The Secret to Startup M&A: How To Set Your Companies Up for Big Outcomes with Ezra Roizen of Advsr

Hey everybody, this is Ben Kaznoca, co founder and partner at Village Global, a network driven venture firm. And this is our podcast where we go deep on all things business and technology with world leading experts.

Ezra, thank you so much for joining me on VC Mastermind podcast. We're going to be talking about mergers and acquisitions and startup M and A and how to set your companies up for big outcomes. To introduce you a little bit for our listeners, you are the general manager of Advisor and you're the author of the MagicBox Paradigm, which is a framework for startup acquisitions and we will talk a lot about that during this conversation. You initially started your career as an entrepreneur, co founding two technology companies, one called Montclair Technologies and another called Convoy Corporation, which is now part of SAP. And Ezra, you hold an mba, a combined program at Columbia University in the Business school and University of California Berkeley's Haas School of Business, and a BA in Philosophy from University of California, Davis. Thank you so much for joining.

Thank you for having me.

Yeah, absolutely. Gosh, I was thinking I have known you I think for I think going on 18 years. I met you in 2007. If I'm not mistaken, we were both.

Five at the time, but.

Exactly. But man, it's been so fun. We've interacted and crossed paths professionally, personally so many times. It's been great to work with you on M and A kind of throughout that whole 18 year history. Just to set some context like we're going to dive into the magic box paradigm and how you see both executing M and A and guiding M and A on for your clients and then open it up into more of a conversation across a bunch of different topics. Ezra, give us a little context. How, how much M and A have you seen over your career in terms of number of deals or dollar values?

As you mentioned, I started out as an entrepreneur in actually the 90s, so co founded an enterprise software company, co founded a services company. Tremendous time to start your career at that time and be young. I was in my 20s and all of a sudden I became CEO of a 60 person company and, and had another one that had some success and was acquired and it was, it was great because I thought when I was young I wanted to be CEO of a company and that was where I was going to be. And then I got to be CEO of a company and I absolutely hated it. And, and I was fortunate to be blessed to have had that experience. And one was a part nights of success and one actually frankly the better run company ended up getting taken down the first Internet bubble, which I think in and of itself is an interesting lesson.

Good learnings.

Yeah. And so I got to see a lot fast on the entrepreneurial side and one of my board members or my second company in 2000 said hey, if you ever thought about doing investment banking, I think you might be good at it. And he had a small firm and I understudied. It's an apprentice business when it's done well. And I understudied with him for years. Not really as much in tech at the very beginning doing a lot of manufacturing, aerospace, things like that. And, and then went to succession of firms and started advisor about 10 years ago now you're an entrepreneur now? Entrepreneur, Baker, advisor, something. Yeah. As my wife Bambi once said in describing me, he's you. He does nothing. The, the, the. The. Your question over that journey doing ultimately successful transactions 2 to 5 a year pace, 25 years. So a hundred. A hundred deals directly. But yeah, but what I would two other factors on one it was interesting before I logged in I popped over on LinkedIn and was reading a couple things and I saw that Max Levshin has a podcast or is on a podcast like this with somebody. I haven't gone through listened to it all but one of the big headlines was only study your failures. And, and I think that's actually really important for our conversation now because I've been around many more than that haven't worked out and some of them crushing failures and collapses and for everybody. And so I think you learn as much and more frankly from your from the ones that didn't work out as the ones that did. It's fun to talk about the ones that did, but start working a lot from ones that didn't. And then naturally because of the book and because of my substack and other stuff, I get calls and emails and questions all the time from people saying hey, I'm in this weird situation. What do you think? Which is great because just increases your sample size of stuff that you run into and it comes from billion dollar deals down to million dollar deals and, and it's fascinating to see the different scenarios. So I've been fortunate doing the same thing Groundhog Day over and over again that you get to build a nice pattern recognition format and some experience but always bring a beginner's mind and try to see what else there is to learn.

Yeah, that's amazing. In my. I had about three years of experience in the M and A industry, you may recall through Exit Round and the, the biggest learning for me was that in a traditional fundraising environment, there's a market, there's market expectations, there's market terms, there's competition where you can actually move a process along. In an M and A, it's the opposite. It is the Wild West. You may have terms, guess what? Those don't matter anymore. You may have a cap table. Guess what? Those don't. That doesn't matter anymore. And so many things were just shocking to me. And, and, and yet an entrepreneur only goes through it once or twice, or if they're lucky, three times in their career. That's considered experience. You having gone through a hundred successful and 100 plus not successful, there's just a lot to be learned there. Yeah, that's awesome.

You just blitzed through a number of really interesting topics. One is the inefficiency versus efficiency of the. Of the strategic M&A versus the raising capital. Raising market. Those are. That's a really interesting topic. Yeah, that's the stage for a lot of how you should think about this stuff. And then also the sample size problem. And actually a really interesting set of things to talk about there as it relates for the. I think the audience for this podcast, for this discussion, which is, you know, VCs helping their companies. One of the challenges that we're into sometimes is that what happens a lot is a lot of board members lean on their successes and a small sample size of successes, and they try to extrapolate from those what is the best practices for how they should help their companies. And sometimes, actually that's not as it's suboptimal relative to leaning on some of the failures and trying to optimize around those constraints. We'll dig in more on that, but I think there's actually a lot in what you. Yeah, good.

I wrote some of those down also to make sure we touch on them. I mean, you know, since you've been in the industry for this amount of time, where are we in this market cycle?

Right.

Like, you know, today, 2025, the GPS that I'm talking to, the GP, you know, our firm at Shasta, we're looking for liquidity. Our LPs are asking for liquidity. Our funds are getting, you know, old. 10 years, 12 years, 15 years, even beyond. And yet it doesn't seem like there's a lot of liquidity unlocking through IPOs. So that means that M and A is certainly the prime exit opportunity. And, you know, give us some context as where we are in this market cycle in February 2025. And maybe just for setting the stage is how we should be thinking about approaching M and A over the next year or two.

