Best Practices When Selling a Business

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I am doing great, Petun.

Can we kick things off a little bit about your background?

I started my career as an M and a banker with JP Morgan and so I've been in this M and A world for some time. After J.P. morgan, I spent some time as a venture capitalist. I spent some time in an activist hedge fund. But then I've started nine technology companies. The most recent exit was the sale of a company called Work Market which I built and ran. We raised about 100 million from Union Square Ventures, Softbank and a few others and we sold the company in 2018 to ADP. And so my non competes from ADP and my time there has ended and I've now started a few other companies, Vento Engine included.

Great. I'm looking forward to a conversation and getting some lessons learned around the exit process. Do you have just some general best practices right off the bat?

As a founder of a business, you always need to have one eye on the exit. And so I had a list kiss on. I had a list of all the different companies that could potentially buy Work Market and I made it my business. Every time a head of Corp Dev or Strat came through Manhattan to say, hey, why don't we grab coffee? I want to stay at the top of their mind. I want to know what they're thinking about, what they're looking at because it's very, very important. And that being said, you know who was not on that list? Adp. ADP was not on the list of companies I thought would buy Work Market. So I was not in touch with them. But that's how these things go sometimes.

Maybe we can back up on just that general journey because I think there's a big important part of the thinking of exit. I almost think there's like a philosophy of how you build a business. Are you building a business to exit and have that thought out from the beginning, or is it purely on a mission of what you're trying to achieve and how you serve the customers? Walk me through that thinking.

I will say that corporate finance outcomes are very difficult to manufacture, much like ADP not being on the list of companies I thought would buy us. And if you run a good business and you have customers that love your product, the corporate finance outcomes will take care of themselves. So without question, your prime focus needs to be there. That doesn't change my statement that you should keep one eye on what that exit may be. But almost all of your energy needs to be on making sure that you're building a business and that you have happy customers. Happy customers tend to solve most problems. And if you've got happy customers and you're in a large enough market, the corporate finance outcomes will find you much as ADP found us.

Okay. I mean, as a founder of business myself, you have a lot of different initiatives going on, but essentially you're saying you're going to stick to the typical things of what you're trying to achieve, make the customer happy. But let's keep a little work stream of thinking of this exit. And what are those relationships that are going to drive that?

Keep in mind the statement was you got to stay in touch with the heads of Corp, Dev and Strat. That's not just about your exit. That's not the sole reason you're talking to them. You want to know what they're thinking. They're talking to all the players in the market. What are your competitors up to? Who do they think is doing really cool stuff? And let's go take a look at them. Who's getting funded, what kind of things are happening? They are the best keepers of that information. That and a host of other reasons. In my opinion, it makes sense to stay in touch with those people.

How do you start off doing that? I guess, how early? Obviously you go through this whole life cycle of building a business. When do you start thinking of it? And then, you know, do you start writing names down on a piece of paper?

It wasn't a piece of paper, it was Google Doc. I always kept that Google Doc going. I shared it with my investors and advisors, like, hey, here are potential strategic partners, outcomes, buyers, whatever. How can you help me, Organ? I won't pretend that I knew everybody. I certainly didn't. But with my board and my advisors, I was certainly able to get to all the right people over time.

How early was that?

Literally from day one, I started that list. Not with the idea that every time I owe them, being like, hey, do you want to buy us? Of course not. It's just, hey, I want to stay in touch and see what you guys are thinking about what your important strategic initiatives are at ABC Corp. ABC Corp is the big company in the space and they're a potential buyer. You should know what their strategic initiatives are, what's important to them. Those are really valuable conversations. Even if they never will be your buyer in any realistic scenario. Stay in touch with the heads of Stratton Corp. Dev and all of the important players in your space. Yes, they could certainly be a buyer of you, but they are the source of a huge amount of information that you really want as you're building your business.

You make a good point on how this aligns with partnerships as well, that this is just a lot of strategic initiatives in general. And I could see that being a good path and direction of thinking and identifying these companies. Was there any particular means that you had to identify them that worked specifically well, or do you just naturally encounter those companies?

If you're building a company in a space, you should have a pretty good sense of who they are. But we don't build these companies in vacuums. You want to always be talking. It's funny when people are in the ideation phase or even when they're in the early stages building a company, they'll say, oh, I can't talk to you until you sign an NDA. And I'm like, that's ridiculous. You're a ridiculous person. You should be talking to everybody and everybody as much as you can, as often as you can. You do not have a monopoly on good ideas. You do not have a monopoly on what the best way to do anything is, or where the right product is or pricing or blah, blah, blah, blah. Have conversations. If your idea is so fragile that sharing it damages it in some way, you have a terrible idea and you should not build that company. Your idea can't be that fragile, and it isn't that fragile. So go and talk to people. Ideas are easy. The will to execute is hard. Talk to as many people as possible and start to build up that knowledge base. If you don't have it today. But I'm going to guess that most entrepreneurs have that knowledge base. You don't go and start a company in a space you haven't thought a lot about. You haven't researched and done your work in.

