It's great that you asked the question. When you're overtaken by waves of emotions, it helps to get an impartial perspective. Here is what I think about your situation. In the movie Lincoln, Daniel Day-Lewis delivers this line:

  A compass, I learnt when I was surveying, it'll point you to
  True North from where you're standing, but it's got no advice
  about the swamps and deserts and chasms that you'll encounter
  along the way. If in pursuit of your destination, you plunge
  ahead, heedless of obstacles, and achieve nothing more than to
  sink in a swamp... What's the use of knowing True North?

The biggest question you need to answer right now is if you still believe your startup is the True North. Is it the best possible thing you could be working on? From your question it sounds like you still believe that. If you do, good. Then it's time to fight like hell. If you don't, there is no harm done. If it's not the True North, what does it matter if you fell in a swamp? You can pull the plug and start again, with the new, truer direction, now based on everything you've learned.

If you still believe in your company, then fight! I don't know the details of your particular situation (valuation, metrics, team size, runway, amount of money you need to get to the next milestone, etc.) so I can't give tactical advice on how to get out of your particular swamp (or even if it's possible). Pick five advisors you really trust. Poll them on what they think you can do to get out of your situation and move on to building your company. Then decide on the best strategy and fight like hell to make it happen.

Feel free to contact me privately if you need to (email in profile), and good luck! Don't despair. Take a day off and do what you have to do to forget about your company for that day. Then pick yourself up and get into work. It's the first day of your company's new life. Where do you want to take it?

That field isn't visible...

I've never been in this position, but this story reminds me of PG's "startups in 13 sentences" (http://www.paulgraham.com/13sentences.html) and more precisely the 13th rule:

13. Deals fall through.

One of the most useful skills we learned from Viaweb was not getting our hopes up. We probably had 20 deals of various types fall through. After the first 10 or so we learned to treat deals as background processes that we should ignore till they terminated. It's very dangerous to morale to start to depend on deals closing, not just because they so often don't, but because it makes them less likely to.

If you follow the advice to "treat deals as background processes that we should ignore till they terminate" then you won't "lose months of traction" when an acquisition deal falls through.

Think like a board member/advisor who doesn't have to actually do the work. IS the company valuable without bigco?

Consider the emotional aspects to be unrecoverable sunk costs. (And, it doesn't matter to the market if you're pumped or despondent.) Is there a way to extract value from what has been created? Is the value worth the time*labor cost?

>we nearly had an exit within 2 years

You might want to reconsider a the nature of an exit to be a series of opportunities that present themselves with increasing frequency as your company creates value. Even a [hair salon | food truck | gardening service] doesn't have a once-in-the-life-of-a-company opportunity to exit. Software companies shouldn't have one chance either.

And a funny thing happens as you create value--you'll become less and less interested in the bigco's and exits that do present themselves.

It sounds like you have created a lot of value. If that's the case, don't let emotions of hopes-dashed weigh you down. Focus on your business and create more value.

Deals fall through; that's just what they do. Yours fell through because a director at the acquirer objected. Others fall through because the market shifts suddenly, or because a competitor to your acquirer spooks them by picking up one of your competitors, or because you lose a key person, or because their business development person leaves, or they get a new CEO, or because a bluebird deal happens for them and they pick up some totally unrelated company that ices you out of their plans for a year.

You're lucky the acquirer told you the deal was dead. That doesn't always happen; dead deals can limp along for months and months, especially if you don't know how to qualify them. This is a reason people hire "business development" people for their startups, but frankly having a BD person might just mean you'll be exposed to more of these horrible prospective deals; if people aren't banging down your door, it's not in a BD person's interests to qualify deals strongly.

My advice is, go into every potential acquisition as if it could not possibly happen. Maximum jaundice! Assume it's going to fall through. Shield your team from the talks. Decline to introduce the acquirer to most people on your team until things have materialized. Talk to people who have sold companies before about the steps their deals went through so you can judge what "real" is (it's probably not just "signed MOU"). Certainly don't expose yourself before the CEO has signed off.

A possible added benefit to this posture is that it also plays hard to get, which while it won't actually increase the valuation you get might keep you from blundering into unnecessary concessions.

My guess is you weren't really all that far into the deal, because no part of your posting talks about vast and intractable legal fees. So, cheer up: you could have been a couple more steps down the road, and a couple hundred thousand dollars in hock to the lawyers too.

