What I Learned Selling My Company: Insights into M&A Harry Glaser, Periscope Data & Modelbit

few moments to get settled here in the room. We have a great session in store for everyone. So thank you so much for joining. As always, we want to hear where you're tuning in from. And we want to be able to connect with you in the Q&A. Harry is excited to chat with everyone. Harry, I think you're coming in from the Bay Area, right?

San Francisco, California.

Great. So we'd love to hear where in the world everyone else is. Harry, sometimes we literally have people from all over the world. So it's always just fun to see where people are coming from. Looks like already we're seeing some folks from Canada and then on the East Coast too. But thank you all so much for being here. We are really thrilled for another great session. Before we get kicked off, I just want to remind everyone we are officially 62 days away from our next in-person event in London, SaaStr Europa. Tickets are still available, and right now we are running an amazing promo for SaaStr alums. It's 40% off, and it's probably the best price that we're going to have before the event. So don't forget to snag your tickets. I will drop a link for you here in the chat. And then we are excited to welcome Harry Glaser, founder of Periscope Data and currently the co-founder and CEO of Modelbit. Harry is gonna be covering an awesome session about M&A and the lessons that he learned from selling his company in 2019. We're gonna have a ton of time for questions as always. Harry has some really awesome slides that he's gonna walk you through. Kind of went viral on a post that Harry did a couple months ago when he just decided to throw some learnings up. And it's really resonated with people. So we're excited for Harry to dive into it with us today. So welcome, Harry. Thanks so much for joining.

Thank you.

We will get started with just a couple quickfire questions. Um, would love to hear from you, what project are you working on today that you're most excited about?

Oh, well, I'm working on a new startup, uh, which is kind of wild. When we go through the presentation, you'll see more how— what a sort of stressful experience Periscope was over a decade of my life. But then got bored and started a new company. So Modelbit is an MLOps platform. And it's been a lot of fun.

Awesome. It's probably related, but in the last 12 months, what's the hardest thing that you've worked on?

Well, Modelbit writ large, for sure. But I would say we raised our seed round a few months ago, maybe almost a year ago. And it's easier the second time. I won't lie about that. But it's still really, really hard, especially in this macro. And I was proud of the process we ran and the result we got, but it was not easy.

Yeah, awesome. And then we always like to ask everyone, what is currently your favorite SaaS tool or platform?

I am completely addicted. I don't know this team at all, and I hope they're good people, but I don't know them. But I am completely addicted to LogRocket, which lets you watch little movies of your users using the product. In this world of remote where we don't meet our customers in person anymore, which breaks— just hurts my heart. You get to at least watch them use your product and learn from all the mistakes they make and all the ways your product needs to be better. So I really like it.

Oh, very cool. I haven't heard that before. That's, that's very cool. Thanks so much for sharing. Well, thanks again, Harry. We are thrilled to have you and you have some awesome takeaways from your lessons in 2019. So without further ado, I'm going to pass it over to you to walk us through the slides.

