Building Corporate Development Muscle

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I'm Kisan Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and.

What actually happened during M and A deals.

Joining me today is Kyle Price, chief of staff and head of Corporate development at Roblox. Roblox is an online game platform and.

Game creation system developed by Roblox Corporation.

That allows users to program and play.

Games created by other users.

Trade on NYSE under rblx. Today we're going to talk about how.

To build your corporate development muscle. Kyle, how you doing today?

Doing well, thank you. Thanks for coming in.

We're here live at Roblox headquarters.

Live. Exactly. Is it as exciting as you imagined it is.

They got all the cool stuff. You got a lot of the characters, the history. I love the visualization of like gamers across the world.

Oh, you saw the globe. Yeah, the globe is very fun. You can actually see when not only like when it's day and night obviously, but also when school gets out in certain areas. Like all of a sudden you can see it sweeping across the US So yeah, it's a fun little thing.

That's awesome. I was sending a picture to my boys, I was like, guys, there you go.

Watch them. That's cool.

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

I've been at Roblox for about five years. Before I was at Roblox, I was at ebay for quite a while, about eight years and handful of product and commercial roles, mainly on the supply side of the market, so both business and consumer sellers. Before that some financial services and consulting stuff at Roblox when I joined as the chief of staff for our CEO as well as to help out with exec recruiting and operations and as you can imagine and you get involved in lots of different things. And about a year and a half after that is when I started up the Corp dev team. So I learned a little bit about corporate development from my Time at ebay, where I did a little bit of that, as well as business development in Europe. And so I thought I knew enough about it to get started. And it was a lever that we really hadn't used. So Roblox has been around, gosh, almost 18 years now and hasn't been a particularly acquisitive company and it's worked so well so far. But it was a lever that we just didn't have that I felt like we could use. And other people agreed with that. And so started up the team, started.

A corp dev function without a banking degree.

Exactly. Fortunate to have some smart people around me to help out with that part of it. I can get into that story if that's interesting, how we built the team and built the function.

We're definitely going to get into that meat of our podcast here today. I'm curious about what drives acquisitions. Are they bridging roadmap gaps or are there certain capabilities you're tacking into?

Yeah, our strategy is very straightforward. It's roadmap acceleration. I like to think we're a particularly innovative company doing some new things across lots of different areas of technology. When I think about what can we do to help that inorganically, the best thing I think we can do is just help them go faster. So we look at what different teams are doing and we look at ways of accelerating that.

Awesome. I've seen highlights from one of your annual conferences before and it's incredible in terms of the vision the company has and where they want to go. So I can see a lot of opportunities for those kind of acquisitions along the way. Let's talk about building out this corporate development function. What goes into it? How do you know when it's time to build your own function as a muscle versus is this a one off thing? We don't plan on doing acquisitions on a regular cadence.

I can tell you the story of how we did it and maybe there are some lessons in there. The way we did it was very organically and iterative, which I really liked. It wasn't a big tops down mandate. We're going to build a corp dev team and we're going to acquire this and we must acquire this. It was much more organic. It was me talking with Dave, the CEO and saying, hey, we don't really do acquisitions. We've got this external advisor, we've done a few, but it seems like we're missing a trick there. Why don't we actually start doing some of this? And he said, sure, go talk to some people. I'M not giving you a title. We're not hiring people. I just went out and started talking with some different product leaders and engineering leaders. We just started exploring where could, and where could you use help with acceleration? Where do you know that there are great teams or technology out there that could help you? And that's really where it started. And we started talking with, we started getting ideas and then we started talking with different companies out there. And we learned as we went. So rather than just saying, yeah, we're going to have a tech tuck in strategy, it's going to be roughly this size, it's got to be located here. We just started talking to companies and as we talked with them we said, oh, that's not the right size and shape. Yeah, actually maybe big plays like this aren't going to fit or aren't going to work for us or maybe this area of technology is not going to work. So we did that very organically and through that we built up what now is a pretty good playbook and strategy for how we do acquisitions.

You validated it just by talking to your internal product engineering leads. Basically started building a pipeline.

Exactly.

I guess there's a strategy component to go with the pipeline that you had that buy in with those leads that if we're to acquire these capabilities it would accelerate roadmap.

Yeah, exactly. Most people would say like an M and a strategy, it helps your overall corporate strategy. It's not like some separate thing that you're doing. It's all in support of an overall company strategy and vision. So we already had that aligned and we weren't talking about, we're still not talking about huge acquisitions there. So this is talking with different product and engineering teams looking two to three years out and they have pretty high confidence that some piece of technology or some feature or something like that is going to be useful over that time period. So that's the tick in the box of it aligns with the strategy of that product area.