Yeah, I like the philosophy about being transparent. I do think that rings true, that you can have these open conversations about what you're building. And I think that helps foster that. The relationship. Because there's definitely a give and take on information and all those relationships you're building.

Absolutely, absolutely. You're there to learn from them, but they're there to learn from you. You know what the heads of Corp. Devin Strut wanted to talk to me about? You guys are building like the coolest new thing in the gig economy. We want to understand more about it. And I was happy to talk about.

Was there anything that you felt sensitive.

About talking on as the founder of the company? No, because I'm not the one building anything. I didn't really know enough to have sensitive information about the intricacies of our architecture or things we were doing because we had some amazing developers that were doing amazing things. I wouldn't have felt uncomfortable because I didn't know enough to give away the family secrets.

I remember early days, I was always sensitive about the metrics and the numbers. Once you get a point, then it doesn't matter. You're going down your path regardless. That is true with the investors. How do you engage with them to help with any of this? Or are they a sounding board of sort?

Investors want to be value add. We were unbelievably fortunate and I've been in almost all of my ventures to have great financial partners that aren't just writing a check and saying, hey, let me know how it goes. But also, by the way, aren't the other side of that, which is asking for an update every week. What's happening? How are sales this week? I don't need that person. I don't need the person that just walks away, writes a check and has no ability to be involved. You want investors that are right in that middle that say, call me if you need anything and we will have a check in once a quarter, whether that's a board meeting, an investor update, whatever it is. And so I've just been very blessed with people that have been unbelievably helpful and have opened their networks and their experiences with me and my team. They were unbelievably helpful in opening doors and making intros, coaching. They were instrumental. I will always say, with work market specifically, it took us seven and a half years to get to that exit to adp. And I will give full credit to myself as the most important person that generated that outcome. The number two person was our lead investor from Union Square Ventures, Fred Wilson. Without his backing, without his support, without him opening his network, without, without him helping us when we were down, we would not have made it.

What's your approach with getting them engaged to provide those resources, those intros and thinking to help you expand that landscape of potential partners, acquirers, you ask.

Let's start with that. Like you just ask. Every board meeting had a slide, our asks and we would sit down and say, hey board, here are the things that we are struggling with in terms of interest. Here are all the companies we're struggling to get into that we think would be great customers here, all the strategic partners we're struggling to Talk to who can make intros. And what I always would do and you always should do is you send the board deck out a few days before the board meeting. If you are spending your time in a board meeting reading a deck to people, you are wasting everybody's time. Send the deck out a few days before, let them read it. Have the first half hour be all right. What questions do you have on the materials you read? And then the rest of that time is, hey, here are a bunch of asks we have on intros we need. And then importantly, here are a bunch of strategic challenges that we are facing. We would love your advice, we'd love to debate and discuss should we go into this vertical? Here are some pros, here's some cons, let's discuss. Should we raise more capital? Here are some pros, here's some cons, let's discuss. That's what a board meeting should be. But a part of that should be your asks. And so we were always sharing basically our pipeline, both from a partnership standpoint and a customer standpoint. Here are companies we're trying to get into. Here are customers that are on the one yard line. If you know anybody that's a senior exec that can push this over, that'd be great. They all want to help. They are certainly aligned in incentives to help. They want an outcome for this company, too. But if you just say, hey, introducing me to some customers, that falls flat. If you say, here are 30 people that we are talking to, they can look through and be like, oh, my God, I know the CEO of that company. He's a good friend of mine. Great. Oh, my gosh, I know this woman. She's. We've known each other. We went to college together. Great. That is super helpful. Not, hey, we're looking for customers. Anyone you can introduce us to would be helpful. People can't respond to that.

That's a good tip. To be specific, do you think there's a right number that you found, whether it's like the 30? Or is there a point when you can show them too many names and get to the point where, hey, that's too much homework?

I think what became important for us was giving them the list before beforehand. So if it didn't spark anything, they could go through LinkedIn and see how they knew people at that company and saying in the board meeting, all right, now it's time for our asks, who has how many intros? And they would compete with each other to see who could have more intros based on that list. We didn't want to. Never wanted it to go to two pages of names of companies or individuals. But I always liked setting up that competition because they would literally, they would do work for me and they'd come in and be like, I can do seven intros. Like, ooh, seven. Anybody beat seven? That was fun.

I love that. Especially since it was one of our advisory board members that introduced us. This is definitely going to come back nicely. There you go. Moving along. So we are building our list and networking with these potential partners, acquirers, keeping the loop with our board members along the way, getting their help. Any introductions, where did things pick up? Where you ultimately got to the path?

