
    • Overly litigious as a plaintiff or defendant– could signify a party that’s not afraid to sue. This also presents a risk of non-payment or who may not honor their agreements


    If you can quantify these factors for your company, you can easily figure out if an offer is good for your startup or not!


    For instance, I am working with a startup and we have just started out! For us, a virtual office in Mumbai was a good offer as we were a small team, and it provided us the opportunity to have an office space at a minimal cost. Also, it provided us with diversity in networking which helped us get new clients, and easily strike a work-life balance!

    I hope I could help with addressing your concern! Good luck to you!

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