All right. So hey everyone, I'm Harry. More about me in a second, but what we're going to do today is talk about lessons learned from M&A. A few years ago, I sold a company for $130 million, and it was a really difficult and punishing but also rewarding experience. And I learned a lot, and I especially felt like the advice that's out there and the way that founders talk about this is not— it's lacking. It's— there's a relative to topics like fundraising where it seems like there's a million guides. There's not a lot out there about this. And so I wanted to talk about it. So real quick, this is me. I'm the co-founder and CEO of Modelbit. If you're familiar with MLOps, it's like SageMaker, but way better. But more relevant to this discussion, I am the— was the co-founder and CEO of Periscope Data. Periscope Data, I ran for the better part of a decade before finally selling it. And the journey at Periscope Data basically looked like this. There were about 3 or 4 years before we were an overnight success, where at some point in there we raised a seed round, but didn't really help us find customers. And so we still didn't have very many customers for several years. But we managed to not run out of money until we got to product market fit. And then we started, everyone had heard of us, we started growing crazy, we raised this big Series A, then we raised this big Series B. I would describe my mental state during those sort of couple of years of very rapid growth as like, oh God, oh God, oh God, oh God, like just the whole, Everything feels like it's breaking constantly. You just hired the team. Now you have to rehire the team. All these various problems that you get from having this big headcount, all this kind of stuff. And then growth flatlined. And there's lots to be talked about why that happened and how to avoid that. But that's not the topic for today. But, you know, during the rapid growth years, every once in a while, some company would reach out and they'd be like, hey, would you ever consider selling? And I'd say, you know, fuck you, no. Like, I'm king of the world. This is awesome. I don't want to sell. And then after growth has flatlined for a couple of years and you're really a stress ball trying to fix that, when a company does reach out and says, hey, would you be interested in selling? You go, you know, actually, like, let's maybe talk about that. And so that was my journey, including the couple of years that I was sort of required to spend at the acquirer. It was about a 10-year journey. And there's a lot to talk about. But in particular, the point I want to make is people sort of misunderstand how M&A happens and why it happens and what causes it to happen versus not happen. And so here's my lessons and what I am doing differently the second time around, having been through this drama. And so we'll talk about how M&A offers even happen. Where do they come from? Why do people make acquisition offers? Not talking about acquihires, you know, which is mostly about saving face. Often money doesn't really even change hands in an acquihire. Also not talking about the multi-billion dollar mergers or whatever. I'm talking about, you know, your $50 to $500 million bread and butter sort of classic startup exit. And then we're going to talk about the process once you get the offer, because there's a lot that happens quickly. And there's a big information imbalance between the acquirer, which has a whole team called Corp Dev, which knows exactly what they're doing, and you with your one finance person and your external law firm trying to figure out how this all works. And then we'll talk about some life lessons at the end that sort of I came away with. So let's get into it. M&A offers, how do they happen? Where do they come from? So a couple of things to just get out of the way. And these are lessons I learned from writing about this on the internet. Because then people would start to call me and go, oh, great, I want to build my company to sell. How do we do that? Or, hey, actually, I think I'm ready to sell my company now. Bad news, that's not how this works. So there's an old adage, and you'll hear this from bankers especially, Tech companies are not sold, they are bought. That is true. So what we are basically doing here is positioning the company such that you haven't created a situation where it can't be acquired— that can happen— and where you have the requisite relationships where an offer, if they make it, is likely to be successful. But that's the best you can do. So what we are doing is positioning the company so that it's growing for the long term and it's a great startup and it's positioned to maybe get a great IPO one day, but also if you were to get an offer, you're in a position to consider it and not that it's too late or you've screwed this up somehow. So offers come when they come is the first lesson. And we'll talk about what has happened such that they create the company. But what you really want to be doing here is growing the company for the long run, not deciding in a moment that you want to sell the company. If you were to simply pick up the phone and call acquirers, you would lose all their leverage and you would be positioned internally at the acquirer as, well, this company is looking for a fire sale, so we can probably get a really good deal. That's not what you want to have happen. What you want to have happen instead is, hey, I have— I am clearly just growing this company and you called me, so we can talk about it because you called me, but that's where we are. Most important to probably understand is who is it that actually decides to acquire the company? Because oftentimes you get this reach out from a function called Corporate Development. Corporate Development executes deals, and as part of executing deals, they are, uh, responsible for having relationships with all the relevant companies in the space. So they will frequently call you, and it's not a bad relationship to have. It's not bad to answer the phone or get to know those people, but just understand that they are at the deal size you want, not the tiny deal size. They are the deal executors and not the deal creators. And at big tech, like a company like a Microsoft or a Meta or a Google, Alphabet, is organized into business units. So our second face on the slide here is Adam Mosseri. He's the head of the business unit for Instagram and Threads at Meta. Third person on the slide here is Susan Wojcicki, who is, or I think maybe was, the head of the YouTube business unit at Google. First one is Thomas Currie, head of the Google Cloud business unit at Google. These are the people who will, if you have like a cloud SaaS software company, The person at Google who will decide, I really need that one. The person at Google who decided to acquire Looker is going to be Thomas Kurian, right? The person at Instagram or at Facebook who decides to hire, acquire an Instagram competitor before it's a threat to them will be Adam, right? And so these are the people that you're eventually going to want to get to know and have a personal relationship with. Similar, and I'm thinking when I think of pre or post-IPO tech, I've got on here like, Zoom and Snowflake and Canva and Stripe are some of the companies just represented here. And often the CEO for sure will be a decider. And then sometimes also there's a, a relatively powerful chief product officer who will be the holder of the product strategy and will know, okay, we're not moving into machine learning fast enough, we're ready to make a machine learning acquisition or something like that. So it's worth understanding that these are the people who initiate the big offers. And this is a longer-term strategic play, but you're going to want to find a way to build relationships with these humans in particular. The reason that somebody in that position, the head of the business unit or the CEO of a smaller but still large tech company makes an offer is because something happened to them internally that's put them on their back foot. A really clear example would be Adobe and Figma where they're just, this looks like the, the way the industry is going and they are behind the 8-ball in terms of where the industry is going and they're getting beat. And in particular, it's usually optical because they feel personally like they need to make a change, a splashy move that resets the narrative. So they might be in a position where they've missed a couple quarters in a row. And now they are in a position where the, the street thinks that they are missing, their stock price is threatened, and they need to turn around and show the street, no, no, I've got an ace up my sleeve. Or maybe Google would be a good example of OpenAI's relentless pace of launches is threatening Google's brand of being the most innovative in technology in these kind of advanced AI machine learning technologies. And