Building an Exit Path

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Going well Kisan. It's a pleasure to be here. I've been looking forward to this.

Thanks for taking the time to hang out. I think this is going to be a lot of fun. To tell you, I started reading the book. I haven't gone through the whole thing. I just got it a few days ago. So I've gotten through the intro part which is going to be good. I get to learn all this stuff from you directly. Can we kick things off with a little bit of background? Because I think that's really unique.

I have been around Silicon Valley for a good part of the past two decades. I started out as a lawyer in late 90s corporate securities lawyers. That was my first baptism by fire to filmmaking. Lots of M and A and IPOs in late 90s. I also saw the Crash, then joined the venture capital world. Did that for a few years, got scared, went back to law because I basically had to rethink everything and post.com bubble burst and then that reconfirmed my initial decision to leave the law. So I then left the law for good, became an entrepreneur, did a few startups. I have been basically in the business world since, sold a few startups, have had some hard lessons learned, and then I have also been on the acquire side seven years at GoDaddy, part of the corp dev team, joined before IPO, done a number of acquisitions there. For the past year and a half, I've been part of Server Robotics, as you mentioned, as their president coo. I helped spun out that company from Uber, was incubated inside Postmates, then Postmates got acquired by Uber and then we spun it out. So a lot of interesting stories there as well.

When I first met you, I was wondering why the hell you left a corporate role to go join a startup. But now it makes a lot of sense. You're a product of Silicon Valley. With being raised in the startup culture. You went as far as getting a law degree, then somehow get back in it, started a few companies and exited out. Which leads me to the book you're doing now. Cause I know you're on tour, you're doing a number of these interviews, and I've already got a great impression just in the way you wrote this book. It's great language and the fact that you have this real deep entrenched background and you're not trying to sell me services to help me sell my company. That's not part of this. I don't read this. And there's a pitch on, hey, call me if you're ready to sell your company. You actually did it at your goodwill. Why did you write this book?

The original idea came to me after I had that disaster story with my first startup and then which I describe in detail in the book, and I'm happy to go into it here. And then I did the opposite basically with my next one and saw radically different results. I was like, okay, well there's something there. I tried to then pass on those learnings to other entrepreneurs that I had been involved with as an advisor or investor, et cetera, and saw them get good results. So it dawned on me that had I actually had a book like this when I did my first startup, I probably would have had a very different ending. So that kind of gave me the idea of actually putting down the writings. Now the delightful and surprising part of writing a book was that it actually made me a student of my own art. It gave me a distance kind of step outside of my body and looked at What I'm doing and how I'm interacting. Especially when I was at GoDaddy and interacting with other entrepreneurs and realized, okay, what are the things that they're doing right and what are the things that they're really taking the wrong steps Here I started collecting those stories, other stories from other folks that I came across. But the initial idea, that's how it came about and I'm so glad that it finally this month it's out. It's available for sale on Amazon and local bookstores.

So you're trying to help other entrepreneurs not screw up when it's time to exit, preserve value. That the goal?

If truly others can benefit from my hard learnings, that's mission accomplished for me. I'm already getting a lot of good positive feedback, so I feel like that's great. I wanted this book to exist because it would have changed things for me as an entrepreneur and hopefully others will find it helpful in their entrepreneurial journeys. There are not that many things as an entrepreneur you can do to minimize the downside risk and maximize the upside. But what I preach in this book, which is get started early on creating your exit strategy and implementing steps towards that is one of those things. So I'm really passionate about this. Also, I'm very passionate about entrepreneurship. I feel like as a society, we all win when startups succeed. There's so much investment. Our best and brightest minds are devoting their lives to creating these startups and it's just such a shame when any one of them doesn't get to achieve its mission. So for me, I think we all win and my daughters will have a much better future if more and more startups succeed.

That's true. I agree. That's a good philosophy. Good mission. I like it. I don't know, maybe it's just me liking a debate with people, but I wanted to kick things off of this view about do you build a business with the exit in mind? And this is the private equity mentality, right? I'm buying a business, I fix it, I want to sell it, and it's thinking that exit from the beginning. Or do you just really stay on your mission and build a quality business with no exit in mind? I feel like that's the philosophy I think of as a startup, which I've networked with all these other entrepreneurs and it's. It seems when you're very much entrenched with investors, you're acting on that means, right, you're very much building the business to sell with a very high growth to get that metric of a growth company versus when you have more of an opportunity to stay really focused on mission, you're building a different type of business.

