Great points.
Another thing to think about: unsure about the exact repayment circumstances. But financially, the current offer has some similarities to venture debt, and that may be a useful way to think about what you're getting into.
Key consideration about venture debt: the lender (you) is basically making a bet about financing risk. If the venture (your acquirer) gets a subsequent round of VC money, they will pay you back. If they do not get another round, they will not.
Venture lenders typically don't look at their borrowers' business fundamentals too much, but they are very careful about who else is investing with them and how many rounds the venture has raised. Basically, if a new venture is (1) raising their first round and (2) backed by a big-name VC firm (Kleiner Perkins, Bessemer, etc.), the venture will almost always get another round of funding and the loan is safe. Other investors are always willing to give a KPCB-backed venture another shot. If (1) or (2) is not true, the loan is much riskier.
> Yes, I did point it out to them. Their response was a polite version of "that's our problem".
But it's not actually just their problem, because you don't get paid if they don't succeed...
I'm sure you've already realized this. :)
> I think if the business doesn't take off, we get our technology back and we keep whatever they've paid us to-date. It doesn't seem like a terribly bad worst-case-scenario.
Good point. Still the opportunity cost of your time to consider (all that time you spent watching them fail, you could be spending building your own business) and your technology's shelf-life.
Also, it might be difficult to build a business around tech that failed somewhere else (even if your acquirer's failure had nothing to do with you or your tech). I don't know the specifics of your situation, but I would imagine good early hires might be wary, potential investors would be skittish, etc.
I would be concerned. Seller financing is generally used when the acquirer will have a stable business with concrete underlying assets (factories, real estate, etc.). I don't think this is the case for you. Your acquirer is a venture-backed startup. They only pay you in states of the world where they blow up, and you have little recourse if they don't blow up.
More generally, you are taking on the risk of your acquirer's business (they may fail to get traction in the market, they may fail to develop their product, etc.) without getting compensated like an equity holder. This is a bad situation to be in -- entrepreneurs do all kinds of things (take VC money, incorporate rather than form partnerships, etc.) explicitly to shift risk to OTHER people. Not only are you taking on additional risk by taking the offer, but you are also not getting reimbursed appropriately for that risk.
Other issues:
- You get paid more if they take longer to pay => You're going to work for a company that you hope doesn't blow up tomorrow (because you get paid more if they blow up in 4 years). => This is a dangerous spot to be in; your incentives are not aligned with theirs.
- It might be tempting to think that the acquirer could pay you with the proceeds of their next round even if their business does not take off. But $6M in short-term debt will likely scare off VCs who might fund them in their next round...
Key consideration about venture debt: the lender (you) is basically making a bet about financing risk. If the venture (your acquirer) gets a subsequent round of VC money, they will pay you back. If they do not get another round, they will not.
Venture lenders typically don't look at their borrowers' business fundamentals too much, but they are very careful about who else is investing with them and how many rounds the venture has raised. Basically, if a new venture is (1) raising their first round and (2) backed by a big-name VC firm (Kleiner Perkins, Bessemer, etc.), the venture will almost always get another round of funding and the loan is safe. Other investors are always willing to give a KPCB-backed venture another shot. If (1) or (2) is not true, the loan is much riskier.