With adp, I am a keeper of lists. One of the lists I keep is people that invest in the future of work because it is a space that I have spent a lot of time in. So certainly I have seen a lot of companies. I have friends that have started companies and people always come and they ask for advice and I'm very slow to give advice because advice without the proper context, I don't find that helpful. If the first time you've ever met me and the first time you've ever heard about work market, any advice you give me, no offense to whoever I'm asking or whoever I'm in conversations with, like, oh, have you thought about this? Go. Yeah, I've been running this company for six years. So I thought about the blindingly obvious thing that you just thought about after hearing about us for the first time. Yes, I thought about that. I always find that very frustrating. But if people are with you a lot and they are asking, you know, they're learning all about your company, then you can offer advice. This was very long tangent here too. People would come and they'd ask me for advice and I would say, hey, I just met you, I just learned about your company. I don't have anything constructive to say, but what I can do is introduce you to some people who maybe will do your next round of capital. Because I'll always tell founders you should go and talk to. If you're a Series A company, you should always be in touch with the Series B investors to say, hey, I'm not raising money for 18 months, but when I come to you in 18 months, what do you want to see that gets you excited? What are the KPIs? What's the growth rate? What are the customer numbers? What are blah, blah, blah? What do you want to see to get you excited? And so I would always say, here's a very long list of people. You should talk to them. Even if you're not raising, you should talk to them. And so I read about ADP and ADP Ventures, and I thought, oh, my gosh, ADP's got a venture arm. Of course they should. So I reached out to the head of ADP Ventures, cold email via LinkedIn. She's like, hey, what's up, man? Love to talk to you. We should know each other. I got on the phone with that gentleman and we talked for a little bit. And he said, adp Ventures doesn't mean what you think it means. We're not a VC fund. We're the internal kind of skunk works for adp. But I know who you are, and I know Work Market. I'd love to come down. So he came down. I gave him a demo of Work Market. I gave him my talk on the future of work, and we shook hands, and I thought, all right, never going to see this guy again in my life. Very nice to meet you. He called about a month later and said, hey, can I come back? I'd love for a colleague of mine to see the demo and to talk about the future of work. He said this would happen time and time again. A month would go by. Can I come back with four people? Can I come back with six people? Can I come back with eight people? And after about a year, we'd gotten to know each other pretty well. And he said, hey, I'm going to. Can I come back? I've got about 30 colleagues. What? 30 people? And I just said to him, I was like, you know what, dude? No, you can't come. I'm done. I don't dance. Every time you want to know what's going on in the future of work, I'd love to give my speech, don't get me wrong, but I don't know what's in this for Work Market. So no, you can't come. There was a very long pause. It's like a solid minute and a half. And I could hear him hemming and hawing. He finally said, well, I wanted to come down and talk about maybe buying Work Market. I said, oh, come on down. I'll dance any way you want me to dance. Then. No problem. That began the process.

It's interesting how they were so discreet about it through those early conversations.

Well, I'll tell you this. They were being discreet because they were doing a lot of work as corp dev people. And the Ventures part was a part of the corporate development organization at the time. They do work, they research, they study. They want to be meeting with all the entrepreneurs and talking about the new stuff, and they want to put together their map of where the industry's going and where they should be making their bets, either organic bets in terms of new products or augmenting existing products, or inorganic M and A bets. They had been looking at the gig space and they had looked the world over. They spent about a year researching what's going on in enterprise software for gig workers. And they came back and they said, you guys are the only game in town. I said, that's a terrible way to start a negotiation, but let's begin if.

We can go back to that first point of contact. Because I love how you use LinkedIn, which I'm a big fan of and often get in touch with our speakers that way. What is like the essential context? I know you mentioned the what's up man? But is there a certain, hey, I see we're both serving the same customers. We should talk. What's the framing that you use to get those conversations going?

Well, I'll tell you this, that was like almost six years ago, and I think your reach out then is very different. LinkedIn has become very difficult from a noise standpoint. At this point with LinkedIn, I would say you have to go in with a warm intro from somebody that you should see who you want to talk to, see who you're connected through, and ask for that warm intro. I respond to 100% of the warm intros, where friends of mine say, hey, can you talk to X? At this point, I respond to 0% of the blind reach outs.

Okay, say I exhausted my efforts and couldn't find any warm intros and had to do a cold outreach. What would be the approach that you may use?

I would say your cold outreach should be three sentences max. Just get to the point. Hey, really want to talk to you about X can chat anytime. That's it. I go through and I delete them, but I still see them. And people write like four paragraphs about why I should have a conversation with them. I'm like, oh my lord, that's crazy. Delete.

I 100% agree.

Just, hey, we're building something really cool. Would love your opinion as another entrepreneur, whatever it is, couple of sentences, right?

Like we're in the same space. Why don't we get together and pair your notes? Love to make the introduction fair enough, but first and foremost, try your best to get the warm introduction. Yes, you get down to this path and they formally express interest in your company. What happens next?