I have a different perspective on it. I appreciate people that think that way. I think that's the prevalent sort of dichotomy there. You either build a business that's built to last or build one that's built to sell or built to flip.

That's where I see the world right now. So now I pass that to you. That's where I like to debate, like share it with me or give me right or wrong. I don't know.

And to me that's a false dichotomy. And I explored that in the book in detail. That actually comes after the introductory chapter. So you'll get there soon, but I'll give you a preview. I believe there's a lot of misunderstandings and myths out there about what actually selling a company means. Most entrepreneurs start a business with a mission. They don't just think about, oh, this is the highest likelihood way for me to make a quick buck. We all know entrepreneurship is not that. And the chances are any startup doesn't succeed. More startups fail than succeed. In fact, after five years, most startups don't survive and 70% of venture backed startups don't even return money that was put into them. So the statistics are pretty dismal. So no one is going into this thinking that, oh my God, this is a surefire way for me to make a lot of money. What is behind a lot of these innovative ventures is a mission. It's a core idea, a belief about how the future should unfold and wanting to have a part in that. That founding mission is what gives rise to a startup. And then somehow with the emergencies and daily fires and everything else, a lot of people tend to actually lose sight of that. I kind of encourage entrepreneurs to go back to that root and really understand what does successful execution of that mission entail and what are the best ways to achieve that. When you're thinking about it realistically, chances are that you're not going to survive. Chances are that you're not going to have all the resources to best achieve this mission. In fact, even when you look at the probabilities of success, for every IPO, there are 30 acquisitions each year. So chances are you're going to get acquired even in the success scenario.

So what I'm getting is M and A is not quite inevitable, but like very much likely in the horizons if you're going to have an exit period.

Exactly. So you either are going to be prepared for it or you're going to be unprepared for it. Which one will make you more likely to execute on your mission? We prepare for everything else, but very few entrepreneurs actually think about their exit ahead of time. Usually they get into exit strategy discussions, serious exit strategy, when they are talking either to an acquirer who's made an inbound inquiry or they're running out of money. And both situations are too late for you to actually take the proper steps. What I learned as on the acquirer side, is that it takes at least a year or more for you to build the kind of meaningful relationships that are conducive to great strategic partnerships and deals. You got to get started ahead of time and take the necessary steps. The other thing is that actually when you have an exit strategy in place, the way you build your business, having had thought about that end scenario, you take steps and you start building relationships that would be helpful to actually manifest that end scenario for you. This is what we did with my second startup. We had a wish list of acquirers. We actually had a strategy off site. We came up with that wish list. We then started thinking about, okay, how do we prioritize the potential acquirers on this wish list? What are the criteria we'll use to basically choose one over the other? It's not just valuation. There's a bunch of different things. And also we then thought about, okay, do we know them? What do we do to actually establish relationships with them? Just having gone through that exercise within a span of two years took us from a place where we were just like 10 million, $20 million valuation to over 100 million valuation being pursued by multiple acquirers and public and private, having had great leverage to actually execute a deal. So we sold webs.com to Vistaprint. @ the end of that process, everyone was happy. Founders, employees, investors. And I really attribute a lot of that success to that strategy off site that we had. And I talk about that in the book at length, about even what it means to put a strategy off site. How can others replicate the process we used to get to that successful outcome?

Your view is more around exit preparation. I was referring to the really building a business to exit that it's different, right? When you're just purely building it for that exit valuation. You have a view of the preparation so that you still have that bandwidth of when that event's going to happen, but you're ready to go, acknowledging that the key relationships you'll need to make that happen take A good year to develop. So you want to have the relationships that I'll enable you to have a successful exit.

That's correct. The relationships are critical. In fact, one thing I I like to say is that companies don't do deals, people do. So it's good to get to know the people that do the deals. And there is a bunch of different things you can do actually to improve your leverage as an entrepreneur. A lot of times we assume that a small, tiny startup cannot have leverage against a giant multi trillion dollar company. But the truth of the matter is you can have leverage, but you need to cultivate and build that leverage over time. It takes time. And part of that having that leverage comes from you having capabilities and having folks on your team that can give you the bandwidth to execute on a deal as well as have the right brain trust around you, be it lawyers, be it investment bankers, be it advisors, all that to have basically all the ingredients necessary for a successful deal execution. All of these take time and that's why you need to be prepared as you said ahead of time and take tiny steps to prepare and don't let the urgent push out the important in your day to day.

I like where you're going with it. It makes a lot of sense. You have some interesting stories that you refer to in your book and I'm trying to recall if there were both companies you founded.

