THE BLOG
06/28/2013 03:18 pm ET

The Good Old Days When Acquisition Meant Making Money...

It used to be, many years ago, that a person could start a business, grow that business into one where its products or services became attractive to potential acquirers, and then eventually sell that company to a bigger company for a lot of money. The notion was that anyone who sold a start-up company, or worked for a start-up company that was acquired, made millions of dollars in stocks and cash payments. It meant that even people who were not corporate big-wigs could get a piece of the pie, in exchange for their hard work and effort, and in fact, it used to happen that way years ago. But the reality is this -- virtually gone are the days when an employee could become a millionaire by simply working hard at a start-up that got acquired.

In my career of over 21 years as a medical device designer, I have seen companies come and go, sell or go under, make it big or carry bridge loans into oblivion. I've managed to find some success here and there, but have also watched many start-ups go down like a sinking ship. I am at my ninth start up now, and as much as I love the company I am working with, I don't carry the same love of stock options as I used to.

You see, today's economy gives the advantage to acquirers, who realize that funded start-ups are beholden to investors, clamoring to get their returns in a volatile financial environment. In exchange for getting a start-up going and ready for acquisition, sometimes it means taking less-than-ideal offers just to get the company sold. What this means nowadays is that acquirers force heavily burdened milestones onto their new acquisitions, forcing the start-up to work longer and in some cases harder, just to get paid. In a nutshell, if an acquired company does not meet the milestones, then the acquirer doesn't have to pay.

It's akin to selling your house for $100, getting paid $20 of it up front, but then having to fix the heater within five days to get $15 of the $80 balance, installing new tires within ten days to get another $10 of the $80 balance, and so on and so on, until you either get the rest of your $80 owed, or you get basically nothing if you miss all of those due dates.

What this means is that acquirers would prefer that you miss all of your milestones, because they still get your product or service, but you walk away with only your initial cash payment to speak of.

If it sounds like a bum deal -- it is.

I see this scenario played out over and over again nowadays, especially here in Silicon Valley.

People used to dream of having thousands of shares of stock, with the dream of maybe becoming a millionaire if their company sold. Today's economy has taken that dream away from small employees, leaving the spoils to acquirers and big investors. In an economy where something has to give, the big dog always walks away with the spoils.

Boy do I miss the good old days... in more ways than one.