Yeah, I think good. And I don't always say that. You call me know, 2008, it was bad. So that's good.

We're not in the 2008.

We're not in 2008. So good. You know the driver of startup M and A and you couched this right at the beginning. We're not talking about M and A generally. There's all kinds of M and A and in my book I talk about different flavors of M and A and startup M and A is its own animal and I call it Startup M and A and you call it that too.

How would you define that? Startup M and A versus the other.

M and A where most of the value is going to be future oriented in things that will happen, not the things that have happened. A lot of, you know, a lot of finance and a lot of Wall street is trailing multiples on various metrics and so on. And you're maybe you're constructing the value dynamics from a lot of knowns in startup M and A. You're constructing the value dynamics for a lot of unknowns. And that is a. Changes the game. That's.

Yeah, that's a huge distinction.

Huge changes. Yeah, we're gonna talk about that too and how to think about that. But once you know that's the game, then you can orient towards it. So one of the things I, you know, I do a lot in my writing is say understand the game you're playing and then if you understand the game you're playing, then you can optimize around the variables that really pull the levers that help you and don't fall into the traps by. By playing the wrong game. So startup M and A is powered by optimism when. Because you. Because ultimately and what I'm talking about here is strategic Startup M and A with strategic partners with operating companies, not pe. So we'll talk a little bit about pe and actually a good thing is a lot of PE has come into this startup world and come into arenas they weren't in before. Like I talk to PE companies all the time and say we're, you know, somewhat indifferent to profitability. That wasn't a thing like 10 years ago or 15 years ago. That was, that was thing. Not to say that there's an easy category. There's challenges in that arena. But. But there's a lot more PE money than there used to be. And we've done several PE transactions over the last Few years that are really exciting and, and worked out great. But we're going to talk mostly here about the fairway as it were, which is startup innovative teams and products being acquired by larger operating companies to fulfill a bigger mission that they to accomplish. And, and you know, in that case that really is fueled by optimism because executive teams are usually making a big bet based on a bunch of unknowns and they have to really believe that this is the moment to make that bet. And, and so what you're looking for in the market generally as a market, you know, how do you feel? And, and if people are optimistic and executive teams are optimistic and they feel like it's a time to make some moves, that's frankly the biggest piece, the second piece is large technological shifts. And if you look at, you know, he started beminating. If you look over the last since I've been around the Internet bubble, the Internet boom itself, the first one to 1998, 2000, kind of 1ish. I was real estate operator at that time and I was part of it. My actually my clients were other, a lot of other startups at times. So I saw a lot of that. I wasn't during this business per se, but that was kind of the big boom that caused a lot of stuff to happen. And then it was optimism and a big technological shift. Then you had, you know, I would say generally kind of in the tens. You had the social shift and a lot of ad tech, social things like that, you know, online stuff happening at a pretty rapid pace. That was consolidating and that was a pretty big shift. And you would see a lot of optimism and aggressive moves then. And then kind of actually before that you had mobile where there was a big shift in mobile 05 to 10 where you had, you know, a pretty substantial amount of options of what was going to happen in mobile and you had a lot of technological shift happening. And sort of forward to now, I think we're in the AI moment and only you get around it. I think it's in every, you know, executive shareholder call. It's in, it's on everybody's mind, it's in everybody's topic. I'd say everybody has exactly what they want to do or the moves mapped out. But I think we're in a significant technological moment and I think the AI moment more broadly just means sort of advanced tech. You know, it's not just a chatbot, it's how you use data, it's how you use machine learning, it's how you use, you know, lots of new tools, robotics, you know how you use a lot of stuff. We're in a, we're in a moment where there is a realization that a lot of tech is happening fast and that winners and losers are going to get sorted. And, and I think that that on the strategic side and I think that is going to combine that with some I think a fairly optimistic view of where capital markets are and generally the outlook of the economy. You combine those two things together and I think you have the next two years are going to be pretty, pretty significant and so great. Yeah, that's exciting.

Yeah, no that's exciting to hear. I mean it's been interesting too over I've been in you know tech for 20 years, venture for 10 years and 10, I mean along that path, you know when venture funded businesses we would do it and the company had to be an IPO able company. You know, it had to be this category creator, you know, 10x+ returns to underwrite. And it's been interesting to watch since kind of the, you know, Uberization of private companies where you just don't go public, you stay private forever and you have Uber, you know, took forever and striped is kind of the canonical one today and Canva and you know you have all these multi billion dollar revenue companies that are not going public intentionally. And then at the present moment you're adding in the huge AI majors, you know OpenAI and perplexity and Anthropic and all of their private peers who are now raising so much capital. I think the venture mindset is changing to say okay, you know like IPOing. Yes, hopefully you can find one then you can invest in the perplexity that will IPO. But in advance of that or before that there's just a lot of other m and A opportunity on the table to still get 10x returns going into these very large companies. And I think we need ventures kind of resetting the shift on hey, what are the expectations and how do we underwrite that?

Yeah, agree with all that. And look, even if you are an IP company the number of IPOs is way down. So just the traffic like even if you wanted to, not only guys you mentioned that don't want to even if you wanted to. The window is skinny and there's a lot of good companies. You go talk to a big bulge bracket bank and ask them for their IPO report it's going to be a giant sheet of companies that are ready to go public and they're all kind of waiting to get out. So it's A backlog. Even if we had a great next two years, there would still be a backlog of issues. Yeah, totally. If you're looking for liquidity, you know, I think you should be thinking about it but not saying. You put every, you know, we're going to talk about this too but don't put a for sale sign in company. But I think there is a, an understanding that M and A as an investor is going to be a pretty important part of your strategy.

Yep. And so maybe it's a good time to kind of shift into the magic box paradigm and kind of set the stage for how you think about organizing M and A and kind of advising people whether they're your advising directly or through your book or through, you know, know, Advisor of the network.

