>Large tech companies exert negotiating power over founders and selling companies because they can, and stack the deck in their favor with buyer-favorable terms.
A large part of the reason for this is because many sellers are in no position to say no. Many times the seller is actually not profitable and running out of runway and seeking an acquisition as a way for the founders to cash out without having the company go bankrupt. As the old saying goes “beggars can’t be choosers.” If you look at acquisitions where the seller was actually profitable (for example WhatsApp), the sellers were able to get a good deal from the buyer.
There are many exceptions, but it is a deep truism that those who can walk away are the only ones guaranteed to get a deal they find satisfactory. It’s almost tautological: If you can walk away, and a deal doesn’t feel good, you just walk away. So what’s left? Deals you like.
There are many ways to be able to walk away. Cash flow and profitability are the easiest. Sometimes it’s being able to put a one-person company on hold and go rock climbing while you live out of a “craggin’-shaggin’-wagon.”
That being said... Here’s some personal and contrarian advice: Don’t organize yourself around being able to walk away just because you want negotiating leverage. If that’s your only motivation for generating cash flow or profits, emotionally you will always desire a deal, and in a very real sense you will fond it hard to walk away from money.
The ideal thing is to generate profit because you are attached to the idea of a functioning business, and not just a startup designed to conduct experimental market- and technological research.
The ideal thing is to want to grow from founding to running an operating business over the long haul, so you actually don’t want a deal even if the terms are financially favourable.
When you are able to walk away for your own personal and values-based reasons, you ironically will be in the strongest negotiating position.
It's probably more accurate to say "desireable" instead of "profitable" here. The decision maker at the acquirer has to believe that there is some profit in it from them, but that doesn't necessarily have much to do with profitability of either side of the transaction, it could just mean a bigger bonus, or shutting out a competitor, or so on.
A profitable company can continue without being acquired. A merely "desirable" but unprofitable may not have this luxury for long enough for another acquisition deal to crop up.
Yes, and it breaks away from the mindset that there's any one thing that matters here and that it could really just be anything that any acquirer finds they like, not just profit.
A large part of the reason for this is because many sellers are in no position to say no. Many times the seller is actually not profitable and running out of runway and seeking an acquisition as a way for the founders to cash out without having the company go bankrupt. As the old saying goes “beggars can’t be choosers.” If you look at acquisitions where the seller was actually profitable (for example WhatsApp), the sellers were able to get a good deal from the buyer.