so now someone needs to make a splashy move at Google, or the CEO of Google or the board of Google is going to go, you were in charge of maintaining our lead in machine learning and you failed. So it's important to understand that these are the humans and these are the kinds of things that happen to them that make them reach out. And because you have that relationship, you will be front of mind when they decide to reach out. But what happened to me and what may happen to you too is, This person just, you know, they know you already. They know of you. They think of you as a leader and innovator in this space. And they go, oh shit, I've got to make a splashy move. And they just text you one day and go, can we get lunch? And you go to lunch and you go, what's up, man? And they go, have you considered deepening our partnership into something more strategic and long-term? And that's how this happens, right? And so what you're doing until that happens is positioning yourself and building that relationship. So I think we've sort of covered some of this already, but you want to be front of mind for them. When they think that they need to make that move. You need to be trusted. The negotiation around a big, let's say, 9-figure M&A is really hard and has a lot of tense moments, and they need to trust you. You cannot get from zero to a 9-figure M&A offer in terms of your relationship all in one process. So there needs to already be a well of trust. And then what I would say is put yourself in this position and then continue growing your business, and the offers will come when they come. Last thing, and this is how companies accidentally put themselves in a position where they can't get an offer that they might want to get. Your post— and I'm oversimplifying here. We can get into this in Q&A if people are curious, but in general, your post-money valuation is a hard floor on a good acquisition price. And because it's a post-money value— because it's a hard floor on a good acquisition price, Often acquirers simply won't make an offer that is below your post-money valuation because they understand that it's going to be complex for the board to accept it. They understand that they're offering VCs less than a dollar on their investment, and therefore the VCs might get pissed off, and these acquirers want their relationship with these VCs, so they might just not make an offer. Even if they do make an offer, an offer that's under your post-money valuation is bad news for somebody. Employees might get less than a dollar for each dollar that they have on the cap table. The VCs might, somebody might get zero, might be bad news for everybody. So if you're growing like crazy and you've earned that valuation and it's a reasonable multiple on your ARR, like take it because again, we're shooting for the moon here. We're building startups. Let's go. But if you are offered that money for some other reason, maybe the macro market was crazy, AI company and you can take any valuation you want. Maybe it's your personal brand or something like that. Maybe it's a not so good VC. Just stop and realize what's happening. If you think $100 million acquisition would be a good idea and be a good outcome for everyone, but you're being offered a $200 million valuation, what you are doing is essentially walking away from $100 million acquisition in that moment. So think hard about whether you want to do it. I'm not saying no again, but I'm saying, That is one of the considerations that goes into raising a big round. It's a double or nothing decision. All right. So that's where these offers come from. Now I'm going to talk about the process, right? So some, they've decided, oh God, I've got to make a splashy move. They've decided I'm going to put this offer down. What happens now? So here's the timeline from initial interest to closing. For me, this was about 6 months, December to May. In the entire process. And I would say the letter of intent came, not sure if I remember now, but it would be late March, early April. So towards the end of the process. So the initial interest comes with wanna get lunch, then there's getting to know you, then there's talking about what an offer might look like. There's maybe getting to know a few folks on either side on the team. Everybody's getting comfortable with each other. And at some point people are gonna start to throw out, here's what the offer would look like. And numbers. And as we sort of converge on that, there's a document. It's very much like a term sheet in a fundraising called a letter of intent. Couple pages describing the high-level terms. Most important thing to understand about the letter of intent is it makes the process exclusive, right? It means that you are not going to engage in acquisition talks with everyone, with anyone else. And that means that they have all the leverage in this process. So you are going to want to get all of the negotiation done that you care about before you sign the letter of intent. So let's walk through this. So what's going to happen at the beginning is they're going to say something vague and you're going to say something like, well, you know, I see your point and that is compelling and I hadn't considered that. But, you know, we're growing for the long run here and I don't know, right? You don't want to just sort of give it all up in the first meeting. You want to play a little hard to get. You'll have a relationship at this point, so you'll know what you're doing. But also, well before the letter of intent part, you are going to want to leverage the other relationships that you have been building here. So they're going to reach out to you and they're going to say, uh, would you be interested? And you'll do a couple back and forth to see if this is real. But then at that point, you're going to want to call up your other contacts who might also make offers. And you're going to want to just tell them as a courtesy, not that you're looking to get acquired, but Hey, I would always want you to hear it from me first that we have had some interest and I don't know if it's real and I don't even know if I want it to be real, but I would never want you to find out from the press or, you know, from someone else, not me. So I'm just telling you as a courtesy and as transparency. And that will, if they are interested in making a move at that point, cause them to run their own internal processes to see if they can generate terms as well. Obviously, just like any negotiation, having multiple offers is the best place from which you can generate a competitive dynamic. They will also— these folks all talk to each other once they start asking their corp dev teams to start drafting LOIs. The corp dev teams all talk to each other. Sometimes it feels like they're in a group chat. And so at that point, you know, even if only the original offeror makes a firm offer, which is what happened to me, they'll notice that you're sort of shopping it a little bit and you're just being courteous. So that's okay. And that will create at least the perception of a competitive dynamic, which is helpful for you. Um, this is also an important dynamic to understand because it's very different from fundraising. In fundraising, I would say you get a term sheet, you sign a term sheet. The reasons that a term sheet doesn't close are one, The VC discovers something in diligence where they think you were literally lying to them, whether you were or not, like something like literally you said X in the pitch deck and now that I have access to the data room, not X is true. Or there's some foundational shift, a big macro market change, SVB collapse, you know, things of that nature. COVID, I heard of some term sheets gotten, getting broken during COVID you know, like literally that week of March 2020 that I think is maybe a little understandable. I also heard of VCs keeping their word during that week, which you love to see. But aside from that, you know, VC term sheets from honorable VCs close, generally speaking. LOIs from acquirers generally don't close. I was told by our legal team that 50% close rate is what they see. Having been through the process, I'm honestly surprised it's less. It's not less, excuse me. I think it might be less. And so what you have to understand and what informs the process as you go through it is Even though this seems really intense and also even though you're starting to make your peace with the fact that you might lose your baby, but at least you might retire to the beach. This is probably not happening and you have to keep that in the back of your head. You have to keep running the business and we'll talk more about that. Another dynamic you have to understand, like I said, the LOI gives the acquirer exclusivity. So you're about to enter into a position where, A, you're not talking to anyone else about M&A. But also, B, you're probably not selling to this company