I found several, but I think the particulars you're referring to is Jaxter and Webs, the kind of jacks the position of those two.

I don't know if you like doing an abbreviated version just walking through because I think the takeaways of the before and after story, you went through it, he learned some hard lessons and then you actually applied it with some good success. I think it'd be great to get a little synopsis of that.

Absolutely. And I think this may be also very interesting to the corp dev folks in your audience. My first startup, Jaxter, started in 2005. We're promising hot startup in the communication space doing what I would say WhatsApp and Telegram are doing now. But this was in the prehistoric pre iPhone era. So we were trying to connect folks through the Internet and messaging and phone calls and bypass the telephony network. But these were with phones that didn't have apps on it. We grew virally. We went from 0 to 10 million users within a year of launching. We had VCs chasing us down the street. So we were really running high and we were so confident of our own execution that we thought we had a unicorn here in the making. I don't think the term unicorn existed back then. We wanted to build a billion dollar company. We were going for that ipo and therefore we didn't really seriously go out of our way to establish strategic partnerships or really build relationships with potential acquirers because why did we need them? We were going for that IPO. Lo and behold, we hit the 2008, 2009 downturn, whoops. No more venture money were to be had and we had less than a year to figure out what to do with the business. When we looked at the numbers correctly, we had only had six months of run rate. Like we scrambled, we tried very hard to find an acquirer and there was only one party who basically dictated their own terms and we barely got pennies on the dollar. It was a failure from an objective standard. The key mistake that we made when I reflected back, took six months to reflect back and lick my wounds was that decision, the leadership decision not to pursue these partnerships or build relationships externally and focus on our own execution at the next startup. I actually joined as a head of corp dev and strategy with webs.com I did not found that company, but the company had reached a place where they were sort of as a strategic inflection point, they were kind of plateauing a little bit and they needed to see what to do for the next phase of the company. And that's when I got everyone together and we did a strategy off site to really think about what does really success look like and in the very likelihood that we would be acquired, who would be on that wish list that I referred to and that set in motion a series of events that led to that successful exit.

You did more prep, was that part of it? You had more of a timeline or Runway to think about the things, but act on it, where you build those relationships.

Yes. When you have that framework and that exit plan in the back of your mind at events, you start meeting people, you start connecting the dots, you start thinking about, oh, wow, wouldn't this person be an excellent advisor to have? In fact, one of the critical advisors we had was someone I bumped into at a conference. He was critical because he used to be a head of corp dev at Intuit, which was one of the companies on our wish list and they had bought Homestead, which was a competitor of ours, a few years back. And so he actually was in a great position to be an advisor to us and tell us, okay, if we wanted to also sell to Intuit or someone like Intuit, what did we need to do. His advice and mentorship was critical and many other relationships that came about because psychologically we were primed to think about the exit. Just like how I was writing the book and stories that I would hear, I would grab and put into the book. It was the same having the exit strategy in the back of our mind. We would think about, okay, wouldn't this be an interesting resource or advisor or potential acquirer for us to have in our back pocket?

All right, let's break this down. Let's get a step by step how to create that exit path. Maybe we do it like a little timeline fashion. Cause I'm wondering, even in the early stages of building a company, are there even considerations then? Is there a certain point of maturity where stuff evolves?