But yeah, so quick background on that. But I have one visual I'm going to show. That's it. Cool. The, the, you know, the book was originally I actually started a file I called the BBMA the Big Book of M and A. And what I realized was over the years I was seeing things happen repeatedly and getting, you know, you know, it's great because you get to see all these really smart people at a really stressful moment, you know, really writing their brains. And I was seeing interesting things people on the buy side were saying. I was seeing interesting things people on the sell side were saying. I was surrounded by these, you know, legendary attorneys and able to sort of just take notes on things that I noticed that were themes. And then I was also, you know, in with working with other bankers who had their way of doing things. And I began to realize that there was a mismatch between how things really worked and the way people were approaching startup M and A and, and the mismatch just became more and more pronounced over time. And so in about 10 years ago I said, you know what, I'm gonna sit down and write this up into a book. And then I'm going to, I'm going to start a firm called Advisor which is basically going to follow the book. So we kind of open source our method and said here's our method, here's our philosophy. And some people look at it and say that's nuts. And some people read it and go wow, that's really helpful. And we as a team follow the method in the book. And then we, I've expanded on the book on my substack so I have a substack MVP co where we're going to see one thing from there and, and then we expand on the ideas there. But the idea is that there are things which are consistent with traditional, you know, theories of how this stuff should work and there are things that are really inconsistent. And look, I pin all this on the fact that most bankers, most of baking, you know, philosophy and theology descends from Wall street where you're. It descends from the IPO market ultimately. Yep. And so in the IPO market, you're selling the company itself and trying to get people to believe it's a great company. And you're trying to basically get the best value. You know, you're creating an argument for why this asset is. It should be a premium, highly valued asset. This high value as it can achieve. So the story is all about what the thing is in and of itself. You start up M and A, it's a buy side driven business. And so ultimately the story isn't about what you are in and of yourself. It's about what you can unlock for the buyer. And so it's a radically different starting point. And so the magic box paradigm. The reason with the magic box is this is my magic box right here is in the magic box, depending on who opens it are gold coins, silver coins or, or a lopea coal. My friend actually painted a magic box.

For me that is very cool.

And the idea is it's in the hands of the beholder. So the thing I want to share here, Let me share my screen real quick. I have not shared on, on here, but it should be. I'm semi consistent with other modes of sharing. You see my screen?

Yes, I do. So for those of you who are just listening on audio, join the video or I'll link in the show notes to. To what Ezra's going to show here.

So this is around the snap stack with a lot of new stuff. It's gonna be quick and straightforward. But the, the it's sort of three pictures, ultimately one picture. But in our view, if you had to summarize, this actually isn't even in the book. But it's become pretty popular with, with, with folks as a visual for that frames kind of what we're trying to accomplish. You know, our view is that M and A is derived from a big idea. And a big idea is, you know, another way of saying the M and A thesis and, and the big idea is something that you actually constructed. And a lot of what we talk about in the book is how do you construct big ideas? And the big idea landscape is shaped by the forces that are creating the realm for this opportunity. And so it could be economic pressures around the edge it could be emerging technologies, we talk about AI, it could be new risk factors, it could be regulatory, it could be changes in consumption dynamics, it could be changes in supply. Whatever the forces are, they're the big ones you'd want to articulate around what is happening in the market that creates the opportunity field of play, so to speak. In there is your startup and you're the red square in, in that arena. And then there's the, what we call in our world psp, which is potential strategic partner. And that, that partner has some blue squares, probably bigger than you, doing something as well. Related, not exactly the same. And there's a large area. It's very easy to just think about the red square and the blue squares because they have mass, they have color and interest. The reality is the gold is in all the squares that aren't filled in. That's where actually the opportunities lie. It's not in just simply focusing on the red square, it's focusing on, on, on the things that don't exist yet and creating a reality in which there's going to be an unfolding opportunity that you can take advantage of. So what that gets you is the purple squares, and that's a blend of red and blue. And the red square now is the key to unlocking the. Those purple squares. So the reason you get outperforming Silicon Valley valuations is because the company isn't being valued on the red square, it's being valued on the purple squares, it's being valued on what it unlocks. And so if you're totally focused on the single box, as it were, you're not actually releasing the magic. And the magic is how do we unlock and create a big idea that has a substantial mass to it and substantial weight that this PSP A is compelled to execute upon and B is compelled to execute upon with you, because you're the key that unlocks the whole thing. So if we think about the purple squares, that's how you, that you want that to be the frame. And so what we're trying to do, we're in the business of, of creating purple squares, if you had to sum it all up. And so if you think about what we're trying to do collectively and what we want to help, what you and I are trying to help, you know, some of your vc, you know, listeners and community think about, is, okay, how do I help my companies create a succession of purple square opportunities? Purple box out. Yeah.

Yep, yep, exactly. Yeah, that's really interesting. And you know, I've experienced you doing this process with a number of different companies. I guess, you know, from the VC and board member or portfolio manager perspective, you know, how do you counsel investors to be able to take advantage of this? And I guess especially in this type of an environment where, like I was saying, portfolios are getting older and it seems like it is a good time for M and A, you know, when you talk to a room of VC general partners, how do you counsel them to approach their portfolio or their individual companies in a market like this?

Yeah, so for a couple things, and we write a lot about this, I poke fun a little bit at some VCs on my, on my substack, I do a thing called hot takes where I go and take what other people are saying about M and A alignment's v stim and not all of them. There's entrepreneurs apply our method to what they're saying. And, and sometimes it's good overlap and sometimes I think it's, you know, a few things to point out to maybe you want to avoid. And, and so we have some fun with that. But the headline is this, first off, we have a item, not a meme, but a notion that recurs on, in the, in the writing that is get out of the sales process mindset. Everybody thinks of selling my company. In fact, almost everything you read on the topic is how do I sell a company, how do I start, how do I sell, exit sell. It's actually end process. What is the process for selling? And so one of the things that we try to basically say to folks is okay, that that mindset is actually very limiting because when you're in that mindset, it actually frames everything in a way that everything is now for sale. It is a sales thing. It narrow casts your thinking. And so what we want to do actually is expand the playing field a little bit and think a little bit differently about what you're trying to do and how you're trying to do it. And I think that really, I think the venture capital board members and investors and board advisors actually have a real opportunity. One of the areas I think they really do have an opportunity to influence is how founders who probably aren't very good at this approach this stuff and they can actually have that influence very early on and significantly increase the chances of success for both the founder and the. And their fund. And so I think, you know, it's like thrice blessed by being a little bit early. And so what I say to folks, first off, I just, I really recommend reading the book. You know, I know it's Self serving, but no.