I think an acquisition is a little like a marriage. Nearly everyone goes into them for the 'right reasons'. Both parties are really excited for the future, and looking forward to the adventure - but even then, we know that many marriages (and acquisitions) end up in failure. It would not be the first time a company has been acquired with promises of growth and development only to find that business priorities change, and they're suddenly getting scattered around the acquirer.

Let me give you an anecdote to balance your own. About three years ago I was working for a start-up that got acquired by a big, publicly listed company with a ~$1 billion market cap with several 'A-Listers' on the board. We were really excited: we were going to have access to many more markets, be able to accelerate a lot of the stuff we were doing, just like you.

Two years later, the entire group was worth less than the amount they'd paid for us, and our market cap had gone from $1 billion to 8 million. Last I heard (by this point I had left), they had just declared Chapter 11.

The moral of this story, if there is one, is that you just don't know what's going to happen. Is your company really "about to crash and burn"? Is it that bad? Maybe not (...at least, I'd assume so). Is a "disruptive startup" one that exits in two years? Would being acquired let you keep being disruptive? I think it's great you posted your experiences here - but maybe, and it might just be me reading this into what you've written, you're letting the moment of the now cloud your judgement.

I'm generally pretty negative on the build-to-flip mentality. However, sometimes an acquisition is the right thing, and I also think this investor is a horrible person for blocking an acquisition that both sides clearly want, just to serve his own career goals.

Investors ought to be passive beneficiaries. Yes, their financial interests deserve respect. No, they shouldn't be the real bosses. Funding ought to be the commodity, almost like a utility; talent ought to be treated as scarce and precious (because true talent is). But in the modern Valley, it's gone the other way.

Neither here nor there, though, because it was a buyer's side investor that scotched this deal.

People don't end up in those kinds of deals because they're stupid. Not all of them, at least. Often, they have no other choice because an investor will either back them or end them, the latter being a power they have in this backward, feudalistic reputation economy.

It's a strange thing, to feel entitled to set the terms under which people give you their money. We didn't like the available terms. I don't have much nice to say about the venture capitalists I've known. But I don't have an elaborate worldview built around those impressions, and you do. You should try to shake it off.

"internal politics" is a problem to solve. The VC is backing the $6b company, and not yours? This is where your VCs/advisers/backers should provide that "non-financial assistance" they love to talk about.

The game plan here is simple: get clear, define some goals, build some consensus and come up with a plan.

I get the sense that you've got a lot of pain, confusion and doubt clouding your thinking right now, so taking a few steps away from all the noise of operations should help you find what you need to find.

Good luck with it all.

But what about making money? Is it so disruptive you haven't been able to charge for it yet? That sounds like a consumer app. Are you another Instagram? Could you be Snapchat? (snicker)

In all reality, either you are so disruptive that you need help finding a way to make money, or you should be able to raise more money if it's something that's actually adding value. Something is fishy when your current investors are dropping you after this deal fell through, either the company is in more dire of a situation that you can see, or something else is up.

I don't know what actual advice to give other than take a close look at what you're doing to see if it's truly providing value not just "disruptive" and if there is an opportunity to start generating revenue to fund yourself. That's the most obvious solution to a startups cash flow problems. If you are solving someones pain point, I bet there's a few people out there willing to pay for it.

Running out of money tends to have that effect.

The problem with VC is that the VCs (in consumer web) aren't really into technology per se. They're trying to take advantage of the short-term, emerging natural monopolies that technology creates. This means they force fast growth whether it makes sense for the company or not, and even if it's a sound business, it will have to ask for money in 18 months regardless-- because it's been forced to grow headcount and scope so dramatically.

It really is a rigged game. The more traditional approach to business (10 to 30 percent growth, getting rich slowly) isn't allowed.

I have never been so disheartened in my life.

You really have to ask yourself - why you started the company? My co-founder and I decided we didn't want to be in the business forever, but had to get to cash flow positive to make it easier to get board approval by pre-IPO companies.

We hustled to cash flow positive in 6 months and we're acquired 9 months later.

It's a marathon, not a sprint. Keep your head up. We found it really valuable to be open with people you trust and talk through things. Happy to chat by phone or grab coffee if you need someone to talk to.

For your company specifically, your description doesn't sound like politics, that sounds like someone found a red flag in a due diligence effort, and nobody wants to tell you what that red flag is.

Foresight: Leverage nimbilness. Read up on other aquisition cases. Maybe 3rd year is the charm?