What actually happened next is the head of Corp Dev, the president of adp, took me to dinner. This was after they had done a bunch of work, maybe two months worth of work, went to dinner at a restaurant here in the city down on 18th street between 5th and 6th. We were having a lovely time. They said we'd like to make a formal offer. And I said okay. And they actually took out a piece of paper, put it on the table and slid it across the table. And they said, that's our number. Swear to God, no way. Yep. And I looked at it, I looked at them, I looked back at it, I put it in my pocket, I said, okay, I will inform my board and we will get back to you and do course. And I said that's it? You don't have another reaction? I said, look, I am the largest individual shareholder of Work Market, but I am one member of a five member board of directors. And so I have a fiduciary duty. I will bring the offer to the board and the board will give you its response. Now internally I wanted to jump up on the table and start dancing, but externally I had to do what the appropriate thing was. I brought it to the board and the board had two decisions in its mind. One was we need to hire a banker, which I was vehemently opposed to as a former MA banker. I just didn't think it was necessary. I thought ADP there was more juice to be squeezed than there was. Their offer ended up increasing about 35% but I didn't think we needed a banker to do that. Or do we? We, meaning the investors around the table, put more money into the company and go for another two years. And that is just math. We have an offer of X today. We're going to take dilution, but we're going to grow revenue. And then there's the time value of money and do we think that the probability of us getting a higher offer, blah, blah, blah, blah blah. We debated and discussed. We did hire a banker. ADP continued their diligence. We did run a process, ADP won the process. And then we had a final board meeting to debate and discuss that last issue. Our investors were willing to put more money into the company and go for another two years.

I'm in the impression that once you have institutional investors in your company, that's the standard playbook is you get an interest, you're going to hire a banker. If you come to that decision to sell and run a formal competitive process, you didn't want to do that, but ultimately it sounded like you did do that.

We did do it.

Is it because that's the standard playbook to hire a banker and run it?

No. Well, keep in mind, I had been talking to all the heads of Corp, Dev and Strat and all the companies that I thought could buy us. I had been having those conversations for years. I had a strong sense as to where they were going to be and what their interest was in owning a piece of software like WorkMarket, owning that customer base, owning how we address that customer base and all those things. I didn't think that there was another better out there. I'm not saying I want to run a process, but I felt like I could do it. Why am I going to pay millions of dollars to somebody to do something that I could do myself? That was the argument. Not running a process, not formally saying to IBM and Oracle and SAP and Workday and all the other players, hey, we are going to sell the company. Would you be interested in taking a look? Here's some information on the company that was 100% going to happen. The debate simply was, why do I have to pay somebody millions of dollars for something that I know how to do myself?

You already built those relationships during this period of time.

I knew all the players. I've been an M and a banker. Why do I need someone else to do it? That was the only thing that I was opposed to.

Was there a value add? Because you ultimately moved forward with the banker, why did you ultimately move forward with the banker?

Because the board out vote. They just said, no, we're doing it.

We're going to banker. We want a professional. This is what we are used to, basically, yeah.

Do I think they added value? No, I do not. That is my opinion.

Why I'm going to get bankers emailing me after this. Give me a hard time. So give me a good reason why.

The reason why is that I already knew everybody. I was already in touch with everybody. I already knew where they would be from a price standpoint. I had said all this to them. I was like, guys, there's nothing for you to do here. You're not going to come up with names. I don't know. You can't get to somebody. I can't get to both great reasons to hire a banker, by the way. Three, I don't need you to do a bunch of valuation work and other things. Here it all is. I've already done it. But if you don't have those skills, great reason to hire a banker. Now look, what they did do is they Took a lot of the brunt of ADP's diligence. That is another reason you do not want to run this process by yourself. That to me though is not do I have to hire like a brand name banker and pay them millions of dollars? That's hiring a boutique of some sort with a bunch of junior people that can just put together the data rooms, answer all the questions, build incremental models that they need or do whatever that I would never want to do myself. My statement to the board was I will put together a teaser. I will go formally to these 20 companies, I will see if there's incremental interest, I will run a quick process, but then I will need to hire two or three kind of junior people to man the data room, get all the documents, build incremental models, because I can't do that and none of my staff internally at work market has those capabilities. Without question, there's a role to be played for a banker. It's just what is the value you are getting? And I didn't think in that circumstance that it was necessary. And it is my opinion that in that circumstance it was not. That is an opinion though. That is not a fact.

Yeah, what you're describing is more of a tactical resource which you'd expect to pay contract hourly for. Just pay for the time essentially. What does add value in the deal? Like you got the banker there with lawyers, like, who's really adding value to help you do the deal?

I think the junior bankers are adding a huge amount of value in getting the deal done. I think the senior bankers, if they can introduce new players, if they can get to players and be taken more seriously than you could. Like if I didn't know any of the heads of Corp, Dev and Strat and I was just trying to get to them and they were like, who are you? Why am I talking to you? Then the banker plays an unbelievably integral role. Right. Because that head of Corp, Devin Strat, knows that banker. They've known each other for 10 years and they've been talking deals and gotten deals done. That currency is invaluable. I didn't feel I needed that currency because I knew those people and we already had a relationship. A banker coming in with incremental people to be like, actually there are 10 different companies here that are very interested in this space because they're not directly in this space. You don't know them. I'd say, oh my gosh, huge value add. Didn't know that. Hey, and here are the People we can get on the phone tomorrow, you will spend a month trying to get to them and they still won't take your phone call. Huge value add if they could do that. In my circumstance, there were no incremental players in shoulder industries looking to get into it for a host of reasons that I won't bore you with. And I already had all the relationships.