because remember, less than 50% chance of closing. It's a pretty tough place to be. So if the LOI doesn't specify exactly the price you're going to get, negotiate that before you sign it. If it doesn't specify exactly how long you're exclusive, negotiate that before you sign it. If there's milestones and they're phrased kind of vaguely, make sure that your understanding of the milestone that you're comfortable with is spelled out exactly in the LOI. There's going to be this tense sort of period of time where they are pushing you to just sign it because, hey, hey, bro, like, we trust each other. We have this great relationship. It's all good vibes before you sign the LOI. We're going to figure it out. Let's not hold this process up. We're excited. I would just take a beat. It's okay to make them sweat a little bit in this moment in time and make sure anything that you care about is in writing in the LOI. Another way I would think about this is, and this was literally my experience, you will lose about approximately every single negotiation that happens after the LOI. Because then the lawyers get involved. The lawyers understand exactly the dynamics here. And the lawyers on the acquirer side, who are much more numerous, much higher paid, don't care if the deal closes because they're getting their fee either way, fully understand that you have no other options. And so they will just grind you out until you are over a barrel, starting to miss numbers because you're distracted and you've been exclusive for months. So if it's important to you, it goes in the LOI before you sign it. I have seen this happen. You all would not believe this. I have seen deals blow up the day they were supposed to close. Like literally 6 months ago, we had this nice meeting. For the next couple of months, it was all good vibes. We got through the grinding legal negotiation. Something changed at the acquirer. There was a reorg they didn't expect, a CEO change they didn't expect. The day before the acquisition, the CEO got— the new CEO got in and went boom. All M&A is off while I figure out what's going on here. And they just literally walk away. I have seen companies that thought that wouldn't happen where they just watched movies all day because they thought they were done and they were selling out and they were getting their check. I am not making this up, I swear to you. You want your co-founders to know, you want your board to know, A, they have to know, and B, they're going to be incredibly valuable in helping you through this process. And there's going to have to be a few senior people who know, maybe your COO or other top management people, a couple of people in finance who work on the deal. You got it. Like, like it has to be a battle to let even one other person into the room. Like, you want to keep it as close as possible because once a pernicious sense develops at the company that what we're really doing here is getting acquired, people stop hitting targets and then the deal blows up. You have a problem that might be unrecoverable and you can kill your business. This really does happen. You really, really have to watch out for this. Last thoughts. This goes in the category of things I learned about life from going through this process and things I would just keep in mind, a.k.a., are you sure you want to do this? Here is what happens 95% of the time, 92% of the time after your company is acquired. The acquirer gets its hands on it. The acquirer tries really hard to do a good job integrating it and running your business. They ask you every step of the way, maybe if they like you and trust you for a while, what they should do. How would you have handled X? How would you have handled Y? But then they just kind of trip over themselves. Trying to execute a business they're not familiar with, and they screw it up. They don't understand your culture. Your team quickly understands that they're not working at the cool startup that they used to be working at. And they also quickly understand the people who are making the decisions now clearly aren't clueless— clearly are clueless. You're trying to smooth it out between both parties, but they can sort of tell that you're powerless now, and the team gets pissy and quits. The targets start getting missed. Starts to be bad feelings on both sides. And the acquirer eventually decides with half the team gone and the targets being missed that this wasn't worth it after all. And they shove it into a corner and they maybe maintain the current customers, but that's it. Sometimes this doesn't happen. Google's acquisition of YouTube was awesome. Facebook's acquisition of Instagram was awesome. I think if you've asked the founders of those businesses, they might have mixed feelings, just guessing, but maybe not. Maybe they're enjoying their yachts. I don't know. But if this slide looks to you like worse than your current situation because your business is going basically great, then I might stick to your current situation. Everybody answers this question for themselves, but you're going to get— if you, as you go native on the deal, as you're in month 4 of negotiating it, you start to sort of see sunshine and roses about what it's going to look like on the other side of this. If this slide looks worse than your current life, I'd think hard about whether maybe you just want your current life. You personally are going to have a hard time as a founder for the couple of years that you work at the acquirer. This is a photo of me working for my acquirer. Just kidding. This is from Lost in Translation, which is a great movie. But it can feel very lonely you're the one trying to make it work. So you're not part of the crew at the acquired company that's just cranky about what happened to you now. But you're also not part of the acquirer that's trying to figure this out. You're just sort of in the middle bridging these two worlds for a long time. And at least in my life, because the company that acquired us was headquartered overseas and had a bunch of overseas offices, I was sort of living in hotel rooms trying to make this integration work. You're getting everyone a win. It's not, not a win. First of all, it's a large amount of money. Second of all, it looks like a big career win to everyone on LinkedIn and their careers. That's not nothing. People really appreciate that. And you're delivering a lot of value to the acquirer, even if they screw it up. There's a lot of value that they, that they get here. So it's a big win. But what you are giving them in exchange for the big win is a couple hard years of your life. So there's this idea that I had. That I would take a, like, I sprinted towards the close date and then I'd be able to take a breath and take a moment and decelerate from the 10 years of running a hard business or 7 or 8 years at that point. And what ended up happening was I accelerated through it and into a relatively stressful couple of years of my life. My sense is that this can be worth it from a personal point of view. I don't regret selling my company at the end of the day. I think it was the right thing for the business. But I would, caution every founder who enters this process that this is what it looks like for the couple of years where you're integrating your business. And then finally, it's been sort of a shock to me how impactful the 6 months before and maybe 6 months after the close date were in terms of my reputation and the reputation of the founders and the senior team in the industry. You have this cap table, right? This Excel spreadsheet or Carta login, that describes how much everybody owns. And it even describes how much everybody owns in various scenarios via liquidation preferences, investing schedules, and things like that. Those documents are a promise. They are a personal promise that you, the founder, made to each of these people. I sell 20% of my company to a VC. Dear VC, if we sell for over X amount, you get 20% of the proceeds. You hire an employee, you give an early employee 1%. Dear employee, I promise that if you vest this whole thing and we sell for over X amount, you get 1%. The acquirer will propose to you various mechanisms for not having that happen. They will say, hey, I promise to you, buddy, Sequoia Capital is fine either way. You don't have to go out of your way to help Sequoia Capital. They'll suggest to you that an ex-employee who's holding 1% maybe shouldn't get their share. You made a promise as a founder and it's on you to honor those promises. That's my personal belief. I know that's a moral statement and people feel differently, but that's my personal feeling on the matter. It's on you to hold it up. Nobody else is going to hold it up. And your reputation, whether people want to work with you again, hinges on A, whether you kept your promises in these moments, B, were transparent, especially with your board, and C, where— Hi, Brian.