The book itself is structured that way too, in sort of chronological order. So you start with, what does it take to create an exit strategy? Then what? How do you implement it over time? And I break that down into two phases. The long game, which can take several years, and then the short game. And by short game, I refer to anything that's within a year of actually wanting to sell your business. So creating that exit strategy has a number of ingredients. It starts with adopting the mindset that sort of dispels a bunch of these myths and taboos around exit planning. There's this myth of acquisition failures. Some people believe that most M and A fail, so why bother pursuing them? There are those who believe that risk mitigation, for instance, is something that you don't really want to discuss with your investors, because there's a signaling problem. If you tell your investors, hey, I'm thinking about, about an exit, they're going to think that you're not bought into the idea and you're not passionate about building a massive company. So there's that taboo nature of actually these conversations. And you can't really create an exit strategy unless you can have open dialogue with your investors and key stakeholders. Because it's not something you do in seated meditation. It's actually something you do collaboratively, again, at an off site with the right stakeholders involved. And you need their involvement continuing over time and their support. You have to kind of adopt the mindset, understand what does it really mean to have an exit strategy and why is it on strategy for your business even when you don't need to sell? In fact, the best time to sell is when you don't need to sell. So creating a sustainable business is part and parcel of creating one that can be sold successfully, even when you're going for the ipo. If you do have acquirers at the door, your IPO valuation and other things can turn out a lot more favorable to your advantage as an entrepreneur. So understanding that mindset first, then creating that exit strategy plan, I call it the Exit Strategy Canvas, which is a byproduct of these off site and having the right people, the right prep work done, the right setting, who should participate and what sessions do you have as part of the agenda. Get into all that. So after this, at least a day of an off site, you will have the ingredients to create your exit strategy canvas. And this becomes a document of one pager similar to Business Model Canvas, which was, it was inspired by that, but it's for exit strategies and this is something, it's a living document that you will revisit every now and then. Make sure, hey, do my hypotheses, do my assumptions, the people on the list, are they still the same or not? What are the risks and mitigants towards executing on a sale? And then you enter the longevity. So you basically take steps to build relationships, to build leverage, to build your deal team, exit team and let that mature over time. It's not an all out upfront effort, it's just something that you take incremental steps towards. But you want to have a heartbeat, you want to have a cadence so that it doesn't lose its momentum. You want to gain momentum because with momentum, your task as a leader becomes more steering than pushing and you want to be in that position. Once you are ready to sell, then you enter that short game that I referred to. And then there are ways to evaluate whether or not it's the right time to sell. So you can look at the pros and cons. And there are cons to starting a sale process. Risk involved, not just because you're ready to sell doesn't mean you will end up successfully selling. And there are other all sorts of things that can fall out from that. And then there are ways to actually get buyers at the table, cultivate their interest, bring urgency to the deal and actually start getting term sheets. It takes a village to make all these possible. So I talk about the cast of characters on your deal team that you need to have ready and what you look for in terms of capabilities as well as what's the engagement model with them. How do you evaluate them?

Who's on the team? You got bankers, lawyers, what else do you need?

Each one plays a critical role. You mentioned bankers and lawyers. They're very important. The way I see lawyers as a former Lawyer is that they're great at identifying risks and helping you basically protect your downside. There is a lot of very complex terminology. They may seem simple. You get a term sheet as an investor when you know, or a letter of interest from an acquirer. But the simplicity of that could be very deceiving. There's a minefield of things hidden underneath that lawyers can help you unpack, shine light on. But they're not that great in maximizing the upside for you. So you need more of business minded deal advisors to help you actually buy opportunities and see what are the benchmarks, what are the ways that you can basically position yourself to get the best terms possible. Investment bankers play a critical role there. Depending on the size of the deal, you may not be able to engage investment bankers. Typically if it's under 30 million in deal size, the math may not work out. I'll talk about it in that section of the book. But the larger the deal is, the better. Investment bankers. One mistake people make about investment bankers that they're not the ones that are going to build the relationship and bring the initial interest to you. You have to cultivate those yourself. But they're great at running the process and making sure you get the best deal terms possible. And also preserve your relationship with an acquirer and be the middle person that does a lot of negotiation. So you don't have to, as an entrepreneur or as a leadership team, get into that adversarial back and forth or haggling, God forbid, with an acquirer. You want to be more behind the scenes. There are also others like deal advisors. Not investment banks, but folks maybe who are advisors. We had that with great success in Webs.com sale folks in your industry who may have very particular insights into a potential acquirer or seller acquirers also. One thing that people forget is your own leadership team's capacity and capabilities. Acquisitions tend to be extremely time consuming. Whoever is sucked into the vortex of a deal is probably not going to have that much time to work on other things. So you don't want your business to go off the rails while you're in negotiations with acquirers, because that will really hurt you. In fact, it may blow up the deal. So you want your metrics, everything to continue to be on track or better even while you're in negotiations. So you do need to have that second tier and level of management there in place. Capable folks who are able to make sure the business is running smoothly.

Good stuff. I'm still trying to get a progress on that timeline. I'm going to use our company as an example people, we got M and A science. We're a little over 40 people almost 10 years now. How should we start thinking about the relationships to be prepared for an exit? The nice thing is we have a nature where I get to talk to M and A people all day. So it's just the narrative of the business. I get like even some legal resources knowing that we work with a corporate attorney at least I've networked there and have some of those relationships for that ability. So I'm not scrambling to find that I can say I probably haven't done a good job of networking with the bankers that cover our space. There's probably not a lot. There's a handful of them but we should. I know Cowan Blair's got coverage. A lot of the mid markets do. So I'm guilty of that. And let's start with that. And I got a few more of these going back to the timeline. Is there an order should I start this early? Be thinking about networking with bankers?

