Last week Paul Graham posted a note titled “Don’t Talk to Corp Dev”. I have nothing against Paul Graham. It is hard to argue with his track record, and most everything I have heard about how he treats startups is positive. But I do have a problem with sweeping generalizations sitting beneath alarmist headlines.
His post starts off reasonably enough. Young start-ups should not get distracted when corporate development teams from large companies come calling. Fair enough, big companies move at their own pace, and start-up management teams can lose a lot of time dealing with that.
He then goes on to talk about how these conversations can be demoralizing causing management teams to lose faith and give up too soon. That seemed exaggerated. If you are going to start a company, you will face many doubters and haters. If you have gotten to this point, chances are you know how to deal with ‘demoralizing’ outsiders.
Up to this point, I am willing to give Graham the benefit of the doubt. He is talking to a specific audience of start-ups he is close to. And maybe he had a recent, bad experience with someone, and wanted to use that as a teaching moment.
But then he goes off the rails.
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.
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.
Yes, there are ruthless corp dev people out there. But there are ruthless people in every field and every role. And I am not being naive about Corp Dev. I have seen many of the tricks Graham deplores, and seen them recently. Corp Dev professionals can be sharp negotiators, but they have no monopoly on ruthless streaks.
Up to a point I wanted to argue that management teams have many reasons for wanting to talk to Corp Dev. A basic conversation can be a good way to learn about the industry or about competitors. When I was in Corp Dev, I was much less interested in buying companies than in finding strategic partnerships. Even if the Corp Dev people only want to talk about acquiring you, its worth having the conversation. Most start-ups that do not fail end up being acquired. There is nothing wrong with that. And many times, the only way to achieve a small company’s full vision is to do so as part of a larger company. Talking to Corp Dev people can help you understand that avenue better.
But when I got to those paragraphs quoted above, I realized there is a darker interpretation of “Don’t Talk to Corp Dev”. Let’s not pretend that venture capitalists, as a group, are any holier than Corp Dev people. All the ‘tricks’ that Graham mentions in his post have been perpetrated on start-ups by VCs. I am not accusing Graham of that, again, everything I hear about him is quite positive. But he is laying out a blanket accusation in his post. So I think it is fair to turn the spotlight around. Is anyone going to argue that VCs do not have their own basket of psychological tricks to play on management teams?
VCs like big exits, and Corp Dev M&A processes dampen those exits. No one likes competition.
If you are running a start-up, listen to everyone, but keep your own counsel. You know your business and prospects best. And never let anyone tell you who to talk to.