Loading...
Answers
MenuI have an iOS app. A web based startup contacted me by phone about a possible merger or acquisition. Anything I should do in these early stages?
A startup is going through a round of funding and an investor wants to invest, but they don't have a mobile strategy. Their business is just web based. He will invest if they have a mobile presence. The CEO contacted me because my app is in the similar market, but I'm only on mobile. We just talked once on the phone, but he said he's not looking to buy my app outright. Instead looking for a merger, partnership, or acquisition. This is all new to me. I want to be sure I'm prepared if talks continue, which they probably will. I am open to the idea, but only if it's the right fit. Any advice or help would be appreciated.
Answers
Let's start with the premise that an investor is willing to invest "subject to mobile." Unless there is a term sheet that states this, what is far more likely is that an investor was pitched and declined to invest citing that they don't have a mobile offering. The entrepreneur likely said something along the lines of "well can we come back to you when we have a mobile offering?" and said "sure." In this scenario, there is no actual commitment or even high probability of closing an investment. So you want to start by clarifying what the actual commitment is - if any - since entrepreneurs can often misinterpret investor sentiment.
Although startup to startup mergers do occur, they have a high point of failure (failure to actually close the deal) because it's very difficult to value the two companies and without real resolve from both teams, it's difficult to establish which is worth what percentage of the merged entity.
All of this being said, it's really about what you want. Do you want to go it alone and build a big business behind your app, or would you prefer to be part of a team? Can you recruit a better team on your own than the one they already have?
If you are unsure of your desire to go it alone, and unsure of your ability to recruit a better team for your own startup, then you may wish to consider their offer, but I would caution you not to actually close the merger until after the money had been raised. Otherwise, you are at risk of assigning your work to this combined company and if it can't raise you're then stuck.
The good news is that it doesn't sound as though you have investors in your company so that actually reduces the complexity of the sale. You should really focus first on whether you love these people. Do you want to work with them everyday for the next 5-7 years? Get there first, and then consider everything else I've said.
I'm happy to discuss this in more detail with you in a call.
Best of luck!
Can't help you with the "fit" question. That is really something you are going to have to decide. The best thing you can do is spend time with the founder and folks you would be working with. See if your visions align and if you actually want to work together.
From a logistics standpoint, deals that stage are usually pretty simple. If you are a solo and have no assets (other than the code/app) the deal could happen pretty quickly/easily. Likely you'll just be negotiating on salary + equity. You will do a simple asset purchase agreement to get all of your code/assets into the new company.
If you don't have any investors or employees this should be pretty simple.
The one thing I'd be careful of is this contingent investment. It sounds a little precarious to me. If the investor is concerned about a mobile strategy, and their solution is just to "hire" or "acquire" you, that will likely be a red flag. I'd make sure the deal makes sense for you with or without this investor. The last thing you'd want to do is make a deal and then have that new company go under because they can't raise cash.
Regardless if you decide to move forward or not, I would highly recommend you approach it like finding a co-founder.
It sounds like he wants you to stay on after the fact, so your future liquidity (and employment) is going to be dependent on him.
So, be sure to ask yourself
- Do I know him well enough to make that kind of decision? If not, spend time with them.
- Do you trust them? Listen to your gut.
- Will they teach you things? Do they inspire you ?
If any of these are no, then dont even bother.
The most likely outcome is failure, so ensuring the journey is done with people you actually want to spend time with and trust is paramount to anything else (price, etc)
Open to a call if you need to discuss.
Related Questions
-
What is the generally agreed upon "good" DAU/MAU for mobile apps?