Yeah, right. MVP CO is the blog and you have.

And then there's a book out there.

And get on Amazon and whatnot.

Yep. Yeah, read the book. In fact, anybody listening to this, if you DM me on LinkedIn or send me me an email, I'll send you a signed copy of the book. This is say you.

Yeah, say you heard about it on DC Mastermind.

There you go. DC Mastermind, you get free PC Mastermind copy and I will even write PC Mastermind in there. Awesome. So the. So anyway, so yeah, so hit me up. I'll send you a copy of the book or buy it if you're overseas and I'll venmo you. The. The. So the headline is a few things you can be. You can have a lot of impact. And the first thing is let's break free the sales process mindset and let's set the foundation. If we're thinking about purple squares, we'll use that. Purple boxes, we'll use that, that, that metaphor. What you want to be doing is getting your companies to start to build big ideas with strategic partners. It's amazing how many times I get by a CEO. Even if you have a relatively substantial startup that has almost no industry relationships and almost no real landscape built out of what's going on in the category, a little bit here and there, but almost nothing really. And we call that a standing start. And there's no reason for anybody to be at a standing start because it doesn't require that much work to get a huge head start, giant head start. And so what we would say is start to think about, okay, where, what are, what's the frame of that box? What are the things that go around it, what are the big trend shifts happening? And by the way, a lot of your operating strategics are going to be interested in those same trends. Start conversations, identify who are the companies I would even as a board member, say have as one of the elements for board meetings. Okay, what's the. Who are the list of potential strategic partners that we think are important and who at those companies, not just names, but who at those companies are the heads of product in our area that we should probably get to know somehow, either at board level or whatever? By the way, if you're a VC and you call up ahead of products, say, hey, I'd love to pick your brain on X, Y and Z, they're going to take that call. I mean, yeah, so you have a great way to start building the, the pipeline of big ideas and talking to them. And it doesn't have to be about selling the company. You don't even bring up the company. Just start talking about those big trends, the out the outside of the box and, and then, and then start to think about, okay, what are the key elements that would be interesting to potential strategic partners? Understanding that most startups aren't bought for what exactly they are today, they're bought to power something bigger in the future. Almost every startup acquisition is directional in nature. It's not a thing in and of itself, it's what the thing unlocks. In fact, I can't tell you, in fact, for certain companies your startup is like a big resume. Just basically it's proving that you know how to solve this problem. They're planning to throw away almost everything you built. In fact, the mentor I mentioned that got me into the business said 90% of the value in a startup is learning curve. And you know, probably varies but you have to think about the open ended nature of that conversation, which is great. You know, a VC conversation, as I say in the book, is a pretty closed ended. You know, there's really only one big economic tool which is inserting cash. There are some other things. VCs great. But you know, the big if I'm pitching you, I have to come in with a story about how I'm going to solve for distribution, how I'm going to solve for product, how I'm going to solve revenue model, how I'm going to solve for every aspect of the company. If you're talking to a big strategic player, they've got most of that already solved. What they're interested in is are you going to unlock something substantial for us and is the way you're doing it going to align with the way we do stuff? And most people say, well they have like not nih, not invented here syndrome or something that company. But the reality is it's not that. It's actually not my way. So are they, are you doing, are you going to unlock this big thing and are you doing it in a way that it's going to match the way they do stuff? That's what they're really. So what you want to do is start to set the frame as a, you know, a VC get in my opinion is get entrepreneurs thinking about this stuff, get a little bit of a programmatic approach to understanding who those companies are, getting to know some of the people of those companies, setting the framework for that big fba. And guess what? None of that is being for sale right where that's going to Go. It may start a partnership, it may start an investment, it may start a collaboration, just start a knowledge sharing. It may start nothing. And it may, you know, bloom into an M and A deal as if you follow the progression. So there's a progression, you know, that we are, that we outline that of. Okay, now once you're in the room, how do you go about building a big idea all the way to an M and a thesis that is, that's the core that you have to follow. But, but outside of that, just getting started, don't be at a standing start. Don't think of as a sales process. Think about as a getting to know companies starting to build big ideas. And guess what? Each of those purple shapes is going to be different from company to company. And so you're going to end up finding all different kinds of a spectrum of opportunities that you can take advantage of. So I think it's a great opportunity for a huge amount of value add from investors to start the team and just a little bit of effort getting to know who those companies are, who are the people of those companies, what things are they working on. And last piece on that is take the stuff you're learning from all of that and produce some targeted, what I would call strategic thought leadership. You know, consolidate that thinking. Because thought leadership has a lot of benefits. It becomes a great tool for starting conversation. It also is a beacon because what happens is when you start to think about areas and topics, they actually go online and start to search stuff and they, and you want to be known as having a refined hue of these topics and thinking at their level. And one of the things that we really push our clients to do, thought leadership. And it's amazing how many times we get on a zoom or something with a strategic part like, oh man, I watched your podcast or I watched you this on this and I really agree with this and that and it's a great way to triangulate and reinforce your ideas. So also got time, but a little bit, a little bit, you know, one piece of quarter or something that's targeted. Yep.

That's fascinating. So you're saying like get started with this kind of, not that this is an ML M&A sale process at all, but you're saying get started with this value building, strategic relationship building process almost at the time, like of a VC investment day one, like if I make an investment day one, we should raise to the board level that we should list all of the potential partners, competitors, list out who we should talk to and just start having coffee Meetings, day one. Like, yeah, that's fascinating. That's brilliant.