Yes, networking and both having you be on their radar and vice versa is important. You don't want to engage them yet until you're much more advanced into your process and you actually have perhaps inbound interest or you have indication that you're getting folks interested to to make a play here. But yeah, networking and checking references, getting on their mailing list and newsletter list so that you can start seeing what are other deals that are happening. Getting a sense for who are the typical acquirers in your space and who are some of the folks that you need to be building relationship with on the side of the acquirer. And it's not just person, it's some people assume that hey I as long as I get to ping the corp dev guy at so and so Acquirer said these big companies have multiple stakeholders and usually folks rotate around teams. They leave. You don't want to lose your chances with an acquirer because just someone took a different job. So you want to have multiple touch points within that organization and usually corp dev and business development teams. We act like cupids. We are not the ultimate decision makers but we set the setting and dim the lights and make sure the parties come together. But the real decision makers are the product managers, the general managers, the VPs, the CEO. So you also want to have relationships with those folks and make sure that you're connected to them.

That's my big bucket. The lawyers come later. They're just if you know them ahead that's better. But the big buckets are bankers. Other CEOs and corp dev team members, however you look at private equity, is that fair? Bankers CEOs in corp dev?

I would say depending on the size of the companies that you're thinking about. I don't know if, if Apple is a potential acquirer or if Google is an acquirer, CEO may not be a realistic place to start with. There's actually a tier of general manager, product managers, folks who are actually really for whom you would make a big difference in the company. I think you need to identify them and make them a champion. Most acquisitions at least are not top down. They're actually, especially when the deal size is not multiple billions of dollars. They come from someone internally being your champion and really saying that I need this will accelerate, this will change the game for us in such and such a way.

Yeah, I got like that a lot. That's a great point. Because it builds a real tangible vision right there that can help you build it for the link to the rigor strategy.

Absolutely. And because when the CEO, let's say you even an amorous CEO and they get excited about doing a deal, they need to find someone on their team that is actually willing to grab the ball and run with it. And usually most people have more than enough on their plates they wouldn't necessarily welcome an acquisition being added to it. So you've got to have that internal buy in so that they are willing to go the extra mile and make this happen.

You got a fair point. When I was thinking of CEOs I was thinking of peers, which they may be similar size or they're whatever five or so years ahead but not thinking them as acquirers but more as a peer that may have M and A experience or just they know their space, they know their bankers and things like that. I found that to be helpful, but I like how you took it to you're thinking more specifically about these companies that would likely acquire you. It'd be a huge organization. Think about who your champion's going to be there, which may be their product person that links into how your solutions would tie into theirs to create the super pill that their customers would find additional value from. That makes sense. What about then the corp dev folks?

The Cupids.

Yeah, the Cupids. Do you see that? Like I said, I'm very biased because the nature of this podcast end up interviewing so many corp dev folks. But as a founder I'm blind to that. I can't take that hat off and saying hey, should I be actively trying to network or get on the radar of Corp dev teams. I was trying to tell another founder that I was in the situation that the investors are putting the pressure to exit. I was like, you should do this. You should get in front of the corp dev. And he mentioned that there's three likely acquirers, blah, blah, blah. No. Yes.

In my experience, corp dev is helpful, but I see them more as a support function. No offense, I don't mean it in a value judgment way, but I feel corp dev is a support function, just like legal and accounting and finance or support functions within an organization. They have a strategic support function and it's not to undermine their importance, but they're there to support the business units. And the real agenda of what should this company acquire is set by the business units, by people who actually have P and L responsibility. Because corp dev, once the deal is done, they move on to the next deal. They can advocate for a transaction, but the real decision makers, those with authority, power, influence, et cetera, are outside of the corp dev team. So we need to recognize that now. They could be a good router to connect you with who you should be talking to. So the best way to leverage corp dev is to make a positive impression on them, build that relationship, but then leverage that relationship for the next step, which is, hey, who within this company do I need to know to really advocate for me and to be really putting their name and signature behind this deal? Because corp dev is not going to sign up for it. They don't have the resources, but they can facilitate it.

That's a fair point. And there's probably a little fluctuation by industry too. Yes, the tech makes a lot of sense. You need that real. Here's a real reason why we would need to buy this company.

Again, corp dev serves so many good functions. One is negotiating the deal, the other one is making sure that the integration proceeds smoothly. All the trains are moving like a project management for the integration part. The good corp dev teams are great at that. They even have a separate integration department. So there is a lot that corp dev does. I don't want to undermine their importance in the process, but again, they are not the ones that make the decision, the ultimate decision, whether or not to buy a company. They make a recommendation, but they don't make the decision.