That gives you a lot of leverage when that time comes. Because you did that work ahead of time.

Yes.

The legal part, I think that's an interesting one because I've seen deals where they just didn't have the right legal counsel and that could throw a lot of haywires there. How'd you get the right legal counsel? And was there any other consultants or advisors?

So ADP had a lot of other consultants and advisors. There was a team of about a thousand people from adp.

Sounds typical.

Let us say this. ADP is one of the most well run companies on the planet. They dot every I and they cross every T because they are paying a massive percentage of the world's workforce and they need to be perfect every time. And every criminal on the planet is trying to get into their systems to get into that payroll flow because they move more money around the world than most banks do. And so everything they do perfectly and that works incredibly well for the business they're in. It doesn't work well in an M and A process. It doesn't work well for an innovation standpoint, although they are getting tremendously better at the innovation from ADP standpoint. They were just doing their normal thing for me. I was like, oh my God, how many people from Deloitte are coming to my office right now? What is happening? But from our standpoint, we had our counsel that we had from day one. We used Wilmer Hale up in Boston. From day one they had been our attorneys. We had gone through three different attorneys because first attorney left went to a different firm. Second attorney left, became the head of legal at WeWork and eventually the President WeWork. Amazing woman. And then the third person had been with us, had been our head counsel for a couple years. There wasn't a question as to who we were going to use. We were going to use WilmerHale and that team.

That's cool. We actually use WilmerHale too. They're a great law firm.

It is a great law firm and I think it is reasonably priced. Look, my issue with lawyers are always going to be the fees and the incentives. I know lawyers that'll say to me, took me 50 hours to do this. And I would say, yeah, but a better lawyer could have got it done in 10 hours. So I'm paying for the fact that you're not that good. Like, I don't understand. I will pay you a fixed fee for a job, and if it takes you one hour to do it because you are so smart, you have so many resources, awesome. If it takes you 100 hours to do it, that feels like a you problem. I am not a fan of the hourly bill and never have been and never will be.

Yeah, we went through the same thing. We had a fair estimate. I got the engagement letter. My heart skipped a beat when I saw the hourly amount, but then got reassurance like, don't worry, we're still going to meet that amount. So obviously, they were very efficient with their time. They bill for.

I am a huge fan of the estimate. And if there's anything. Look, if something happens that nobody anticipated and you had to spend more time, then of course I'm going to pay you more money. We're not unreasonable people, but I just don't like the. Anytime I get on the phone with you, it's going to cost you $1,000. Like, no, no, no.

How do you negotiate that? Is it, hey, we got to stay in this sort of range. Or do we try to create some kind of fixed price around this?

I always say, what do you think is a fair fixed price to get this done? And I think the word fair there is super important. I'm not trying to take advantage of anybody, and I do want people that are very smart in their field and know what they're doing, because I think a very good lawyer is worth it. But I just will never get my mind around. Spend as much time as you want and bill me for that. And they'll all say, oh, no, of course we won't charge you for time is this and that. I just don't believe them. And I'm not going to sit there and go through and argue every single bill, every single hour, be like, did you need to spend this? I don't want to do that either. I don't want to kill the brain cells. And so the same. What do you think is fair to do a deal like this?

But I think you get the pushback. I don't know how long it's going to take, Jeff. It really depends how complex this gets. You know, it really ranges here.

Sure. And I'll say, great, give me some ranges. And we'll pick the middle range of what is the middle of the fairway and if it takes longer, I will be reasonable. And if it takes less, I won't come back to you. So pick something that's fair.

Cool, I like that. That way you at least gauge how much you're going to be investing ahead of time versus getting a surprise bill.

Nobody likes surprise bills.

So let's move through this process. You're going through diligence at this point. Let's go to LOI. When you get to the LOI point, mentioned negotiations and you had about 35% lift on it. Walk me through what that negotiation was like.

We certainly pretended the process was much more robust, that there were people chomping at the bit. We had actually in between their sliding a piece of paper across the table, we had bought a company and that had increased our revenue like 30%. We were like, we're now bigger, so you should pay more. That is what drove the most of the incremental value from adp. Okay, we had that conversation, but there wasn't a huge amount of back and forth. They came back. I thought their initial offer was fair, quite frankly, from a revenue multiple standpoint. If you looked at where things were trading and then when they upped their offer after we had bought this other entity, I felt like we have pushed these people as far as they're going to go. And so I didn't. I don't remember, quite frankly, if the bankers. No, we should go back for another bite at the apple. They may have said it, they may not have, but I remember thinking and probably saying that we're not getting anything else here and now we're risking them walking away. ADP doesn't buy a lot of companies. It's not like we are dealing with this incredibly inquisitive entity that is used to doing this. And ADP at the time traded it maybe three times revenue and they were paying 10 times revenue for us. I was conscious of that and I didn't think we could get more. And I do know subsequently that we were a little bit beyond the envelope as to what they were willing to do. Certainly, you know, you talk with the principals after because now we're all friends and they're amazing people. Joe Borelli that runs M and A at ADP is exceptional professional in person. And so he was like, dude, that was beyond what we were comfortable with. Like, great.

