January 2015

Corporate 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.

Corp dev is the group within companies that buys other companies. If you're talking to one, that's why, whether you realize it yet or not.

Talk to them only if you want to sell now and are likely to get a good offer—so only when you're doing really well or really badly. Dying, you have nothing to lose. Thriving, the price must be high, and the moment they waste your time you'll tell them to get lost.

The danger is to companies in the middle, growing fast but not yet big. It's usually a mistake for a company less than a year old even to talk to corp dev.

Corp dev exists to buy you. Only talk to them when you're doing really well or really badly; the danger is to fast-growing companies stuck in the middle.

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]

But founders constantly make this mistake, wanting to know what corp dev wants and not to offend Big Company.

What they want is to buy you. So before meeting, ask, "Do we want to sell right now?" If no, say "Sorry, but we're focusing on growing the company." They won't be offended.

Nor will Big Company's founders; if anything they'll think more highly of you. They didn't sell either; that's why they can now buy other companies.

Founders take the meeting to be polite, but corp dev only wants to buy you. Just decline; nobody will be offended, least of all the founders of Big Company, who didn't sell either.

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.

Even founders who don't want to sell take the meeting, from the denial and wishful thinking behind most founder mistakes. It's flattering, and maybe the offer will be surprisingly high.

No. Any offer comes at the end of a long, distracting process. And if it's surprising, it will be surprisingly low.

Even founders who know they don't want to sell take the meeting, out of flattery and the hope of a surprising offer. But any offer comes late, and if it surprises you, 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 [blocked] 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.

Distractions are what you can least afford in a startup, and corp dev is the worst sort, because besides consuming your attention [blocked] it undermines morale.

The trick to surviving is not stopping to feel how tired you are. Corp dev is like someone at mile 20 of a marathon asking "Would you like to rest?"—worse, because it fuses with the high price you imagine.

And then you're really in trouble. They turn the tables, until you're convincing them to buy instead of them convincing you to sell. And surprisingly often they succeed.

It's a slippery slope, greased with powerful forces and attended by a professional whose full time job is to push you down it.

Distraction is what a startup can least afford, and corp dev is the worst kind because it undermines morale. Like being asked at mile 20 whether you'd like to rest, it pulls you out of your flow and lets the professional turn the tables.

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 [blocked] 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]

Their tactics are brutal. Measured only by how cheaply they buy you, they almost always lowball first; even if you decline, it demoralizes you and makes you easier to manipulate.

And that's the most innocent tactic. Agree a price and they'll return saying their boss vetoed it and won't pay more than half. Happens all the time. Investors are nothing compared to corp dev.

I once asked a friend at Google, about a nasty trick their corp dev pulled on a YC startup, "What happened to Don't be Evil?" "I don't think corp dev got the memo," he replied.

It's as if a chunk of genetic material from the old robber baron world got incorporated into the otherwise upstanding [blocked] startup world.

Corp dev people are measured only by how cheaply they buy you, so they lowball, then renege after a deal is agreed. It's nastier than anything in startup land, even at benevolent companies; a chunk of robber-baron DNA in the startup world.

The simplest way to protect yourself is to use the trick that John D. Rockefeller, 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.

The simplest protection is Rockefeller's trick. Whose grandfather was an alcoholic, he 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 right now? Not eventually, right now. If not, just don't take the first meeting, and you'll be spared one of the worst experiences that can happen to a startup.

If you do want to sell, there are other techniques. But the biggest mistake isn't talking to corp dev badly; it's talking to them before you're ready.

Rockefeller avoided becoming a drunkard by never taking the first drink. Do you want to sell right now? If not, don't take the first meeting, and you'll be spared one of the worst experiences a startup can have.

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.

I'm not saying never sell, only be clear about whether you want to. In a startup, as in sport, the task keeps you too busy to feel tired; talking to corp dev is letting yourself feel it mid-game.

To be fair, corp dev fronts a large organization that often doesn't know its own mind, and that flakiness is indistinguishable from dishonesty by the time it reaches you.

Be clear whether you want to sell rather than manipulated into it. A startup's busyness hides fatigue the way a sport does; talking to corp dev makes you feel it mid-game. And acquirers' indecision is hard to tell from dishonesty.

Thanks to Marc Andreessen, Jessica Livingston, Geoff Ralston, and Qasar Younis for reading drafts of this.

Thanks to Marc Andreessen, Jessica Livingston, Geoff Ralston, and Qasar Younis for reading drafts.

Thanks to Marc Andreessen, Jessica Livingston, Geoff Ralston, and Qasar Younis for reading drafts.