How's it going?

Good. We're empathetic with everyone.

I am good.

Just hitting my volume here. We're empathetic with everyone and that, you know, there's a lot of secrecy and that's the right thing to do. But then there's also moments where you make announcements and where you share information and the empathy and transparency and the understanding that everyone's going to experience this differently are very important in those moments. So real quick, top 5 takeaways. I won't repeat them here, but I'll leave them up. These are the things that I would tell any founder going through this process as they start to engage with it. True to my personal brand, I went a little bit over, but hopefully we have some time for questions.

Harry, it's Jason. Could I ask one before Taylor jumps in with the rest?

Sure.

So this is very good. This was very good. I thought about this a lot in general for the same reasons as you have, right? And your slide you had before was a really good one. If you're not comfortable with these things, the 2 to 4 years, at least think about not doing it.

I would agree with that 100%. I would say we were in a position, as I showed on my first or one of my first couple slides, where the growth had tapered and had been tapered for a couple of years. We'd raised a bridge and we'd burned through that bridge trying to reaccelerate growth and we still hadn't. And there were some discussions about a second bridge and I'm like, man, we're just diluting ourselves to nothing trying to reaccelerate this thing. And so If you had told me, look, I don't think Periscope's data is going to live past a couple of years after the acquisition. And I think your life is going to be really hard for a couple of years, but all the employees are going to get a win. And the Series B is at least going to get a 1x and the Series A is at least going to get a little return. And your employees are at least going to get a win and they're going to get that payout. You know, I think I would have taken it. But if you hear those things and you go, well, shit, I mean, we're still growing, fuck that. Then yeah, I would strongly consider not doing it.

Yeah, it's funny though, the question I had on it. So like, I think I haven't put it together in a spreadsheet, but I'm going to say 80% of founders that have a successful exit have some laments or regrets around it, right? 80%, I'm going to say. Yeah, I buy that. All the way to the top, all the way to the Ryan Smiths that sold twice for Qualtrics. And I think we've also learned You talked about your growth accelerator, and I think we've learned in B2B, if your NRR is high and your growth is even decent, even just decent, you'll get bigger, right? So don't— the kind of the learning I had through 2021 was default to not selling. That was my learning from 2011 through 2021. Since then, I have evolved my thinking. Just curious to get your thoughts. Now I have seen folks pass on offers. That will never come back. That will never come back. And so I have changed my mind radically, even having invested a lot. I think as a founder, don't sell in quotes, but if you're not sure and it's profitable, you should sell. If you're not sure, if you're not sure, that's, that's, that's what I tell folks as a default. Now I've changed my mind.

Yeah, I mean, we had a, I think, lucky for me, because I was a first-time founder and I was sort of emotionally redlining the whole time. But as you know, Jason, we had a really good board and we had a good talk about that. And we talked about, you know, like, well, we did our NRR was our ARR growth was not good, but it was mostly the fault of new business and the NRR was good.

And then it's kind of up to you accelerate and all those things.

And one, yeah, but one piece of feedback I got from the board that I thought was helpful is reacceleration is really hard in part because there's going to be newer startups. I don't know how many people know Periscope, but we would've been competing now with new companies like Hex or something like that. And there's going to be newer startups who don't have this debt, both the technical debt and it's an older product, but also the preference overhang from multiple bridges and the board members who are maybe emotionally, if not literally, written this off a little bit and all this stuff. And so I would say on the one hand, there's no guarantee that you get a good offer again. But on the other hand, I think this probably is the end of your baby and it's going to be a really emotional and difficult couple of years. And so that's, that's your tradeoff.

It's a tradeoff. Yeah.

Yeah.

I remember I was so blue the second time after making so much money, more money than the first. I literally just crashed my partner's car into, into like a telephone pole. I just, I was just lost for a year before kind of starting SaaStr. But then I remember at the peak, you know, a founder called me and he was like, you know, I've got this offer. I'm young. I'm going to make $500 million. Yeah, I'm going to make— and I told him, don't do it. I told him, don't do it. And I think this was some of my worst advice ever. Now, he'd already made the decision. I was one of the last calls. I was not one of the first. I was not on the board like you were talking about. But there was so much momentum in the business, right, that I'm like, you'll be depressed as a founder that you're not going to make $500 million is so much, but you're not being offered this because your business is a dog, right?

Right. This isn't—

this isn't—

but this is also— but I think that was— even though I didn't— I wasn't the— I didn't push him over the line. I think it was one of the worst bits of advice I've given in my entire career, because as good as that company does, I don't think you'll ever make $500 million.

Yeah, it's—

it's not all about the money, but the time. But it may take a decade to make less. Right. And then I just realized Maybe he shouldn't have done it. Maybe he shouldn't have done it, but I gave bad advice. Anyhow, I'll shut up. But that was my learning. Like, I'm on two sides of advice. I'm like, take it as a founder. I'm not, but it's just, it's different. There's so many. But when you sell your child, you know, you only have, you don't, you don't have that many at-bats in life.

Yeah. Yeah.

All right.

I'll shut up and let other folks.

I'm just curious.

You're, you're, you're, you're learning on my, by my, my worst advice ever.

Thanks, Jason. I knew Jason has great commentary, obviously a lot of experience in the same topic. So Harry, thanks so much for the great presentation. We do have several questions coming up. So going to bring up Katie. You have some tactical questions just about like what happened after the decision was made. So Katie, you want to come on and ask your question?

Absolutely. Hi, Harry. Thank you so much for great, really great insights here. I'm really curious. I've been on the inside of companies during a lot of other acquisitions. And I'm really curious what, once that acquisition, you know, you made the decision, y'all signed, what, what did things look like after that? Talk to us, talk us through a little bit of the process of, you know, what you went through to actually make announcements or communicate internally? How did integration go? I realize these are not small questions.

No, it's, it's funny, because I can And you'll experience this as founders. There's just moments in your life that are just seared in your brain. Now, I could tell you the— this was 4 years ago, and I could tell you the exact day of comms plan that we had. But yeah, I mean, we spent a lot of calories on both sides, us and the acquirer, designing a comms plan. And I don't regret any of that. There were a lot of late nights with their team. They fundamentally didn't understand our culture and had ideas for the comms plan that I thought would backfire. And By that point, I was feeling pretty good that it would close, probably recklessly, but I pushed back a lot on that stuff, and I'm glad I did. Well, you know, we— they did their own announcements. I call this like an 8 o'clock meeting or something. Like, everybody must be in the office at like 8 or 7:30 or something. So I called it like the day before. And so at that point, no work is happening. Everybody's like, what's Harry going to talk about tomorrow?

Yeah.