Yeah. Get going now. Don't worry about. It's not for sale. It's just, remember. Right, remember. You know, one of the things we say is the grand unifying word. You'll go, what are you interested in? You know, why are you talking to me? In fact, terrified of that question. They're like, oh, man, I don't want to. What if he asked for, do you want to get acquired? And. And, you know, there's one word that you can unify all the answers to all those questions, and the word is impact. So all you have to say is, I'm interested in. I'm a founder of this company. And yes, we've raised some money and we're doing great things. I want to have the biggest impact possible on the world. And Aaron, and if that means it's a partnership with you guys, that's great. If it means getting acquired by somebody, that's great. That means I take some money from you, I do something, that's great. If it means I do a licensing deal, that's great. So I just want to have the biggest impact. So I'm here, sitting here across from you, Ms. Mr. Strategic, because I'm just looking for ways to have an impact and to get more people on the bus and to get more resources and wherever we decide is the best way to have an impact. I'm going to follow that thread and boom, conversation. You didn't say you weren't interested in M and A. You didn't say you're only here for M A. You just said, I want to have a year back. And M and A is one of the things that may happen at the end of the. At the end of the game. So now you can get your founder, because a lot of times, you know, in front, I pay from two ends, I get paid for vc saying, I really got to kind of figure out how to get this foundership. And if I go tell them that I got you guys started kind of thinking about M and A, then they're going to get all, you know.

Yeah, that ruffles feathers for sure.

Yeah. And then I go on the other side, like a friend Will Quist has said multiple times, can you take your whole book and just take the word M and A out of it? Because I didn't give it to my founders without bringing them, like, to the therapist. So the. And I'm like, actually, I'm thinking about doing that in a different way. Like a brilliant kind of book. Yeah. The other conversation I get is for founders saying, hey, I really want to get this going. I'd really love to work with you, but I got to go to my board, and then they're going to think I've lost faith in the cause and how do I do that? And so there. So the problem is, we have to do is take the pressure out. Like, Right. Like depressurize the whole situation and say, look, yeah, it's about building big ideas with strategic partners and creating a landscape of opportunities, and then M and A comes out the back end. Now, there are times where you have just more significant constraints, or maybe you're just late to the party with a company and you just. Didn't you get to this podcast in time and you're out of money and whatever. Yeah. Then you got to be more aggressive. And then there's strategies for doing that, but that's. Don't optimize for that. Like. Like, if you're a newer investor and you're placing capital now, you don't want to end up there. You want to do what I'm talking about and not end up there. Yeah.

And it starts years in advance. Yeah, that's brilliant. When is there. And kind of maybe dovetails into like, all right, you know, let's say you do have more time, pressure, need to sell, but when is the right time to bring in an advisor?

Yeah, so it's a really interesting question, and it's also one that, you know, we get a lot, and it varies from case to case. You know, to me, there's a set of actions that can kind of describe, not go back through all the actions, but we talked about a set of actions that people should be doing to build big ideas. And I did. You know, I mentioned before, you know, we hopped on the recording that I get emails, calls, you can search on LinkedIn. You'll get random references to the book that people used our process and didn't hire bankers and got great deals done. In fact, a couple of the COVID quotes that I specifically want as cover quotes are people that use the book and didn't use our firm or didn't hire us or anybody and just got deals done using our framework. So I love that. That is so satisfying when someone. Yeah. LinkedIns or calls. And, man, I just. I used all your stuff and I. I just. I literally just did what you said. Or somebody emails me and said, look, I followed your guidelines how to create my deck. And it's literally like the slide bins from the book, and they created the Thing and it's great. You know, that's awesome. And so I think some cases the answer may be never. Would you hire advisors if you have a propensity for this stuff as a founder or, you know, board, you know, if you kind of. If the d. If the right sort of mixture of personality traits is there and you know, all of a sudden my book helps you and then substack helps. I have a founder I talked to the other day and this young founder and, and he, you could tell he was just, you know, he wasn't going to hire us. We're going to hire anybody. He was just going to figure this thing out and do it. Yeah. He maybe drives off a cliff, but I think he's gonna do okay. So the, the so. So one thing is maybe never is a reasonable answer.

Yeah.

Next question is, okay, what are the reasons two and what value, you know, would it. Would. Where would it help? One is to just accelerate the volume of activity happening. I mean, you know, a lot of times founders and CEOs just need help because it's a. To do this right and to do it our way is up. Uses a lot of CPU because we're trying to basically build the purple squares, build the big idea. You go through and see where build the opportunity thesis, build the methodology thesis, build the execution thesis, build the economic model. It's a lot to get done and a lot of times CEOs a just need or teams need expertise and help. And if it's like, yeah, we really want to accelerate all this in a more aggressive mode or we're in a tricky deal and we just need help because this is really tricky and the stakes are really high. Like I got into a deal a year and a half ago almost at the end frankly. And. And they just said we. We don't have the right thesis formed. How do we re. Engineer this thesis to get to optimal and how do we get this thing to close? Because there's frankly also some closing dynamics I talk about in the book that are unique to this. I won't get into that now. Yeah. But yeah, so I would say in special situations or situations where you need to increase the volume, those are cases. Or if it's just really acute, like we got to get something done for various constraints. Yeah. We tend to shy away from. I used to do a lot of those deals. Like I got, you know, four months of cash left in the bank and I kind of frankly got a little bit known as the guy to do those deals, which is. Yeah. Honestly was on One way flattering, another way. Kind of made you feel like, you know, Mr. Wolf and Pulp Fiction or something. Yeah, I'm shy right now from those deals. They're super stressful. So we tend to shine towards how can we really help you build the right landscape, build a big idea and do things correctly. I'm not saying we never dabble, but we tend to shy away from that stuff. But there are bankers who do that stuff and do a great job and they're probably not the best. We're not. If it's a straight line, I got to get this thing moved. You know, there's probably better folks than we are for doing that today. Y and, and, but you don't want to be there. Let's not be there as much as possible because you're chopping zeros off your valuation. When you're selling, you're chopping zeros off. You want to be bought. Yeah, we're creating the environment to be bought. Love it.