What was your approach on the presentation of these offers? Is it. I remember the old days, you get a fax machine coming in with your offer that you're waiting for and looking for the final price. On it or is it just here's an email. Do you get a formal phone call and conversation that they're walking through what they're presenting and how do you reciprocate with that counter as well?

Unfortunately, there were no more dinners where pieces of paper were slid across to me because that was just a fun experience. Subsequently, there were phone calls between myself, Joe and a few people from their side. We would just talk. So they would prep it saying, this is what we're going to send you.

Okay, so you knew ahead of time what you were going to get sent?

Oh, yeah, yeah. It wasn't like they just sent an email over like with a subject line, new offer. They'd call me and we'd talk it through. I think there were really only two rounds of back and forth on that. It was going to be a stock deal, it was going to be for cash. And then it became what is the escrow? What are the holdbacks? A host of other things in terms of the baskets within and then all of the nuances within the deal. But that really became lawyers to lawyers mostly because we just did a very standard deal. Like there was nothing magic about it. It was 10% escrow. It was a two year hold. We negotiated pretty high thresholds. There were only two or three things that could potentially trip us up. None of them came to be and we got almost all the escrow back pretty straightforward.

Any other variables you're looking to negotiate on the loi?

The working capital adjustment.

That's an interesting one.

I fully will fall on my sword here. I did a bad job. Our bankers were pushing for more refinement and I thought this is not going to be an issue. And it didn't end up being a huge issue, but it ended up costing us six figures. Low, low six figures, but six figures that I think if I had sharpened my pencil further and pushed them, we would have kept out of the escrow. So the working capital adjustment is something that twice in my career because it was certainly true. With the purchase of that entity that we bought right before ADP bought us. There were just things that I did not anticipate well enough and they both ended up costing me low six figures.

What would you do to resolve that? Would you define that in loi?

I think you got to fight like hell for those points. There are points that especially with big company buyers, they get very wrapped around the axle, around, well, what if this happens? What if that happens? And I think you go, okay guys, I'm going to give on all of those Points, because you know that there's like, less than a 0.1% chance of that happening. And I'll take that risk all the time. But things around hard dollars that are going to get determined X days right after, they actually aren't as overly concerned and they end up meaning more to the seller. And so I give on some of the big points in retrospect and go back and be like, we got to lower this working capital threshold and make sure that there's basically no adjustment.

Got it. So LOI gets signed. You're moving through confirmatory diligence. You got Deloitte and crew doing their work. Did you get an understanding of how they were adding value in terms of what they were doing with the myriad of consultants they provided to you?

They came in and they had a bunch of opinions. They're like, oh, we think work market needs to be doing this, and you're not doing this right. Doing that right. And I was like. And I remember one of the. Not Deloitte, but one of their attorneys, and I don't mean to pick on Deloitte. Deloitte's a great firm. One of their attorneys was like, we don't think you're allowed to do this. I'm like, so you think I'm really not allowed to exist, is what you're saying. You think that everything I've done up to date is illegal? They're like, whoa. No, I'm like, that is what you're saying, because you're saying you think I need a banking license. And here are all the reasons we don't. Lawyers and people going through confirmatory diligence. Their job in life is to find problems. They're not looking to find solutions. So there was a big conversation around sales tax. We were not charging sales tax. And I had a very well thought out logic as to why that was that I came up with. And I couldn't hire. I couldn't afford to hire Deloitte or anybody else. Like, I just read through the stuff and I came up with it. Very proud of this. And Deloitte came in, they said, well, you need to be charging sales tax. I was like, no, we don't. They're like, you absolutely do. And I said, all right, let me come in and let me walk you through why I think we don't. And so I spent an hour and I walked through the logic, walked through how we applied it, walked through the different statutes and why I thought what we thought. And they deliberated for an hour and they came back and they said, jeff's right. I was like, there are 30 of you. What was that, like a $50,000 meeting? So look, I don't doubt that they do amazing work and I don't doubt that they are necessary, but they have a very specific point of view and they have a very risk averse approach. As well they should for their clients. Fight like heck. You've been building your business. You know it way better than they do. You've studied it way longer than they do. They are trying to put your round peg in their square hole and you know better usually.

Was there any other do's and don'ts for that phase of conformatory diligence?

Looking back, not really. I was trying to keep my team shielded. We still had a business to run. There was still every probability that deal wouldn't happen. And if it didn't, I had to be ready for the day after. I would say to protect your team as much as possible and just always assume the deal is not going to happen. It's just an easier way to go through it.

What does that communication look like? I like the reference of the tent. It seems like you gotta let certain key people in the tent early in the process and then you add more people as you go. What did that look like then? How'd you broadly communicate with your employees?