They had done their own internal announcement beforehand. Then their CEO and head of HR were in our office, like in a room. And so I get up, my all hands, I basically announced that we're being acquired. I, and then I introduce the CEO of the acquirer. He does a little speech and then we had like a panel discussion. You know, it's a huge shock and there's nothing to do except except Power through a huge shock. I had read the managers in, I think after hours the night before, and I took my favorite sales manager who was just such a rah-rah, you know, kind of like sales. And I just like, man, you got a job tomorrow. Like, I need applause. I need it to not be, you know, like, so please be in the front row. Please stand up and start clapping when we say we've sold. And then, you know, it was a day of I think we just told everyone like, look, it's going to be weird. Some of your counterparts are here. Meet them all. You know, it's going to be all right. And then we had a— and then we had an integration plan that, you know, with a spreadsheet of like what was going to get in. And we— that with the next morning we read everyone into the plan and then it's just almost immediately started going off the rails because there's this acquirer who doesn't know that they're acquiring a company but gets handed an integration plan. They're immediately resentful that they have to integrate this newer, younger company from San Francisco. Our team is being told, no, no, we're going to go with our on-prem thing after all from engineers. And it's a whole— it was a mess.

Yeah, totally. Well, and I have to say, like, I really appreciate you, first of all, acknowledging that once you made the announcement the meeting was happening, that no work was going to happen because that is 100% what happens. And I've seen too many founders and CEOs be like, oh yeah, but keep working. No, everybody's confused and worried.

Yeah, go ahead.

And I also really love that you read the managers in ahead of time so that way, A, you could gather some of those champions like you just described, but B, that like there were at least some people who weren't shocked, right? So that way they could help, you know, like, it's OK, we're going to be OK, one step at a time, you know? So thank you for that.

I think if I had one thing to say about, you know, the few days and weeks and months after the announcement is like, it's a trauma. and, and people are gonna be traumatized and you're working through that. That's the reality.

Absolutely.

Absolutely.

Cool.

Well, thanks for sharing so transparently, Harry. Really appreciate it.

Thanks, Katie. Uh, okay. Uh, Harry, moving on to another question. Again, we'll start with just some tactical ones and then people have some bigger ones too. But, um, some of these quick ones, um, Annie was asking, when did you bring in an M&A lawyer without breaking the bank? So what's the best time to make that investment?

Bad news is you're going to break the bank. There's no way around it. The good news is it's the acquirer's bank. Not really, because it'll come out of your end of the deal, but it's a different psychology when it's not your balance sheet. And you're— so if you're a startup, you should have external representation from one of like 5 or 6 law firms. Gunderson Cooley, there's a few more. And they will have an M&A practice group. And so your lawyer who's like your day-to-day partner or associate who sits on your board meetings will know like it's time to bring in the M&A people. A point of negotiation between us and the acquirer perversely was they were pushing me to keep our legal bills down. And I'm like, I don't— if you want our legal bills to be kept down, you should stop grinding me out on stupid little points all the time. And I, you know, but I think we ended up spending $750K on legal up to the acquisition. And then I don't know what they spent on our lawyers after that. A weird dynamic also is that once they own the company, they own your lawyers. And if you need new lawyers, you have to go get them. But, you know, like, I guess my overall learning is it's going to be expensive. This is one of those times like when I'm doing a vanilla fundraise, you know, and it's just, it's a good firm. And it's a good term sheet and whatever. And I'm telling my lawyers, look, I'm expecting not a huge bill here, right? But the M&A is one of those times where it's like, all right, we're pulling out the stops. We spent $750K. I wouldn't be surprised if it's more now because that was 4 years ago.

Awesome. Thanks for the transparency too, Harry. I love the details. Steve had a question about due diligence. When did due diligence take place? And when do you typically see it take place and how long does it normally take?

Yeah, so the LOI will specify an exclusivity period, right? And you want to fight like hell to try to keep it to 30 days. Sometimes that's realistic and sometimes it's not. I've seen really, really hot deals, really great companies with multiple offers where they're able to get that down from 30 days. But I think that's probably not a realistic a realistic outcome for us normal folks who might have one offer come in. They're going to want to see like 60 days or whatever, but you want to get it to 30 and then they get the keys to the kingdom. Then even at that point, there's a little bit of back and forth where you're sharing with them stuff and then they're going through that stuff before they get even more stuff and stuff like that. But in general, they're going to have access to everything once, you know, once you sign the LOI and it will be exclusive. For, you know, for 30 days and they'll have that access. You're going to want to prepare the data room before then. So once you think you're closing, you and your lawyers and bankers, if you're working with bankers, will prepare like a box folder full of every document the company has ever seen that they can then go peruse. And your lawyers will guide you through this process.

Awesome. Thanks, Harry. I'm going to pass it over to Andy, who has a quick question. Andy, I'll bring you up now. Andy, you still there? I think you're on mute.

Yeah, thank you. The question is about earnouts. Non-software company, more of a services company, but going through an exploratory process at one point, the proposition of like retained revenue for a certain category of clients was part of the LOI that we never executed, but talking to different attorneys and people who have gone through these situations, the idea of like just like your overall revenue number not decreasing might be like a better way for us to do it than an earnout, or like don't even put earnouts in an LOI altogether.

So just kind of wondering what your thoughts are on that area. Yeah, I mean, I'm not familiar with the individual term of retained revenue. I think total ARR makes sense to me. What I would say, and this sort of goes back to some of the life lessons part of this, is like, often there's a deal psychology, you know, in the months leading up to the deal, where you're, you and your, and your counterpart have both sort of gone native on this, and you're like, oh, we're going to conquer the world together, it's going to be amazing. So I would remind yourself that this is likely to go more badly than you might realize. And the idea that your ARR literally like in a SaaS business, I know this is not, this is maybe a different business from yours, but in a SaaS business, ARR should not go down. It might go up less slowly, but if it's going down, something's wrong. And so you might have sort of mentally discounted that post-acquisition. Periscopes eventually got to a point where it was literally going down. So when you see an earnout, I would just model it with you hitting nothing, none of the targets, and understand what that looks like for you and your team and understand whether you are comfortable with that. It might go down because they take charge of your business, make a bunch of terrible decisions, and then it goes down and then they blame you and you don't get your earnout. That happens. And so not to say you shouldn't do this, but I would understand what it looks like. We successfully said, look, this is based on mutual trust and we will sign up for time-based targets where if I quit tomorrow, I don't get my, my, my end. But the idea of, of performance, performance is something we are all going to do together and we trust each other. And if you know, I said, I think I said something like, if you don't trust me at this point, we shouldn't do this. And I don't know that that would work on everyone or all the time, but I would, if I saw an earnout, I would model the deal without it.