The magic box paradigm.

Love it.

So shifting gears a little into the kind of private equity style acquisition, you know, a lot of our portfolio companies are getting inbounds and a lot of inquiries and as we've gone down the path, the valuations tend to be more lower, but they're definitely tied to revenue and potentially rule of 40 type metrics. You know, I guess what are you seeing in the market? And then how would you counsel investors and founders frankly to think about PE exits?

I mean, we're seeing more, we're doing more. We've done a couple, three in the last couple years and, and, and you know, some relatively well known ones. We've talked a lot about where our transactions are. Just like I can never remember, I can never remember like what I'm not supposed to. So I just don't say anything. Good policy. We've done a few and as I mentioned before, we're seeing. Everybody's getting those emails. Right. You know, we're looking for the SaaS business. 5 to 25 million in revenue and you know, 5 million EBITDA. Give us a call. So every founder is like burying those emails and frankly a couple of those emails have turned into deals. So it's not worth just, you know, not always delete them. The. But I mean a few things. First off, understanding the playing field. Good news, it is a more efficient market. There's a lot of them. They have the same general incentive structure as you know, VCs. They need to place capital, they want to place capital, you know, on the strategic side. Almost all of the incentive structures are against M and A. Like they don't want to buy you, they will do anything but buy you. In most cases they, they would rather do a license deal, a partnership, a test or this, whatever. It's crazy risky if you're an executive and the thing doesn't work out and, and you spend a ton of money buying this on this crazy purple boxes idea. It's an extremely high hurdle and a very inefficient market. Which by the way means whenever you have an opportunity, you should take it seriously. For my strategic because even if you think the company it's, it would, you're better off having a great amount of interest from a strategic in something with a half baked company than a full baked company with a little bit of interest from strategic. So you can never know the time when lightning will strike. And I have had significantly less sort of robust companies acquiring for great amounts when it was perfect fit for the buyer. The purple square is the buyer was trying to fill in.

Yeah, that's super interesting.

Then the perfect company and waiting for the perfect company. I tell you a funny story offline about that. My, my great example when my founder we were got in San Francisco and the founder was like I don't want to talk to anybody because I don't know what I would say because they were doing some slightly shady stuff as well and, and they got bought by it for a ton of money by a buyer who had a very specific thing they were trying to accomplish and these guys could accomplish it. So it's much, it's a buy side driven business and because of that inefficiency, take every deal seriously. Nothing. Do it, just take it seriously. Then PE market efficient, you know, there's structures, they want to move the money, they want to place capital, they want to do deals, they want to buy stuff. Are you a good match? Don't know. But you know, you could go through the cycle of relatively efficient conversations because it's an efficient market trying to do deals, which is great. And if you're trying to do deals fast might be the better way to go because you can, you know, die on the barbed wire in the trench warfare of strategic, you know, try and go for the, you know, outperforming valuation that you may not get anyway. Or you can go to the PE market and probably have a, you know, more utilitarian valuation but get a deal done. And we have that conversation a lot with folks. Yeah, yeah. Two things. One, there's really the same number of purple boxes in that case because they typically, there may be a bigger thing they're trying to do and you want to create that environment. A lot of times you'll do that by saying, hey, buy us and we're going to go buy these other companies. And I have one company that's really bought, you know, a lot of stuff since they got acquired. And that is a kind of variant of that purple, you know, purple box strategy because you're building into a bigger strategy that's then going to have leverage points and all of that. So you know, they're, you're going to take some of that thinking but ultimately they don't, they're not bringing to you larger distribution channels or immediate extension of monetization and secondary and tertiary benefits and reductions in churn and enhances, you know, LTVs and all the things you get with a strategic M and a deal, they're kind of buying the red, they're buying the red box. And so you're going to then have to deal with, you know, more of a traditional, some form of, you know, multiples based, DCF based valuation dynamic. And, and so you're going to, yeah, you're in that game. And so now the question is how do you strengthen your hand? Then I would hear again, there's ways to do that. But it's just going to be more of a deal around, you know, A, you know, how strong is that fit and B, what's the structure of the deal? Because a lot of times these deals get pretty structured. You know, they'll want people to roll over equity they want to earn out. So why do this? And so then the question is understanding what the deal even is. And it gets really freaking complicated. And then, and then, you know, to some degree competitive dynamics. You know, I'm not a big, I'm very careful with the competition and we can talk about the myth of competition, but competition is what drives everybody's view of this stuff. And we're much more about how do you find the outlier versus how do you play people off each other to get the best deal. But in that game, maybe a little bit having that dynamic and then the second piece of that is, is the company doesn't have real shock with these guys. You know, I think that, you know, it's going to either have to be a pretty substantial asset, you know, if you're not profitable, you're losing money and there's going to be, there's going to be a lot of vision on the buy side. If you're, you know, honestly, I think you got to be at least break even realistically. Yeah, I'm sure people might be more aggressive, but I think. And then you're going to have to have the right story for the growth opportunity post transaction. You know, they're dipping down below 10 million, you know, 5 million revenue type things. But burn though, kind of 1 to 3 revenue range kind of stuff.

Maybe on multiples you may.

Yeah, maybe you get to five, you know.

Yeah.

But the multiples are, you know, you're in the multiples game, which we don't want to be in anyway, and you're, you're not at the great end of the multiples game. Yeah. You know, there could be, you know, there are folks that do random things, people paying 10x for stuff, but it's, you know, the meat of the market is going to be, you know, relatively utilitarian.

Yep. Makes sense. You touched on deal structuring in pe and I don't want to get into that rat hole, but I did have a question that from something you mentioned earlier. In a strategic M and A scenario, what is that? What can the investor expect to get out of that? Is it stock in that combined company or in the acquirer company? Is it cash? Is it a combination of both? What's the expectation and how can that be shifted over time?

In the strategic scenario, like with the.