Look, we had about 200 people, but we were spread out. We had an office in Toronto, we had an office in Boston, New York. And most of the people that were there were engineers or salespeople. So we had a very thin operations layer. So it was very clear who would be in the tent and who wasn't. I also was very conscious of the fact that a lot of the senior people we had hired weren't going to go to adp. They had come to a startup. This one woman who was our head of marketing had left Nielsen with a $5 billion budget and a team of a thousand. She came to work market with a $2 million budget, a team of three. She wasn't going to go to ADP, so I wanted her to understand what was going on. I don't know that she was necessary for the diligence standpoint, was necessary for her career. She would get paid. She made a good amount of money. I wanted to give her the Runway to know that it might be time to move on. That's what she did. She stayed for a day. She's like, all right, I'm leaving. I'm like, of course you're leaving. So I wanted the senior people to know so that they can make their appropriate plans and we could make plans as to what we would do for the other tomorrow, which was day one at adp, who's going to be on this team? Because we now have benchmarks. I know I need to perform, perform against, because I'm now the GM of that business with an adp and I need to know who's here and who's not. And so the senior people were really the issue. But the same goes true for everybody. You go to a startup because you want that lottery ticket, and their lottery tickets all got paid, but now you're working at a big company, there's no more lottery ticket. And the one thing I knew happened is the day the deal got announced, every single person got 100 calls from recruiters saying, hey, now go to another startup and get another lottery ticket. And so keeping them was a challenge. And I think we actually did a very good job of that.

Before Loi, who were the people that knew?

Before Loi, it was the board and me.

That was it.

Yeah, there wasn't really anybody else that knew.

And then from loi to close, that's when you started working with the key leadership.

Yeah. So that was the executive team, hr, legal, and then the entire accounting and finance team.

You got announced day, where you broadly tell everybody, was there an approach that you had to help with that retention?

So I'll tell you about announce date. I came in that Sunday. We were announcing on a Monday morning, January 19, 2018. And ADP was like, hey, we need access to your office because we're going to set up to livecast to your other offices and to the ADP offices worldwide and this and that. I was like, yeah, cool, sure. And keep in mind, we had multiple offices, so we livecast all of our meetings. I had a little webcam mounted on a wall in the right spot to be in the box. Whoever was presenting and that worked. They came in with 50 people and massive amounts of equipment. And I remember sitting there Sunday night watching them set up and panicking and being like, oh, my God, I can't do this. I can't work for a company that can't just set up a webcam. Like, I don't understand. Like, the webcam's not perfect, but it costs nothing. And you're spending a million dollars to bring in all these people and contractors and equipment and lights and all. Why are you doing this? And I panicked. I couldn't sleep that night. Not because I was excited, because I was nervous. And oh, my gosh, I have to be there for two and a half years. I gave my word that I'd be there for two and a half years. There were no legal documents I could have left the first day, but I gave my word. So that to me meant I was going to be there for two and a half years. And I was freaking out. And the next morning they announced that at 8am via the press. And we were having this meeting in the office for my team to do a town hall. Hey, here we're announcing it. It was me and the president of ADP. And I was coming into the elevator at 8:30 and one of our engineers is in the elevator. He's like, hey man, good morning. I'm like, hey, good morning. And he's on his phone checking his users. He goes, holy sh, did we sell the company? He found out like right in front of me on his phone because we had sent an email to our team at 801. I was like, yeah, yeah, that's the mandatory company meeting at 9am and so I went in. I knew again that they were all getting calls from recruiters that morning. And I knew that a lot of them didn't want to work at ADP because they just didn't understand it. Adp, especially a few years ago, almost, actually five years ago now, didn't have a great brand as a technology company. They still don't have a great brand. They've got a good one. They should have a great brand. By the way, they are actually an amazing technology company. The branding hasn't caught up yet. And so I sat there and the president of ADP is giving us talk and doing his thing. And I stood up and I said, doug, I'm going to interrupt you here for a second. And I looked out at my team in New York. There's about 100 people. And then we've got another 100 people scattered. I was like, look, I know none of you want to work for adp. And Doug was like, oh, I'm like, doug, I'm going to, I'm going to land this plane. Give me a second. I said, look, I know that's your gut instinct. I'm going to tell you that your gut instinct is wrong. And being bought by adp, you should be viewing it in your world as being bought by Google or Amazon or whomever. They're as good a technology company, as good a group of technologists as all those people. So you will all learn. But that's not why you should stay. You should stay because you want this experience. You all have worked together, some of you for many years to build this company. And let's be honest with each other, we built it with bubble gum and duct tape holding it together. This thing falls apart ten times a day. This group is one of the largest, most well run companies on the planet. And here's the story you want to tell in two years I built it. I watched one of the largest, most well run companies on the planet fix it and scale it. And now that I know how to do that, I want to go back to the beginning and build it again. That's the story you want to tell in two years? Not, hey, I built something and I walked away. Because if you can tell that, everybody is going to want to hire you. And so that's why you should stay. And they did. We had retention payments. ADP put together a very generous program, which I screwed up, which I'm happy to talk about if you want. I think they stayed for that experience and a lot of them are still there because it is a great place to work and they are still learning.

That's a great narrative. I can see that landing. Well, it sounds like it did.