You are right that the range is wide. You need to figure what are good values to have for your category. Also, you can focus on the trend (is your DAU/MAU increasing vs decreasing after you make changes) even if benchmarking is tough. Unless your app is adding a huge number of users every day (which can skew DAU/MAU), you can trust the ratio as a good indication of how engaged your users are. For games, DAU/MAU of ~20-30% is considered to be pretty good. For social apps, like a messenger app, a successful one would have a DAU/MAU closer to 50%. In general most apps struggle to get to DAU/MAU of 20% or more. Make sure you have the right definition of who is an active user for your app, and get a good sense of what % of users are actually using your app every day. Happy to discuss what is a good benchmark for your specific app depending on what it does.SG
-
What does it mean to 'grandfather you in' in the tech world?
It stands for allowing someone to continue doing or use something that is normally no longer permitted (due to changing regulations, internal rules etc.)OO
-
How much equity should I ask as a CMO in a startup?
Greater risk = greater equity. How likely is this to fail or just break even? If you aren't receiving salary yet are among 4-6 non-founders with equivalent sweat investment, all of whom are lower on the totem pole than the two founders, figure out: 1) Taking into account all likely outcomes, what is the most likely outcome in terms of exit? (ex: $10MM.) Keep in mind that 90%+ of all tech startups fail (Allmand Law study), and of those that succeed 88% of M&A deals are under $100MM. Startups that exit at $1B+ are so rare they are called "unicorns"... so don't count on that, no matter how exciting it feels right now. 2) Figure out what 1% equity would give you in terms of payout for the most likely exit. For example, a $10MM exit would give you $100k for every 1% you own. 3) Decide what the chance is that the startup will fail / go bankrupt / get stuck at a $1MM business with no exit in sight. (According to Allman Law's study, 10% stay in business - and far fewer than that actually exit). 4) Multiply the % chance of success by the likely outcome if successful. Now each 1% of equity is worth $10k. You could get lucky and have it be worth millions, or it could be worth nothing. (With the hypothetical numbers I'm giving here, including the odds, you are working for $10k per 1% equity received if the most likely exit is $10MM and the % chance of failure is 90%.) 5) Come up with a vesting path. Commit to one year, get X equity at the end. If you were salaried, the path would be more like 4 years, but since it's free you deserve instant equity as long as you follow through for a reasonable period of time. 6) Assuming you get agreement in writing from the founders, what amount of $ would you take in exchange for 12 months of free work? Now multiply that by 2 to factor in the fact that the payout would be far down the road, and that there is risk. 7) What percentage share of equity would you need in order to equal that payout on exit? 8) Multiply that number by 2-3x to account for likely dilution over time. 9) If the founders aren't willing to give you that much equity in writing, then it's time to move on! If they are, then decide whether you're willing to take the risk in exchange for potentially big rewards (and of course, potentially empty pockets). It's a fascinating topic with a lot of speculation involved, so if you want to discuss in depth, set up a call with me on Clarity. Hope that helps!RD
-
What is the average series A funding round at pre revenue valuation for a enterprise start up w/cutting edge tech on verge of our first client.
With all respect to Dan, I'm not seeing anything like that. You said "pre-revenue." If it's pre-revenue and enterprise, you don't have anything proven yet. You would have to have an insanely interesting story with a group of founders and execs on board with ridiculous competitive advantage built in. I have seen a few of those companies. It's more like $3m-$5m pre. Now, post-revenue is different. I've seen enterprise plays with $500k-$1m revenue/yr, still very early (because in the enterprise space that's not a lot of customers yet), getting $8m-$15m post in an A-round. I do agree there's no "average." Finally, you will hit the Series A Crunch issue, which is that for every company like yours with "cutting edge tech" as-yet-unproven, there's 10 which also have cutting edge tech except they have customers, revenue, etc.. So in this case, it's not a matter of valuation, but a matter of getting funded at all!JC
-
If I am planning to launch a mobile app, do I need to register as a company before the launch?
I developed and published mobile apps as an individual for several years, and only formed a corporation later as things grew and it made sense. As far as Apple's App Store and Google Play are concerned, you can register as an individual developer without having a corporation. I'd be happy to help further over a call if you have any additional questions. Best of luck with your mobile app!AM
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.