I used to be an investment banker and dealt with corp dev guys (gendered pronoun used intentionally and accurately) all the time. PG's article is spot-on.
One additional thing to note is that the diligence process can be an intelligence-gathering bonanza for a larger acquiror. The information they glean can be either harmless to you (data points on employee shares/salaries allows them to build knowledge of early-stage compensation, which is very useful when poaching engineers from other companies) or harmful to you (they see your private information and act on it in a way that damages your business).
For what it's worth, I would advise people approached by Corp Dev types to not only say no as PG suggested, but do so in 10 words or less. The email response should be "No, not interested. Sorry" -- no greeting, no pleasantries, no signature. You won't hurt their feelings and a longer email is just an invitation to them to start a conversation that is going to suck up your time and energy.
If you are interested I would demand a break-up fee as others here have noted, as well as an aggressively worded NDA and a non-hire agreement that stops them from poaching your employees.
Finally, I would also consider the effects that knowledge of an explored-but-abandoned acquisition would have on your employees' motivation if they found out. Generally not good for culture and/or long-term goal orientation.
And that's fair. The employee should be able to seek employment anywhere of their choosing. What is being discussed is not the same situation that went on with the major tech firms. In that situation we found out that the tech firms wouldn't hire each others employees regardless of situation.
In a hypothetical situation where you have two companies, lets call them Company A and Company B, who are in talks for an acquisition. If Company A is huge and is potentially an acquirer then Company B would be it's acquisition target. Company A is going to learn a lot about Company B to consider purchasing them. Company A could walk away at any time with all the salary information of Company B's employees.
Company B should have the right for protection in such a high risk situation. A non-solicit agreement that covers employees would prevent Company A from approaching, with the intention of hiring, Company B employees for a period of time that both firms agree upon.
Employees of Company B are more than welcome to approach Company A about jobs. Company B employees may even get a raise since Company A would know how much they are earning. However, Company A would want documented proof to show that the employee of Company B came to them. As they cannot approach the employees of Company B during the previously agreed upon period.
The system needs to protect employers like it protects employees. Not everyone runs a high margin billion dollar company.
I believe non-poaching agreements between companies discussing an acquisition would be less inclined to harm employees than the agreements you mention. A non-solicit in this case would be unilateral, and not the bilateral agreements that Google et al had.
Isn't it unilateral in the direction that hurts the employee? If your startup signs a no poaching agreement with Google. Now Google can't give you a higher salary offer.
I don't think I see how this would not hurt the employees. Seems like a classic startup management move that screws over the employees who are already taking pay cuts and huge life risks to make the startup successful.
Think of it from the other direction - if the agreement didn't exist, the startup wouldn't even talk to the bigger company, potentially hurting the employee and everyone else in the company.
For a startup, losing a key employee is a big deal and a big risk. A non solicitation agreement doesn't prevent the employee from applying for a job at the bigger company, but merely allow the startup to be more open t
o a potential competitor.
I totally agree that the free market should set salaries for talented people, but consider the case when a startup is winding down and looking for a soft landing, if the acquirer picks up the top employees and ruins the last bit of hope the company has then the non "rockstar" employees would all be out of jobs and have nothing but a failed company on their resume to show for it.
Also, and I may be biased but it feels like bullying on the part of a bigger company with more capital but without the ability to find equivalent talent without coming in the back door of a smaller company.
> if the acquirer picks up the top employees and ruins the last bit of hope the company has then the non "rockstar" employees would all be out of jobs
Sounds like a merit-based scenario to me.
Simply reading through HN for several years, it seems pretty obvious to me that many startups view employees and "theirs". There is no scenario where I would hurt my future opportunities simply so I don't hurt my (sinking) company's.
I owe nothing more than the agreed-upon work for money to my current company, and watching out for #1 is what has been so successful for me these past several years.
A smart developer would stay at current company if she truly believed there was a successful acquisition on the horizon. If she leaves with someone else, that's just the free market talking.
It's not merit-based. If I'm an acquirer playing hardball the value of hiring those people is the damage to the acquired's valuation with other suitors and not anything to do with the peoples' abilities.
Let's say you're selling, I'm buying, and we reach a tentative agreement for $100M. While you're winding down your other options I talk to five of your key people and hire them each for $2M. The next morning I start in fresh: Without those people our new offer is $50M. By the way that's a generous offer, part of the team works for us so you're worth even less to other acquirers. And hey, what if the press got wind that you were trying to sell and your key people were leaving. Sounds like a company in trouble.
You might say that's an asshole thing that nobody would actually do but there's a reason the poster up top suggested covering it.
Looks like the equity the startup offered those employees was clearly not enough to keep them around if the big company was so easily able to poach them while their equity was literally in the process of being turned into actual dollars. Being horribly cheap with equity to employees is endemic in startups, maybe that will change it. So, still not seeing the problem here.
>Isn't that similar to what Google/Apple/etc were doing recently, and were rightfully lambasted for?
Two differences:
* It would be a one-sided no-poaching agreement (or it should be).
* An individual start-up does not have close to the same level of market power as a large corporation so the effects of no poaching agreements on the market as a whole would be minimized.
It isn't the same for the same reason why low cap startups with a lot of competition are immune from anti-trust violations no matter what their behavior.
Good question, to be clear, these agreements don't stop employees from leaving on their own volition but rather make it easier for the target company (the one being diligenced) to get damages from the potential acquiror if they aggressively hire away the target's employees.
In practice this often looks like an agreement to only speak with a defined, very small number of people at the target and to absolutely not initiate conversations with anyone else.
If Acme Startup Inc is quietly exploring a sale to Google, and coincidentally one of its engineers drops a resume to Google's recruiters, she can still go work for Google, but rest assured that Google will document the hell out of who-contacted-who-when.
No company that is executing on patents is doing so without some amount of trade secrets. If they demand itemized financials, for instance, they have a snapshot of your suppliers and your costs, which makes them a stronger competitor in your industry even if they can't use your patents.
I think it definitely applies to the tech industry and in fact these tactics are pretty universal. For example, I've seen them applied by basically the entire paints & coatings industry's corp dev teams when we were exploring the sale of a paint company. Nobody's going to turn down the chance to look at a competitor's financials, even if they have to promise in writing not to use the information materially for their own benefit.
I'm not a lawyer nor do I have a ton of experience in patent-related matters. If the startup is patent rich and is sitting on a mountain of cash, and feels like it's weird that it hasn't paid an astronomical sum of money to lawyers in a while, then maybe it could justifiably feel somewhat protected by its patents. Then again, look at Apple/Samsung over the years...I don't think patents are the be-all and end-all.
" I would also consider the effects that knowledge of an explored-but-abandoned acquisition would have on your employees' motivation if they found out"
One additional thing to note is that the diligence process can be an intelligence-gathering bonanza for a larger acquiror. The information they glean can be either harmless to you (data points on employee shares/salaries allows them to build knowledge of early-stage compensation, which is very useful when poaching engineers from other companies) or harmful to you (they see your private information and act on it in a way that damages your business).
For what it's worth, I would advise people approached by Corp Dev types to not only say no as PG suggested, but do so in 10 words or less. The email response should be "No, not interested. Sorry" -- no greeting, no pleasantries, no signature. You won't hurt their feelings and a longer email is just an invitation to them to start a conversation that is going to suck up your time and energy.
If you are interested I would demand a break-up fee as others here have noted, as well as an aggressively worded NDA and a non-hire agreement that stops them from poaching your employees.
Finally, I would also consider the effects that knowledge of an explored-but-abandoned acquisition would have on your employees' motivation if they found out. Generally not good for culture and/or long-term goal orientation.