Strategic operator, let's put PE aside just in the strategic round up the future.

Vision and just to round out, the other challenge with the PE stuff is debt. Right. They're going to take debt and there are people doing revenue financing behind the scenes and other interesting financial vehicles. But it is ultimately a lot of times a leverage play. And so that has its own set of dynamics about how is the company going to unfold and, and what the impact of how they're going to approach running the company on the potential of an outsized burnout and all this kind of stuff. So you have, it's just, you really have to, you have to think, you have to imagine this thing rolling out if you're going to do those deals. So we'll put that over here and think about how those dynamics can work on the burning side. It's kind of, you know, it's kind of everything. And there are a few things that would be interesting to sort of poke on. One is, and you said this really well at the beginning, cap tables grow out the window. Yeah, you're right. That's true. I have another thing we call the myth of the cap table, which is, which is, you know, you spend all this time you know, refining and perfecting exactly how the liquidation stack is going to work. And then the buyer comes in and goes, well, here's what we're going to pay, here's how we're going to structure and that, you know, it matters between the investors to some degree, but it doesn't necessarily matter exactly in some degree how it relates to the team dynamics. So a lot of these deals end up being two deals. There's a deal to acquire the company and there's a deal to retain the team. Right. And sometimes the second deal can be bigger than the first deal.

And so that's what I have seen most common.

Yeah. And so what you have to figure out is by the way, that could be another reason to have advisors because there is a set of moral hazards and agency dynamics that, that, that could be useful in certain situations to have an advisor negotiate with you because at least you know that, you know, I say the founders are, I say it in my book, I say, look, there's time as a founder you think you're so used to you, you know, having to be antagonistic or whatever with your investors. Reality is a lot of these M and A deals, you have to defend your investors and defend their, the risk they took to get to now. And, and so the reality is, you know, having advisors at times can be useful there too. And, and the other reason I'm advisors sometimes is for the advisor to be the bank. But, but that, well, with that to the side into consideration, you see a lot of different things. You see some folks that just pay cash and it's, you know, sometimes cash upfront, deal done, that still happens and that's simple and easy. We see, we don't see and we really try to avoid earnouts with operating companies. We have a lot of built up knowledge capital, industrial logic, whatever around why it's not great for the buyer either. And a lot of buyers also have gotten pretty mature, especially the more tech buyers have gotten pretty mature as to why earnouts are constraining on what they're trying to do later and so they actually avoid them as well. We do see, you know, we see that quite a bit in the PE world and not that much in the strategic world. Now what we do see is people, you know, if it's, if it's a high growth private company, we do see a lot of hey, let's take stock and you should really consider it. I mean I've had, I had a company, you know, do like a $150 million deal and in cash when if they take in the stock, not that much longer, we're worth about one and a half billion. And they, and so you people walk by a lot of, you know, a lot of money. And I've also had, I had one deal where we did a snub deal, which was a secondary. We sold the most of the company to company A. We sold a little bit of this thing to company B. We got like, I think their enterprise value was like 30 million. We got like two and a half million of value at the close. They went on to become worth 980 million or something and the position was worth 150 million. And so, I mean, seen some crazy.

Stuff and almost like making a new investment decision at that point for the investor.

Right, exactly. And that's one of the things we say, is that when you're doing a private to private type deal, you're buying them as much as they're buying you. It's really a mutual exchange. And so I really recommend, if you look carefully, most of the big, most of the ultimate big outcomes I've been a part of, the really big stuff isn't on the primary trades, on the secondary. It's what happened next. Yeah. And I know people that have some very big houses, specific heights, because they. You're gone. The right rocket ship. Yeah. And, and so the, the. So that's one piece. The other piece is then just, you know, structuring the deal in the right way. So another thing that happens is people say, hey, you know, on these deals, strictly if you're kind of more in the. We gotta find a way to make it work. You know, you get proposals from private companies and say, hey, you know, we really want you to take our stock. Then the question always becomes, you know, what was your last round? How much? What's the overhang? This and that. And all of a sudden you get lost because you don't really want to. You don't want to go to the bottom of their, you know, mountain. Right. And so there are ways around that too. So first off, two reasons people want you to take stock is one, they don't want to use their cash, you know, reasonable. And they want to align incentives. They really want you to come in and be part of this journey. Yeah. Going forward. And then other times, I mean, sometimes they may. Actually I've had deals where like a notable board member or something was very attractive. And they're like, well, I want you to come on. We also want so and so to join our board and all this kind of stuff. The There's a lot of ways to get around no cash. You know, we've structured deals in all kinds of ways using debt. We've structured deals at the convertible note actually from the buyer to the seller. So that, that really aligned the interest almost the same way equity would. But it put us in the stack. We also use a safe structure kind of thing.

Interesting.

So there's ways that we can say, hey, let's solve for. You don't want to use cash and we don't want to be the bottom of the stack. Let's solve for both of those and figure out a way that we can still get a deal done in a line and sentence.

Yeah.

And.

And so they're bottom of the stack, meaning taking common equity, essentially.

Yeah, that's right.

Is that what you're saying?

Yeah, yeah. As long as they're like, hey, take our common. I mean usually the default offer is take our common at the valuation of our last preferred and $250 million preference stack and they've got 30 billion revenue.

Yeah, you're not going to do that.

I really like what you're doing, but that seems a little risky. Is there another way? And, and you could find another way. So you just gotta be a little creative to find another way.

Yeah, that's smart. I mean that would be another reason to bring in an advisor. Right. All the kind of financial engineering of a deal. We're getting close to the end of our time and I don't want to take all your time, so I really appreciate it. But I guess in wrap up, you know, what are some conventional wisdoms around startup M and A that are often wrong or off base. Any quick ones to share?