Thanks.

For what it's worth, I think that's far— that sounds simple, but I think that's far better advice than 95% of people give you. A lot of folks will tell you earnouts are terrible. VCs will tell you that. Lawyers will tell you to run from an earnout deal. That's the wrong way to think about it. What I've learned over life is put your hat on, take the other side, right? You're buying something, you're not sure where it's going to go. The founders could quit the next day. Everyone could go. And a proper earnout may not be what you want, but it makes sense from their perspective. So modeling either it is a 0% or a 20% or 30%, like Harry says, that's the right way to think about it rather than being religious or dogmatic about it because it's not realistic, right? There is risk. And I do see this happening. You know, there's an old saying that the bigger the deal, the simpler the terms. It's still true. And Periscope's probably in the middle or toward the bottom. And as the deal and the amount it is relative to cash, it just gets complicated. But when someone wants to come in and buy Instagram for $1 billion with 10 employees, the term sheet's 2 lines long. And so, anyway, I'm rambling, but I think earnouts aren't all bad. Just be realistic. Just be realistic that you may get none of it.

Often there's a middle ground where it's like, okay, 50% of the consideration will be based on time or just not. And assuming the escrow goes through and 50% of the deal will be based on these earnouts. And then I understand what it looks like for yourself. For anybody else who's connected to it, I do try to protect the team from these things. So it's like, okay, if you wanna hold me and my co-founder and my board and maybe a couple senior folks or senior engineers, that's one thing. But like Joe Sales, Joe Account Executive, Sally Engineer, come on. And, and then, but also bottle it for yourself and your senior team. Like, okay, let's say it's 50%. What does that look like? Am I comfortable with that? Yeah.

The other slight learning, then I'll shut up and take another question. I didn't know But, you know, in the old days, the acquirers that we would get in tech were Google and Salesforce and like those kind of companies. Now, especially in vertical SaaS, you see a lot more traditional companies making acquisitions. Right. And what I've learned is, listen, 80% of them want an earnout. That's just if you're being bought by an HVAC leader or being bought by an industry, they don't do deals without earnouts. And you can fight it up to a point like you can negotiate it down. But this is my— if you, if you come in hot and say no, you'll break the deal because it's just a different DNA in the real world. Outside of tech. It's just a life learning.

Amazing. Thanks. Great question. We have another more specific question from Ramon. Ramon, if you're still there, I'm going to bring you up. Ramon's asking about what you can ask for from your acquirer. So Ramon, I'll let you jump in.

Yeah, thank you. It's Ramon, by the way. No worries. And thanks for the talk, Harry. So yeah, we've already been approached twice from an acquisition perspective. We just thought it was a little bit early. We're still in beta. And the question is, so one of the groups is out of Asia. One of the group is an American domiciled group. And we've just seen them going on a buying spree. And it just made us a little bit nervous that maybe they're overleveraged. You know, who the heck knows what their actual books look like? Do we have the ability and part of the, the part of the DD to actually see their books to understand the fiscal health or otherwise of that company? Because again, it made us nervous just from an optics perspective. And then thankfully, just as an aside, we did a friends and family round. So we've got a lot of high-level finance folks, including a lot of M&A folks, thankfully, which is nice. But yeah, anyway, so that's the question. Can we actually see who the heck, what the heck these people actually look like? Yeah, from a fiscal perspective.

I really doubt it. My, it's funny enough, actually in our acquisition, because we were acquired by a private company, we insisted on this and got it. And even we had a— we paid a banker a stupid amount of money to help me look at it. And even then, I see Jason M. Lemkin smiles like my Series B investor, like still needles me about the amount of money we spent on that banker. But even then, I think, and I think they understood this, the amount of context we would have needed to really understand there, because we didn't get SaaS metrics, right? We got the P&L. And the amount of context we would have needed to understand it. So we went through it and we tried to talk ourselves into what's good and bad about it. But at the end of the day, like, I, I, I think you need to get comfortable with your consideration, and you need to get comfortable with the fact that they own your baby now. And, um, they may, they may or may not be healthy. And I— and the bigger they are relative to you, the less likely it is they'll give you anything anyway. But I think you, you know, I, based on my experience, it seems unlikely that you'll really get to a place of understanding the health of their business in a short period of time while you're trying to sell.

I guess this is the follow-up then. Could you come back and part of the legal lease say, hey, if you do XYZ, we have the ability to maybe buy it back or, you know, do something along that?

I think, yeah, so none of what you're saying I think is common. And so what I would say is these are questions of leverage, right? If you're a hot commodity and 3 big companies are all coming at you and you're going, well, we're hot shit. So I know this isn't standard, but we would only consider it if you would give us X, Y, Z things. I don't know, maybe. Right. And I think a strong place to be is knowing that you wouldn't sell unless you got these things. And so, you know, screw it and screw what's standard. But, you know, I have my experience of one. But what I would say is I haven't seen some of the things you're talking about.

