Startup Acquisition Stories Podcast ft. Doug Mitchell

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I'm here with Doug Mitchell from Scale llp, who is a attorney who helps startups get acquired. Doug, how you doing today?

I'm doing great. Thanks for having me, Andrew.

Yeah, so this is a totally off the cuff podcast. We were just doing a call, catching up and I said, you know, Doug, I'd love to refer you to startups are going to get acquired. But Doug, for those that might not know you, do you want to give just a brief introduction of yourself?

I'm Doug Mitchell. I'm a partner at Scale. I've been with the firm for a couple years now. I've been practicing for a little over 10. My primary practice is just helping companies through mergers and acquisitions. I love assisting companies with the buying and the selling process. A lot of times asset transactions, but also equity deals. And for me it's just exciting, helping negotiate the documents and, and helping my clients from point A to point B, getting the best deal that they can and hoping that it's just a smooth process overall.

Yeah, for startup founders, that can usually be the boring part, but it's so important. Legal is so, so important. And it's been a pleasure working with you on, you know, a successful startup acquisition upcoming. But I do have to ask, Doug, in your opinion, what's one way that you think, you know, attorneys really help acquisitions close?

I think for me it's oftentimes clients might not have done this before and so it's their first time, it's their first rodeo. And so it's kind of like oftentimes my job is just kind of helping handhold and it's like, hey, this is normal, this isn't normal. You know, here's what you can expect. And just helping them understand what's going on. Because I know that, as you said, it's sometimes the boring part for me it's exciting, but helping them just understand what the documents say, what their rights are, and just kind of saying like, here's the risk, here's the reward, here's kind of what you should know. And I think that's really helpful. And that's always the fun part for me with kind of helping to explain that to my clients.

And then I'm going to ask you the opposite question. What's like the main way you see attorneys blow up deals?

Being overly aggressive. I mean, I used to, I was a litigator for a very short time, very early on in my career. And, and as a litigator, you're, you're like programmed to fight, you're programmed to look over, like, roll over every stone and be aggressive about things. And that's not generally what you want to be as a deal attorney. The deal attorney is usually, it's like, okay, tell me the, tell me the business terms. Let me make sure that the contract actually reflects those business terms. And then let's point out some risk and figure out if there's a compromise. And so I've seen attorneys that are just way too aggressive or not upfront about what the deal should be. And so then you get closer to closing and all of a sudden material things are changing. And so it's just not being transparent. And so that's, I mean, I've seen attorneys where they've actively tried to take deals they didn't like, not because their client wanted them to, but because the attorney just for whatever reason, wanted to block a deal. And it's really frustrating as a deal attorney where it's like, that's not my job.

Yeah, no, that's, that's not good. All right, let me, I got you another random question. What's your favorite acquisition story that you can share? You can just disclose as little or as much as you want, but what's like the favorite acquisition that you've worked on? You don't have to name the name of the business, but just scenario how it closed, what made it such a success?

Yeah, so I, I, A lot of my practice has been kind of helping kind of mom and pop, Main street, smaller deals, you know, sub 10 million transactions. And so with those transactions, I see a lot of it's more personal in a way than bigger company transactions. So I had a deal where this client had had her business for 20 years. She was going through some health concerns. She wanted out of this deal or out of the, out of the company. And she was at a point where she was willing to just dissolve it and walk away. And she tried a couple different buyers. Nothing was working out. So she was like, health wise, I need to stop doing this. I want to walk away. And last minute a big buyer came in and said like, hey, we want your company and we're willing to offer you top dollar for it to have it. And it was a fun one because we went into it from the perspective of she was willing to just walk away from it entirely and have nothing to, okay, well, we're playing with house money on this one, so let's, let's just get this deal done. And it was, it was rewarding because it was a fair contract that they presented to us. It mean it was A fair price, but, you know, she didn't really want to continue it anyways. But it was a fair price on the market. And so we were able to get the deal done. And it was nice because we closed. And then she called me on Monday morning and she said, you know what? This was the first weekend we closed on like a Friday. And it was the first weekend that she didn't have trouble sleeping at night because of her business. She was able to like, just enjoy her weekend. And she was so appreciative that we got the deal done. That's always been one that stuck out of my head.

That is incredible. So she was ready to basically give up and then, yeah, she was like.

At the end of the year, I'm just going to wind this thing down and my customers will go where they go.

I love, I love stories like that. A lot of business owners don't know that, like if you have customers and if you have any sort of valuable ip, whatever may be services, there's a buyer for your business more than likely not, not all the time. But I think that story is a testament of that. Even when it seems like you're not going to find a buyer, if you work for the right people, we can, we can help you find a buyer. Doug, I got, I got another question. So, you know, we'd love to start referring startup founders, potentially buyers overdue. Do you do just sell side advisory? And what I mean by that is, do you help just on the, the selling side for startup founders, or do you also help buyers close transactions as well?

I do both sides. Yeah, I do both buy and sell side transactions. They're different components. With the sell side, it's, it's kind of. All right, let's make sure that we're getting the offer that we expected to get here because buyers tend to want to draft their, their purchase documents. And then what's the level of risk that we can tolerate here on what we're willing to say about the deal in our business? And on the buy side, just making sure that they're fully aware of what they're getting into. Oftentimes with buying, there might be a component of it where we're helping them figure out the financing angle. And so I've had deals where we're actively talking with the banks and the lenders to sort out kind of what, what we're able to get them. And with lenders, there's not generally a lot that you can negotiate because the person with the money usually has all the power to say yes. Or no to something but helping them understand their rights. I, I had one, one deal where we were actually representing the sell side but they had to get bridge financing to close it because they had, they cross collateralized some different assets. And so we had to pay off a lien to sell the business. And the bridge financing came and said, it actively said, you cannot run this type of business to get this loan. And it was the exact business that my client was in. And we went to the lender and we said, hey, you know, you knew what we were doing when we started this process. You can't have this language in here because we're in default as soon as we sign this thing. And it was one of those things where they said, well, if you want to pay us 15,000 in our legal fees for our attorneys to review it, then we can maybe change it. And so you run into weird issues like that. Oh gosh, sorry. I went off on a tangent on their question. I'm not sure that was.