When do you lean into, hey, this is going to be more of a real capability for us to do M and A that we're going to need to develop as opposed to this is going to be a one off acquisition.

As far as building the function for us, the way it went was we started doing that middle of 2020. That was early Pandemic and Roblox's business more or less doubled in less than a year and it doubled from over a hundred million miles starting point. So it wasn't small either at that point. My point in saying all of that is the context of it, because we were already in fast growth mode. We were hiring like crazy. We were growing very quickly within that context. What happened was at the end of the year, we ended up having again, we were searching across a handful of different areas, hanging out with different, learning, and then next thing we know, we had two acquisitions going on at the same time in Q4. And then we're like, okay, I think we've got something here. We pulled those off somehow. Those founders are still here and they're doing a great job, which is awesome. And then we kept going with it. I got somebody a little bit more focused from finance to spend more time with me doing some of this stuff. And then the next thing that hit was Q2. Next year we had three acquisitions hit, all at the same time. Not super big and complex, but still three of them. So after that point we were like, okay, we've got something here. This is working so far, so we should probably get some more dedicated, dedicated resource. There were checkpoints along the way that we spent time with the execs and CEO and stuff and said, okay, we're shaping our strategy. This is what we're learning. We're going to keep doing this. Of course, acquisitions take a while to play out, to see are you getting the value from that. So we were still pretty early in it, but the signals were pretty positive.

I'm thinking of the whole challenge itself of being a high growth company and then tacking on acquisitions on top of it. Did you run into any?

That's a common challenge that people will face, especially in growth companies is if you put yourself in the shoes of whatever business product engineering leader out there, they're busy, they're hiring great people, they've got a plan, they're building against that. Inevitably things are not going right and they're having the course correct. Things are maybe happening in the market with performance and they're changing, so they're busy doing all of that. Acquisitions can be a great accelerant, but there's generally a pretty tight filter for what actually ends up being a fit for an acquisition. So just like when you go out and hire people, you end up talking with lots and interviewing lots and then eventually you get down to the person that you want to hire for that role. It's an even sharper funnel for acquisitions. And so they take up a lot of time. So the point I'm making there is that time cost trade off. People bring in their own perspective on whether it's worth that time or not. Part of Our team's job is to try to make that as efficient as possible.

I'm thinking more about the how because we talked about strategy, building out pipeline. But when you look at the mechanics of executing on these deals, what were some of the things that you've learned along the way to make that happen?

Probably nothing too revolutionary here, but clearly staying organized is a big one on this. Especially when you've got a small team and you've got busy product engineering leaders having great external help, particularly on legal counsel. That's been incredibly valuable for us. Some attorneys that we really trust and have really helped guide us through this. The other thing is, not surprisingly, cross functional partners, particularly people team has been a big one for us because for us in any acquisition you're hopefully bringing on some great people. And so you have to do a really good job of evaluating those people and making sure that they're going to be a fit long term for your company. And that's a lot of people resource for coordinating that. And of course there's all the hiring managers and people who actually do a lot of the interviews as well. So I think having good cross functional partnership. So I don't think anything. I think it's the nuts and bolts of executing on deals. I think it's probably, it probably takes different flavors at different companies and I don't think ours is significantly different. But it's just building that and learning that. And of course you make mistakes along the way.

I'm trying to find the shortcuts here, Kyle. Like I'm trying to find the magic bullet. So many of these interviews is about doing the reps like you're going to learn this doing the reps. But how do I shorten that learning curve?

You bring in people who've had the reps from other places and then you talk to other people who are practitioners. Your community does a great job of that. My experience with acquisitions is they all take a slightly different flavor and style. There's of course patterns and commonalities, but there's always slight nuances because at the end of the day it's people and people are different. So because of that it's really hard to go up that learning curve so far just by reading stuff and talking to people. You have to be there going through it and experiencing it live.

You have some good points you highlighted. Being organized and then having strong legal thing is clutch on any transaction. You're going to work on the cross functional part of it. You mentioned specifically around the people side. Tell me a little bit more about that right away when you described him wondering is like culture a big emphasis or does it turn into be a challenge on these deals? Why is the people side of the cross function so important?