Good points. Going back to the bankers, because they're a really good source of intel. You want to get on their radars and things of that sort. What's a good approach to building those relationships? When you're a smaller company, they don't come find you are you reaching out to them teach me some game there.

Anyone that has really been meaningful and I was okay. Most people who have tremendously impacted my life have come through referrals. So there have been outliers. Yes, people have bumped into at conferences and I mentioned that actually in the book in one specific case but most of them have come through referrals. If you can network your way to finding who the highly sought after and who the competent bankers, brokers, agents, et cetera, you name them for your industry are, I would encourage you to still do reference checks on whoever you talk to find out some of the deals that they did successfully manage to do and perhaps some startups they represented that they weren't able to sell or get to get to a successful outcome. But I talk to those entrepreneurs, their clients and find out about them, find out about their style. The good, the bad, the ugly.

Everything's from referrals mostly.

I would say that's a great place to start. Also you can see the transactions that have they have done. You can see the list of transactions. I use this approach with finding the first investors for my first startup. I looked at people who had backed potential competitors or companies that had done a similar thing in the past that I found to be quite their learnings would be applicable to us. And then I just pinged them or networked my way to have warm introductions. I got them interested in us that way. You want to find someone that has some relevant experience and expertise that is something you're seeking. It's not just their Rolodex but it's also their knowledge of an industry.

That's a fair point. So we get a lot of networking, we build that network out and then same with the product folks, we get the conversation. When do you hit that point? We need to exit. There's so many reasons why you would. You got external, you got performance. Maybe you can talk me to your thinking around that. And then the thing I like you mentioned is the second time around you have the positioning with different multiple options. I love that. Best leverage you can have is options. Maybe get me to that. Like how do you actually facilitate having those many options?

Options create value. We all know you can't just have an option for free and the stock market same with strategic options for your startups. You have to invest in it and cultivate those options. One of the best options you could have is if you can reach cash flow breakeven because then you're not desperate to sell. And that was the enviable position that we had reached when we were trying, we were in our M and a conversation with Webs.com, we were cash flow break even. But we were facing a sort of a strategic fork. Raise more money and get diluted and delay the inevitable exit. And the company had already been in business for eight years or so. Some investors were looking to see where's the end or alternative was to sell. Avoid that dilution. But then you have to find what the expected trade offs are. Sometimes it's much better to take the cash now or to exit now than to roll the dice and wait for another four or five years and see how the economy turns. Then there are startups I've seen actually that would have been better off selling when their valuation was 100 million than to raise more money and exited when their valuation was a billion dollars. The founders would have made more money if they had sold earlier. If you're just purely motivated, even by the dollars, there are reasons that selling earlier may make more sense. So there's that kind of financial calculation, then there's the whole strategy. And if you have an acquirer that's really right on mission, that provides a great place for your employees to continue working, provides everyone growth opportunities that could be very compelling. There could be external reasons you may be worried about some market dynamics that are happening that may make life much harder for you if you're without the COVID of a large strategic partner. Again, these are very unique things to each startup. I do list them the pros and cons in that short game part of the book so that at least it's a starting point. People can reflect on those but but hopefully that will get the creative juices flowing. There may be other reasons for or against a sale, but fundamentally acquisitions happen when these three things come together. You have a willing seller, you have a willing buyer and a set of terms that you guys can all agree on. If you find the conditions to be conducive around all three, then that's probably a good time to sell.

So they got a lot of factors that contribute to when and if you need to sell. When you do go down that path, what's your view like? Honestly, if it's better to source your own buyer, really spend the time to build those relationships or go to the bank and have them run an auction process.

I have never seen, and you have probably a lot more data points than I do, but I've never seen a very successful process where there wasn't a preexisting relationship between the seller and at least one or two Buyers, whether it was just like somebody went to a banker and said, look, I want to sell, find me a list and blast them with your SIM confidential investment memorandum. As a VC also, I always got really bad vibes. Whenever an entrepreneur would come through an intermediary like an investment bank or broker would send us their business plan instead of the entrepreneur themselves pitching to us. Ultimately we're thinking, hey, if this entrepreneur was serious, first of all, they would have built a relationship sooner. They really were interested in me as an acquirer, as a, as an investor. Why didn't they approach me directly? There must be something going on. They must have some other strategic play and they're just using me to prop up their valuation. So I feel like I'm being played. I'm a pawn in their game when an intermediary approaches me. Whereas a direct connection, it's almost like.