No, that's, that's helpful to know. I think the, the, the main takeaway I get there is just again, you know, legal is important and I think a lot of founders, you know, over overlook things like that. But when they work with, you know, an individual like you, you can avoid that because if they sign that it sounds like bad things. But it happened.

Yeah, it was. I mean we're doing a business and it says you must not do a business and you're repping and warranting that you don't do a business. That's not true at all. You could call this note as soon as we sign it.

That's awesome. Well, I'm glad you caught that. So what would you say? You're like bread and butter is so, you know, when we, when we look to know, refer startups over to you, what would you say like your favorite profile of a businesses? Is it, does it, does it matter? Is it a SAS business, E Commerce, any, any sort of detail around that?

I mean I, I've done all sorts of different types of businesses. The industries have varied from just when I was first doing transactional, my very first position, I, I went to a firm where there was a lot of commercial real estate development investment. And so I started off doing large real estate acquisitions where they were buying raw land or maybe it was some development, but they were going to change its use very lows. And then when I went to my next firm where I was working in Napa, Napa, California, it was a winery focused law firm. And so we had A lot of plan deals. And then that also was a lot of winery deals where you're buying the real estate underneath it, then you're also buying the winery assets, you know, trademarks, brand protection. That's all important there. You have this huge customer list, you know, the, the wine club. That's always such a key component to any winery. And so that plus the other random kind of smaller businesses that I found, I just have a broad practice in a lot of different industries. And so there's not any one particular where I'm like, oh, this is my. My niche, because I've. I've done or just kind of a broad spectrum of different businesses. But the one thing that I would say, or not the only thing, but one of the great things of working with scale is my firm has somewhere around 80 to. You know, we're growing constantly, but there's like 80 attorneys, last time I checked, throughout the firm, throughout the country, with a lot of different varying experiences with, with attorneys that have done, like, public acquisitions, you know, serious dollars at play. And so having the resources where when an issue comes up that maybe I'm not as familiar with, I just plug it into my Slack channel and send it out to the firm. And usually within a half hour, I've got five different responses of how to deal with it and what they've seen.

That's awesome. So it sounds like you're a full service firm. It doesn't matter if it's a small deal, medium, however you want to classify that.

Correct? Correct. Yeah, we have very large deals and, you know, Main street, small kind of smaller businesses.

All right, so now the question that probably everyone's wondering, Doug, what is your pricing? Is it hourly? Is it? I know that's a hard question because every acquisition is different in terms of scope, size, but any color you can give, just in terms of your pricing.

Model, we can be flexible on things. But my standard model that I use is I take a retainer up front and as Kai call it, like an evergreen retainer, where we just keep the full balance stocked as the deal progresses and then charge on an hourly basis. And so that's usually my model. You know, I take usually like a $10,000 retainer. And so that's just a deposit against the fees. It's not a sunk cost where you never see it again, but if we use only 5,000 of it, we refund the balance, and then I just charge hourly against that. And so pretty much everybody at my firm has an hourly rate. And so I have other attorneys that I work with where if I need something, you know, I was on vacation last week, I had somebody fill in for me, and it's just their hourly rate against it.

And just to clarify, for those that may not understand, a retainer. So that means basically, I have a prepaid balance with you of 10,000, correct? Correct.

Yeah. Just a deposit.

And then we deduct hours against that. And then if we get to the end, and maybe I've only used 8,000 of those hours, you would refund me the 2,000, is that correct?

Correct.

Awesome. Well, Doug, I think that's it. Anything else you would like to add in terms of just why work with you or fun fact?

I mean, I just love working on deals. I love helping my clients get. The reason I don't want to be a litigator and didn't want to be a litigator was just because I was always found. But it was such a contentious process. Nobody was happy. You know, the best, you know, in a settlement, they always said, like, everybody walks away unhappy. And that's how, you know, the settlement was a good one because both sides were upset. And I feel like that's not true with deals. It's usually both sides are happy and they want to make. They want to come to terms. And I like facilitating that process for them and. And protecting my clients, but also recognizing that, you know, I'm not supposed to be the gatekeeper that stops a deal from happening. And so I usually have pretty good bonds with my clients by the end of a deal. It makes me happy. I feel like I helped them accomplish something of value. And otherwise, I don't. I'm not the funnest guy. Andrew. I don't know what to say. I. I'm just a family man. I coach sports. I've got kids. I try to enjoy my life outside of work.

Well, I can. I can definitely vouch that. You know, it's been a pleasure working with you on. On the acquisitions that we've been doing. But with that said, how can people get a hold of you on a high level? I'll obviously put it in the show notes and all that fun stuff.

But, yeah, I mean, my email. Email is usually best. I mean, I've got my profile on. On the firm's page, on scale. I've also got my LinkedIn profile page. People can reach out to me. There's my email. D mitchellscalefirm.com you know, that's the easiest way to reach out, but you can also call the firm. But I can give you the information, Andrew, if you want to post it there.

Will do. All right, Doug. Well, it's been a pleasure and looking forward to closing any more acquisitions with you.

Awesome. Thank you for the time, Andrew.

All right, cheers.