It did it 100% did. Look, our seniors, some of our senior people left the next day. They didn't need that narrative. They already had done world repeating things in their careers and they went on and they became the CTO of this and had a marketing at that and they're amazing. But for most other people, our retention was higher within ADP than it was before we were bought.

Tell me about the retention screw.

So ADP gave me a pool. They said, look, here is an amount of money and you tell us how you want to divide it. And everybody told me, just pick your star players and give it to them. And I said, no. I said everybody's important, everybody should have some. And that meant that for the senior people, let's say it was a couple hundred grand. It's not enough. It's not enough to keep them for two years. And for the junior people, maybe it was tens of thousands of dollars, not enough. It was too little for everybody. Whereas if I had just said, Here are the 50 people that we really gotta keep and within that, Here are the 20 that are critical and, and really loaded up on them. Look, we didn't end up losing them that much. Again, retention was higher, but we still lost some. We lost some because it just wasn't enough to keep them. And if I had done this more intelligently as opposed to giving something to everybody, I think we would've done even better.

So you wouldn't have casted it as wide. You would've dialed it in to who are those actual key people?

Yeah, One of my board members literally goes, you're an idiot. What are you doing? I'm like, I just think everyone should get somebody. He's stop being a boy scout. Not the way the world works. I'm like, you're wrong. Nope, he was not wrong. I was wrong.

It's a founder thinking there. You get definitely attached with the people because that's who you grew and build a business with.

Yeah, look, especially as a non technical founder, meaning I didn't build a single thing. I was just there at the head of the ship. So I was very conscious of that. Like these are the people that built everything and they should all get something post day one.

What was your role? Were you part of integration?

So ADP did an excellent thing and they put an ADP exec in as my number two. My mother used to call him my shadow. And he would keep all of ADP at bay, not only for me, but for as much of the team as he could. He was there such that for the first year I ran the entity and my promise to them is I will run it as if we were still independent. And I did. So I still didn't take vacation. I still was there every day for 18 hours. And then on the one year anniversary he took over and he became the GM and I just was like a guy there. And that worked. I would just get on the phone with customers, I'd fly to see customers. I just became much more just customer focused, giving speeches, glad handling and things like that. And I enjoyed it. But it was difficult to not be the one making the decisions and not be the one in every single meeting. And I appreciated that it was difficult for him because as the founder of the company, when we're sitting in like an executive team meeting, everyone still looks to me. I'm like, I don't have decision making authority. He does.

Wow.

Talk to him. And that was challenging for him. And so I started to come to fewer and fewer meetings. Like I wanted to strike that right balance where I'm here to support you in any way you want. But I don't want to be disruptive because I am going to leave on date certain and it all has to work without me. And so people can't look to me just because I'm in the room.

What was that timeframe from close till you left?

I sat down with the CEO of ADP a few Days before the acquisition. And he said, jeff, I need you to come in here and break things. I was like, carlos, choose this ahead of you. I broke three things on the way into your office. You're always a mess. And he laughed. But then he looked into the hallway, and I was like, no, no, not literally. And he said, can you give me three years? I was like, no, I can't stay that long. I said, I'll give you two. He said, give me two and a half. Okay. So we shook hands. So I stayed for two and a half years. So it was the first year I ran the entity. The next year and a half I didn't. And I just was talking to customers. I was doing big strategic thinking and a host of other things. I was helping out with other parts of adp. I actually helped with the leadership of ADP Venture. An ironic place for me to spend my last months there, as that was the place that started it. That was super fun. And then I left. And I left during the pandemic. I ended up extending a few months because of the pandemic. So I left in September of 20, and I left by just sending an email. There was no office anymore, but it closed down, and we hadn't been in it since March of 2020. So that was really tough, not being able to say goodbye. But in some ways, it's fortunate because I would have been absolutely crying walking out of that office for the last time. So it was fortunate that all I had to do was shut my laptop that was adps, put into a box, send it back to them, and then open this laptop, actually, that we're talking on now. That was my last day in my transition.

Wow. There's a light way. I feel like we can unpack in just that transition of the company, the large org, which may be a whole segue for a part two of this interview. I got to ask before we wrap things up, Jeff, what's the craziest thing you've seen in M and A?

What is the craziest thing I've ever seen in any M and A transaction? I think I walked into a room once, and we were on one side. I was a J.P. morgan, and the company and the sellers were on another side. I was with the buyer. We walked in, there was a table, and we all sat down, and all of our chairs were pushed down to their lowest level, and all their chairs are lifted up to the highest level. And we walked in, we sat down, and we were all like this. And I was like, what? What is going on here and they had purposely done it and I reached out and I raised my chair up like, what are you doing? I thought it was so silly that they thought that would work. It's like, okay, it was the chairs. It was the chairs.

Kisan oh my God. Somebody wrote some psychology journal and came up with that idea.

Yeah.

That's awesome. Jeff. Thank you so much for taking the time and sharing a wealth of knowledge helping me become a better M and A scientist.

Such a pleasure.

Those of you still with us, thank you as well. Until next time, here's to the deal.

Foreign.

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