The bank process will draw a different audience of potential buyers. You know, like you could be part of this cohort of buyers that actually get turned off by auction process and there could be this whole ecosystem of private equity firms not to throw them there, but that's all they do. That's whole model is inbound from banks.

Yes. Yeah, you're absolutely right. I was talking about strategic acquirers.

I guess that's what I'm getting at. It's, it's not all for one, it's not the same cohort. I'm not like looking at you and then saying I'm going to make this bubble bigger by running with the bank. It's actually, it's a whole different way of thinking about it. The bank is going to run this process which actually attracts different buyers. Then I'm this exclusive opportunity. Can we break that down? Because again, if I'm going to sell this company, what's my better option? Because from the banker's pitch, right, they send that book and the valuation range at the end, that's a pretty high number because you can always get that number from them versus or hey, this partner of our, they might be interested in buying us.

You bring up a really good point. And PE firms were amazing. And we lost deals to PE firms at GoDaddy because they were just, just giving this really astronomic valuations and debt was very cheap. So they had a lot of money that they could play with. I don't know what's going to be the PE landscape after this.

They're not talking a lot right now, so I don't know.

Strategic buyers, on the other hand are typically always there unless they're really hurting financially. But a lot of actually strategic buyers right now especially they have a lot of cash in the bank. Their cash is actually losing value every day thanks to inflation. So they need to deploy. That is a great time to find strategic buyers and all that. But yeah, there are financial acquirers that one should have in their consideration set. Now, you could build relationships with pre firms too, but it's different than with strategic partners.

So you didn't tell me. What would you do framing your exit? Would you spend the time and really nurture the relationships directly with the companies or you hire a banker and put the easy bucks?

Personally, I would. For reasons I describe in detail in the book, I would always prioritize nurturing the relationships with the companies because also there could be many other interim steps you would take. A strategic partnership, a co marketing, joint venture, other things. They could be an investor. In fact, at Server Robotics we have a number of strategic investors because that just gives us such an awesome way to actually get to know some other entity and build again those connective tissues, build the trust and confidence and do big things together. It's not just about a but it's also about creating this ecosystem of relationships that could lift you up as an entrepreneur, as a company, have more folks pulling for you and be allies to you as you explore a market.

I like that. That ties back to the theme of staying cash flow positive.

Yes.

Yeah, more options.

It's the theme of the day.

I like that. I think this market's so important, I almost want to put it as a tagline like we are a cash flow positive company. Use that when we hire people. With all the news of layoffs, just saying, look, cash flow positive company.

Oh, it's huge. Absolutely.

So we move further along the deal that we got, the courting process we started, hey, I'm comfortable to share my financials. You sign NDA, we get this letter of intent. Give me the best secrets over there. I want to make sure I don't screw anything up when I sell my company and really have to get to the nitty gritty loi negotiation to close.

An approach that I advocate in the book is if you have laid the groundwork and you have the relationship, think of a forcing function and think of a way to bring up the idea of an acquisition maybe in a less direct way than to directly kind of put up a sign that says I'm for sale. So one forcing function that I've found extremely useful is this notion of that, hey, I'm about to raise money savvy acquirers realize that this is a time that you're actionable. In fact, I jump to action many times when company that I've been in conversations with all of a sudden said that they're raising money. Sometimes they would actually ask me if we wanted to invest. And then I would just be. My antennas would be up and I would quickly, as a corporate dev guy, would quickly go to the GM or whoever I thought would be the right person that would want to do the deal on the business side and say, look, if we want to make a move, now is the time or we're not going to be able to have this asset probably another four or five years because their valuation is going to be higher and their expectations, their investors not going to sell right after they invested. That's one of the secrets, the tricks of how to get these acquisition conversations going. And then having a bit of a knowledge about the process really helps. That's why I wrote the book. So familiarize yourself. But actually the general timeline, what are the different things that you should be expecting? What's preliminary diligence versus confirmatory diligence? What data do you reveal now? How close chested do you want to be in negotiations? And potential acquirers asking to see some of your secret sauces? Do you reveal it or not? Do you worry that if the deal doesn't happen then they may become a competitor or buy a competitor? So all sorts of dynamics, all sorts of things come into play. So you've got to have a sense for the lay of the land. One of the rules that I encourage people to follow is of course to always make sure you prioritize a relationship. So make sure every pushback or every negotiation that you enter into, you think about that you are mindful of that, that you want to preserve the relationship as much as possible. Make sure you convey your excitement about joining forces with whoever you're talking to and contextualize everything else within that framework. And again, I have a lot more to say about this in the book, but those are just some high level guidelines.

