Odd as this will sound to the inexperienced, this story is not an outlier. This is what happens in the median acquisition. Investors now treat startups much better than they used to, but acquirers are the final frontier of assholedom. When you get interest from an acquirer, assume by default that it will play out exactly as described in this post: initial eagerness, followed by long and distracting delays, followed by an attempt to renegotiate the terms at the last moment. Then you can be pleasantly surprised if things turn out otherwise.
And not just in the startup world, either. I've been through several -- on both the M and the A side -- in the high-tech manufacturing sector and the billion dollar deals are no different than the million dollar deals. 99% of the time, someone is getting screwed.
I've thought for a while that one thing that could change the dynamic is price. It doesn't make too much sense to me that a 5 month old company with $50K in it should go for more than $1M. That is the other side to the assholedom - the exuberant prices paid for young companies.
The price can and should change as the product and team grow, so this is mainly a comment about very young companies.
Assuming the buyer has the programming talent and vision to create it, and the managers to allow something "crazy" to be built. That's rare in large corporations.
And assuming the startup in question has not acquired a few key patents. And assuming the startup made no unique-but-necessary technical decisions that can't be replicated without relying on information obtained under NDA.
It should make sense if you keep the word Bubble in the back of your head. Most acquisitions are ridiculous, $20m to hire a team of 10 people and throw the technology away has become commonplace. The math doesn't work out except for panic buying "Let's make sure they don't aid our competition".