Was the first question on doing reverse diligence on them? I might have misheard it a little bit. Was it something? I mean, for what it's worth, I mean, I want to hear what Harry has to say here, but I would run from those deals. I would run from the deals that I have seen in my investments where it was murky what the finances were of the acquirer. Where it's— there's something— there was a deal that just happened. It's my worst investment ever in 11 years. And we were presented with a set of financials for the acquirer. It was a private, private deal. They're doing $30 million, growing 100% with 120% NRR and burning about $1 million a month. That sounds pretty good, doesn't it? Everyone signed it off. All the major— the largest investors signed off. Everyone did it. It wasn't until the day before we finally— I finally got the financials when I refused to sign the documents. 12% a year, $12 million, barely growing, burning $4 million a month with, as near as I can tell, massive churn. It's hard to grow 10 or 15% at $12 million if you have 140% NRR, isn't it? So everything was wrong. So I'm not saying this is the case here. I've just learned that just, it is okay to slow M&A down. It is okay to ask for more diligence. It is okay. It's okay if they won't share information with you, may, just maybe it's a deal you don't want to do. Like life is short to Harry's point, right? Maybe it's a deal you don't want to, don't want to do if they won't share it. I think people should be transparent when you raise money, right? And I think you're trading your shares for someone else's shares. Like it never gets, going to Harry's point, it never gets more transparent after that point, does it?

No, like I said, it gets less transparent.

It gets, it gets less transparent. There's another company I invested in that got bought by a PE-backed company doing $100-something million. I don't even know. I thought it was a dumb deal, but anyhow, they got bought. A lot of it was cash, but some stock. I get an email once a year saying, we are not required to disclose any information to you. That's the email I get once a year. And then the auditors yell at me.

I still get complaints from our angel investors because it's like, oh, here's the stock price.

Yeah, they don't know.

How many shares are there? We can't tell you that. Okay.

I'm not saying it's bad. It's just, uh, it's just, it's worth at least trying to ask before you cross Harry's line. Because once you cross that line, you never get the information flow. Gets worse, doesn't it?

Yeah.

Speaking of investors, we have another question, um, of investors and how they all are involved in this from Nat. Nat, I'm going to bring you up if you're still with us.

Hey, Hari, great talk. Very, very insightful. I went through a situation where the earnouts were so outsized compared to the transaction value that the investors wanted a part of the earnout and the acquirer did not want the investors to get any part of the earnout. So it puts— made for very weird dynamics, almost put people at loggerheads. And the deal broke down, right? So what might be a good way to— what is a reasonable structure and when do you bring that up?

I don't think any of the structures that you sort of went through, like whether they just get their, their piece and walk away, whether they're part of the earnout, I don't think any of that is unreasonable necessarily. I think I would, I would probably rewind that conversation to who's around the board table and are we all aligned and are we all trusting? And so, you know, when we were first approached, I think after the second or third meeting, I had a casual conversation with board members where it was like, hey, I, you know, we haven't gotten a formal offer. So this isn't like a formal notification, but I want to let you know about a conversation that's happening. I want to get everybody's thoughts around the table. A dynamic that happened to me that I think is really common, and I'm a first-time founder going through this for the first time, and my board has seen this a lot. And so it was helpful to have them even just suggest, Oh, don't say that because you're going to look too eager and stuff like that. But you also want to put the board in a position where we're all doing this together and we're making shared decisions, even if you're driving them, which I certainly was. Because I think I was in a place where I was like, we're just getting diluted to hell over and over again and not growing very fast. And I think this is a good idea. I probably thought it was a better idea than my board did. But still, you're framing these conversations with the board like we're doing it together and you're not doing stuff without them. And that way, I mean, we had intense negotiations over treatment of preferred stock and various things that they, you know, stuff you get to a point where you don't care about this stuff anymore. Stupid, stupid reps and warranties that have 0.1% chance of ever mattering, but your board thinks it's bullshit and whatever. And so you need to be in a place before you enter these conversations where you have trust around the table and you trust them and they trust you because it's about to get intense. And then you want to be in a place where you can call them and say, hey, this earnout term or whatever the term is matters more to you than me. As you know, I think this is important strategically overall for us to do. So you tell me, like, you know, how do you want to play this? What do you want to talk about? I think it was important to me that we all feel like we're on the same page and that we have a trust relationship with the board going in. And then given that, I respect their prerogative to care about the terms they care about, even if I think, speaking for common stock, all preferred stock sounds pretty good.

Got it. Thank you very much. Great, great presentation.

Thanks so much for your question, Nat. Harry, I knew we would have a ton of questions, so no surprise that we are almost out of time. But we have a couple extra that we didn't get to, and I'll make sure to email you those. Everyone, please be following Harry. He's doing amazing content, and he may post about one of your questions later. Harry, I just want to close on one. It may be a loaded question to close on too, but if you could change one thing in the whole process, if you went back in time, what would you do differently?

All right, this is not a helpful answer, but it's the true answer. I said we were open to the acquisition because it had been a couple hard years. It had been a couple hard years fundamentally because the growth tapered off. The growth tapered off for reasons that were inside our control. We were so, as first timers, I was in my 20s, we were so overwhelmed running a company that was growing very, very fast. I mean, those, those middle years, I think we put a couple of years in a row where we grew 10x. It was scaffolding the company and growing it and bringing on customers at that rate was so overwhelming that we were not thinking about what's, how big is the group that we have product market fit with? When will we run out of them? What has to happen after that in order for us to keep growing? And I think two things I would change. One, running the company in such a way that us, the founders, the board, the management team have the space to think about what we are growing into and when we will get there and how we can continue the growth. And then two, I think, and maybe Jason made this point or alluded to it, the fact that growth had tapered is not existential unless you make it existential. And so having the space to just pause and plan and understand what is next. And then that way you're in a position where when you get the offer, maybe you want it, but maybe you don't even want it. And even if we still took the offer at that point, being in that position instead of in the "oh, thank God" position is way better and makes everything downstream better.

Great answer. Well, thanks so much, Harry. Your transparency has been so much fun on the session, and I know everyone's really appreciated. You're getting a lot of amazing comments People are super grateful. So thanks so much for all the insights and for joining us for Workshop Wednesday. Everyone, we will see you next week. We have an awesome product session with the former product leader at Databricks, and he's going to be talking about his lessons learned in scaling there. So, Harry, again, thanks so much, and we'll see everyone next week.

Thank you, Taylor.

Thank you.