You're like forcing everybody listening to have a copy of the book.

This is a funny conversation I had with my book agent. The first question was I. She was like, why would there need to be a book on this? And I said, look, the subject matter is so deep and there is so much ground to cover that you can't do it justice in a podcast, in a series of blog posts. You really need to go deep.

I was thinking about my bike ride here this morning. I'm Very biased on the buy side because in my head's always on the buy side. And I mentioned that I'm like this isn't a huge space. But then I was thinking about it because I came across a book the other day that like 8,000Amazon reviews and it was about. About sell side. I forgot the title of it, but I was thinking about it. It actually every company has to think about it. So it is actually far bigger on the buy side. I feel like not every company. The percentage of companies that think about buying other companies is way smaller than the ones that have to think about exiting. So I was like, actually that's actually a lot bigger space than I thought. It's a good book. You know, I haven't read through the whole thing, which is good because maybe I could do a fallen interview after reading it and be like here's let's do the advanced one because I had some questions for you throughout. But you have McGraw Hill publish it. So it's actually like, like edit it. Which has been my pet peeve lately. Cause I get people asking me to interviews and then I can tell they wrote it, but they very much got maybe a proofreader but not an actual editor. And it's a huge difference. So like it reads really well. I'm excited to get through it. Have a bunch of notes to compare with you maybe at the Part 2 Advanced Edition of this interview.

Yeah. Thank you. I know there's a lot of data around M and A, et cetera, but there's also a lot of good stories. What I tried to do was weave data and stories together and the process and the frameworks together so that it doesn't read like a text textbook is also not some boring book out there. It actually brings together a lot of the stories I have been fortunate enough to be a part of either as an investor, as an advisor, as a company founder or buyer. So I try to bring those together. So I'm happy it has so far resonated with you. Hopefully it will continue to sustain to capture your attention as you move through the book.

Yeah. Hey, before we wrap things up, I got to ask you, what's the craziest thing you've seen in M and A?

There's a story I actually put in the book that a very interesting deal, a game changing deal for a startup with Apple blew up over the use of one word that the founder used and in that interaction with Steve Jobs. So it's in the book. So it's a little bit of a teaser.

No, that's bogus. Now you gotta give me another one 12 hour or something.

Oh, you want another story? The other story is that a lot of entrepreneurs that came to me at GoDaddy, they were. Were under the impression that they wanted to basically seem like they are very knowledgeable and they have a lot of insights into the industry, et cetera, because they thought that's what we would look for if we wanted to acquire them. But sometimes they would come in their first meeting and start critiquing and criticizing some approach that the person's good at it had taken. And to me, it would just be so off putting. And I was like, why didn't this entrepreneur just take the time, ask some questions before they actually got into criticizing us? Because they could have. The meeting could have gone very differently had it been a different way. I saw another very crazy blow up during a board, during a meeting where the entrepreneur. We had provided a kind of an earnout mechanism and the entrepreneur just really blew up over that. And again, I think if people take a minute and ask questions before they react to something, things can go very differently. Some of the crazy stories are because people are just emotional animals and they just react too fast.

Yeah, that is really true. That's actually a good story. I like that a lot. And I'm guilty of the same stuff. So I need to ask more questions even though I get good practice doing these podcast interviews.

Yeah, you ask a lot of good questions.

I'm like a hypocrite. I do it well here, but then when I run a company, I'm guilty of poor leadership stuff than I try to advocate for good. It's hard. I was thinking about earlier, Tim. It's so hard not to be a.

Hypocrite, but we all have to try.

One day we'll have an AI whatever assistant that follows you around and teaches you. Yeah, just. Hey, you're preaching this. But this behavior doesn't reflect that you can't get mad at the AI bot because it's programmed to coach you there.

That probably happened.

Raj, thank you so much. Plugs. Because you got the books, I want to make sure.

Yes, Exit path. I can show you even the COVID here. Any bookseller should carry it. So that's another benefit of having Macro Hill as the publisher. There's a website, exitpath.net in case anyone would like to check out some more material on the book and or contact me. I'm also on LinkedIn and Twitter and Instagram.

If they read your book, put a review on Amazon. Yes, mention M&A science. I'll personally send you $100 gift card to our swag store. You deserve it for listening to us to talk this long. Yeah, I'm looking forward to it. It'll be fun to have a follow up and I'll give you feedback. I'll give you my critique on reading through the book.

I look forward to it. Thank you so much.

Hey thanks Raj.

Been a pleasure.

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