Yeah, look, I think this relates to how you can be a good VC board member, board observer, counselor, by, by knowing some of those things. Because what happens a lot is people apply their intuition or their conventional wisdom or a small sample size and, and I call it the frog DNA. Like in Jurassic park, people will take a relatively small sample size and the bits. They don't. No, they sort of insert frog DNA. What comes out is sort of M and A advice which a lot more like T. Rex. They're like what you want, man, that's funny. Yeah. So you really gotta be careful with inserting the frog DNA into your M and A advice. So the, the. So a few things. First, a lot of this is in the book and on substack, but it's right like 1% are actually gonna do the reading. The. Your traditional top track from a banker is gonna be. This is a great company, really exciting technology. What we're going to do is we're going to get the company prepared. We're going to get it in front of the best buyers. We're going to drive a competitive process. We're going to get you the best price through that competitive process that is, you know, hit the button, roll the tape. That's what most bankers are going to tell you. And they'll bring the.

I've heard it.

They'll bring the pitchbook. It'll have, you know, really cool stuff in it. You're going to get. And there's going to be a calendar and it's going to give you a date and it's, you know, everything's back is great. Right. It's just, you're like, I like order and structure and it's going to be awesome when they do that. The reality is that nothing really works that way. And it's, you know, it's much more chaotic. You don't want to be for sale. First off, that's all a function of a sales process mindset and it overemphasizes the role of competition. And the challenge is that the reason that competition is really hard in this business is because those purple boxes are in different shapes, they're in different phases, they're in different alignment. And so what you're really looking for isn't to create a competitive dynamic. It can be useful and honestly it never happens and it's not useful at times. But your default should be, I'm really looking for the outlier. So how do I find the folk that needs what I'm doing more than anybody else has the best thesis and really build my big idea with them and have that be the one that's the best. I had to do it one time. We had three or four of the logical buyers and one of the big tech companies came in and paid like three times more than a. And yeah, okay, there's the outlier. And so we found the outlier in that case. So the re. And I've had a lot of deals fall apart through competition because one of the problems with competition, the heavy uses of competition is you piss people off.

Yeah, it's burned out.

And you burn out your backup options. You burn out. You really gotta be careful. And so over. Over indexing that competition as the driver. Designing a strategy specifically to create competition, almost, you know, designing a bad idea. And so that's one, two. Overplaying your hand. People will overplay their hand all the time in this Stuff. And you just gotta be really careful to think about, okay, what am I actually trying to accomplish here? And not try to overplay my position. That would be another piece. Just be very thoughtful about what cards you really have and how important is it to you to get a deal done versus, you know, the deal. Next one is writing. You know, shopping, you know, very common. People will say, get it writing, and then we'll shop it. First off, you don't want anything already in a process because it makes it less movable. The more things get writing, the more people have to buy into it, the more people have to approve it. Interesting. The more people have to say stuff. Everyone wants to get stuff. Right. Don't get it writing. The last thing you want is things in writing. Writing should be at the very end. I don't want anything writing because as soon as it comes to writing, then eventually I'm gonna get an exclusive provision that's gonna screw me up. And then eventually we get a bunch of those. Either they want to buy your company and there's a lot of purple boxes and they're excited about buying your company, or they don't. And term do not help you, they hurt you. So the M and A and so the.

Yeah, fascinating.

You want to keep it fluid, keep it open, keep negotiating over email, keep figuring pieces out and get as deep. We do deals sometimes where we never even do an intermediate. We call it intermediary agreement. Loi. Our terms, we go straight to definitive agreements because we figured it all out. And sometimes we actually are negotiating definitive agreements with more than one poverty. And so the reality. Conventional. And so the reality is no on paper. No paper. Don't get anything on paper. Yeah. Wait till the end because you're locking them in, in their commitment level to what they're saying. And you're locking you in to terms that you may be able to significantly approve as you're building the big idea now again, sometimes you can't fully avoid it. Somebody's got to deal with it. There's section in my book about what to throw into it, term sheets and allies to optimize them. But you know, don't rush to paper and shop it really. I mean, you think you're going to take this thing and it's under NDA anyway, and you're going to go to get 5 of the people to buy a company because you maybe have something. It's a very. If you're there, you know, you can do it sometimes, but it's not where you want to be. You know, where you want to be is multiple concurrent big ideas. And then, you know, maybe leveraging your confidence in each one. Almost no strategic buys a company because someone else is about to buy it. They buy it because they need it. And so no point to create sort of this giant immediate bidding war by getting some piece of paper is. Is again, maybe, but very unlikely. And so the reality is build really good relationships, build really good theses, build multiple of them, have multiple auctions, and then decide which one is closest to the outlier and work to get, you know, a great outperforming deal done versus trying to do a bunch of, you know, you know, not on the street at noon and get your pistols out. It doesn't work that well. So again, yeah, there are exceptions to the rule. I'd give you some stories where it has, but if you want to build a strategy and you want to be a board member, that's looking long range. Do the stuff we talked about earlier.

It's amazing, man. Starting early, right? Starting early. And so here just pulling up on the visual MBP Co MVP CO is your website and your substack or you can see the book. And so, Ezra, thank you so much for sharing incredible knowledge. I mean, I've known you for 17 years. We've been involved in a number of transactions together and I learned so much right now.

Thank you.

I really appreciate it for sharing your time and. Yeah, thanks so much.

Well, thanks. It's been great to work with you on so many different venues and so many different avenues over the years, and I'm flattered to even call. Thank you for, for giving me some time to, to talk about this stuff. Great. Good luck with this new podcast. I think this is really exciting and I think it's, it's. It sounds like a you're hearing. I saw some of the topics you're going through and, and if you can get, you know, all these things laid out, I mean, talk about a masterclass for folks. You're adding a lot of value into the ecosystems. Yeah, I hope so.

I hope so. All right, thanks for being a part of it. Thanks to Ezra Roizen, GM of Advisor. And thanks to you all for listening to VC Mastermind. I'm Jacob Mullins and we'll talk to you soon.

Thanks so much for listening to the Village Global Podcast. You can check us out online at VillageGlobal VC. We'd love to hear from you. Your feedback, your ideas, your inspirations. You can email us at. Hello@villageglobal VC.