I remember the first time BigCo called. They were interested in talking to our company (really – itty bitty us?), they wanted to talk about a potential partnerships ($$$$ – eyes wide), would we like to meet? The first time a major player in your industry notices your startup is an exciting time – what do you do? Will they steal the idea (don’t meet with them!)? Buy you for a bazillion dollars (get your negotiating point for a $3 bazillion dollar valuation ready before the meeting)? Waste your time (Yes)?
When your startup starts to get press, launch products, and generally develop real thought and market leadership – the BigCo’s will keep on coming. Here is my guide to what to do.
1. BigCo calls. Or you meet them at a conference. Or someone offers an introduction. What to do?
2. ALWAYS HAVE AN INITIAL CONVERSATION. You have no idea what they are thinking – use an initial touch to point to feel them out. Suggest an into call/coffee of 15-30 minutes. Don’t agree to a 1.5 hour initial meeting with presentations (you risk time wasting, giving away too much information, etc.).
3. During that initial conversation – gather AS MUCH INFORMATION AS YOU CAN without giving away anything non-confidential about your company. Make sure the other party also agrees to speak non-confidentially – this clears both parties of nasty litigation possibilities going forward. Unless you are in stealth mode there will be a TON to talk about without ever stepping onto confidential ground. While you are speaking non-confidentially try to get them to declare their intentions. How are they thinking about this market space? How do they plan to grow into this market? Do they have any initiatives in the space that they can talk about? Who else have they been speaking to in this area?
4. Ok – the intro call went well. Unless they are truly uninteresting or already offered that bazillion dollars you have a decision to make – is it worth engaging further? Presuming the value of a potential partnership is very high (otherwise don’t proceed) – what are the risks?
- Giving away confidential information/plans to a competitor – I don’t view this one as a huge risk. Anything you share that is confidential should be covered by an NDA. If they plan on ripping you off anyways they would be stupid to sign that NDA and expose themselves to potential litigation.
- Time waste – This is the big one. Truly evaluate the likelihood of a deal getting done IN THE NEXT 6 MONTHS. Where are you and where are they in their process? Talk to people who have done deals with BigCo before to get a feel for their internal process. If you can see a highly valuable deal getting done in 6 months – go for it. If a deal isn’t getting done shortly don’t go cold turkey – continue to communicate good news, catch up occasionally, and cultivate personal relationships. Just don’t fly the management team to France for a presentation that you spent the last week preparing and clearing with legal ($$$, time, etc).
- We already said no to this (years later) – This risk is often overlooked. Companies have institutional memory. We pitched early and often to one BigCo before our technology was fully baked and before we were even close to market. They came to a wishy-washy conclusion about the technology and the company at the time (justifiably). We have been unable to rectify that initial impression despite 5 years of solid progress on the technology and the market. We talked to BigCo too deeply too early.
Partnership with BigCo can really drive value for your startup – but watch out for engaging too early – in my experience this almost always leads to disappointment and time wasted on both sides of the table.