The Three Daves of Getting Acquired

The Three Daves of Getting Acquired

When you sell your company, you're three different people at once, and acquirers benefit when you forget it. If you're a founder who worked hard to retain your equity, keeping the roles straight can protect both your future compensation and transaction payout.

One of the best deals I've watched a founder make was one he almost didn't ask for. To protect confidentiality, let's call him Dave. He bootstrapped a software company into something genuinely valuable, took our growth capital, and less than three years later was approached by a large strategic acquirer.

The new company offered Dave no additional equity in the acquiring company as part of his employment package post-acquisition. We coached Dave to push back. Being paid for the company you built is one thing, but committing to a multi-year executive role inside the buyer is another entirely. And that role deserved its own equity.

Dave asked for and received stock options, though I suspect he wishes he'd pushed for more. Two years later, Dave's stock had appreciated roughly 10x.

Had he walked in as only a founder selling his company, that upside would have belonged entirely to someone else.

Three Daves

I've sat on all sides of this acquisition story: selling my companies, acquiring other companies, and now as an investor supporting portfolio companies through M&A.

Dave avoided a costly mistake that often lives in the founder's own head before a term sheet is ever signed. They walk into an acquisition discussion as one person, when they're actually three. Here's what I mean.

Dave #1: OldCo Founder. The founder who owned significant equity in the original company, now being paid out or rolling shares as part of the deal.

Dave #2: NewCo Investor. The investor who will roll some of those OldCo shares into the new entity, taking a bet on the combined business going forward.

Dave #3: NewCo Employee. The executive who will run a function or division at the acquiring company. This person has a job and a title, and deserves a market-rate salary and equity package.

These identities are legally and economically distinct. But acquirers, sometimes deliberately and sometimes not, tend to blur the lines between them. It almost always works against the person being acquired.

The Trap

Here's how it plays out. The buyer offers Dave #3 a below-market salary or thin equity package. The justification? Dave #1 is getting a big payout. Plus, Dave #2 owns shares already. Why pay full comp?

The logic sounds reasonable, but it isn't.

Dave #3 should be paid exactly as you'd pay any outside hire for that role: competitive base, fair equity, standard benefits. The fact that Dave #1 sold his company and Dave #2 holds shares has nothing to do with comp. Those are two separate transactions involving two separate identities. Conflating them is a negotiating tactic, not sound logic.

Where Dave #2's NewCo Shares Came From

They didn't appear out of thin air. They exist because Dave #1 earned them: as an early investor, a founder who took on risk, or a team member who traded below-market pay for equity in the company's earliest days. The acquirer didn't grant those shares; they were earned long before the acquirer entered the picture. Those shares are Dave #1's reward for bootstrapping a startup, staying capital-efficient, and most importantly, growing the company.

So using Dave #2's rolled equity to discount Dave #3's pay just penalizes the founder for having built something valuable.

How to Protect Yourself

When I'm coaching a founder through this, the first thing I tell them is to be clear about which Dave is at the table and to make sure their counsel is on the same page.

Employment terms? That's Dave #3. Benchmark against what an outside hire with equivalent scope would command, with no discounts and no offsets against rolled equity.

Transaction consideration and the cap table? That's Dave #1, governed by the purchase agreement, not the employment offer.

Rollover and co-investment in the new entity? That's Dave #2 having a conversation about risk and upside, not salary.

Keep the three conversations separate, and ask your advisors to do the same. If an acquirer tries to bundle them, trimming your pay because of your rolled equity, recognize the tactic and address it plainly. The three Daves are not the same person, and in my experience, a thoughtful founder never lets them be treated as one.

Vincent Hsieh
Managing Director, Cypress Growth Capital