What we're acquiring for is people and technology. It's less about the commercial business that they've built because it's really a tuck in on the technology side. That's the product and engineering leaders that we dig into and that's been pretty straightforward on the people side. I hope all companies would say this, but we're a pretty long term oriented company and so we want people to be here for multiple years doing great things. And if you think about a tech tuck in, typically you're not going to see the value just from bringing the people over and the technology in a short term. At the extreme if the people left and you just had the IP and the code. I don't have a technical background but most engineers I would talk to would say that's pretty useless. You need the people who know how they built it to actually integrate it and get it running and stuff like that. So because of that we try to avoid some of the bias of getting excited and getting ahead of yourself and trying to just close a deal and really make sure that we really feel like these people would be here for multiple years.

You want to keep a good retention?

Yeah, yeah.

Anything particular you've seen work really well besides typical retention packages?

So I'm obviously biased here, so I'm patting myself on the back on this one. But I think what we do a good job of and what we've heard at least from the founders that have come in is that we try to be very practical and down to earth and human about the whole process. People who practice deals a lot can get caught up in deal lingo and just more mechanical about it. Where at the end of the day this is people who have been building a company maybe for many years and this is a huge decision for them and it's about their future. It's more than just the money, it's the direction of their life. Because if they move or they part of a company for X years like that changes the trajectory of a lot of things. So we just try to be very human and practical about things. We try to be low pressure. We try to probably do more what we've heard at least from some people that know the deal space. We probably spend more time upfront than other people would and I feel like that sets us on a good trajectory for later. More time upfront is of course it's diligencing things, of course, it's brainstorming through what they would do and evaluating the individuals. But it's trying to do it in a bit of a low pressure environment as much as we can. If the company's under certain pressure, then we have to speed up, but we try to do it to where we have a really strong conviction that these people are a good fit and they've had sufficient time with sufficient number of people around roadblocks that they feel like they really understand the company and the culture.

How much do you get into around integration when you're doing these early conversations and I'm just kind of curious, like, do you set expectations pretty early?

Yeah, I like the thing we do a good basis for. Kind of like when you're interviewing people, sometimes you do case studies and I find that the more you do case studies based on real challenges you have or that they'll face in the role, the more insight that you get. What we do is at the beginning when we're spending time with these different companies and founders is we're actually brainstorming through what they would do and how it would work. As we're doing that, we're learning more about their technology, about their team, about how they're set up. We're sharing more about our technology and our vision for that domain that they would be part of. And we're understanding how they think because they're thinking on the fly and we're brainstorming how things would work and where we see opportunities and different things like that. That is basically integration planning right there. But it's part of the kind of diligence, getting to know each other process.

It's almost like you're validating your investment thesis by going through that exercise of thinking through what integration is going to look like.

You can. You're not actually doing the work of integrating it and doing that. But yeah, as much as possible, it's important for us that the startup founders coming in have a good understanding of the area, whatever area they're going to be operating in, and that they've actually participated in what they would do and how their technology would fit. Because they should be the domain experts. We're bringing them in because they've got some degree of expertise and specialization and maybe technology as well. So we want them coming in saying, yeah, I get what you're doing and let me tell you how this is going to work best because I have this product, I've been running this company for X years, so I know this Domain pretty well.

I picked up the vibe just walking around campus here, Kyle. You could just sense that it's pretty collaborative. You got a lot of groups of engineers can sense the culture working with the business leaders. Tell me about that, because it sounds like what you already described is it's a big part of how you're driving ownership with these deals. But then I've heard flip sides. There's challenges in working with business unit leaders and so forth. But what's your approach there?

It's a big part of what we do. In our case, it's mainly product and engineering leaders. The first point I'd make is just to put yourself in their shoes. They're busy, they've got certain goals and pressures, they're hiring. So when you come in with an idea, you've just got to understand the context in which they're operating and where you fit within that and where your idea fits or doesn't fit within that. And the more that you can understand their context, their roadmaps, their plans, their headcount growth, their targets, things like that, the better. You can also filter out. You're not bringing in crazy ideas that they're like, you're just wasting my time. So you build some credibility from that. That's just a starting point I've seen where people with all the best intentions, and this isn't just true of corporate development, this could be of marketing of different areas with all the best intentions. They have their own agenda and their own ideas and their own plan that they really want to get done and they just go to other people and try to drive it in to them. I just don't think it lands as well. Maybe that's not surprising, but the more that you can understand their context and then make sure the things you're bringing in are relevant. Side note on that one, I think it's okay to try to influence them. Even if you're dealing with a business leader or product leader and they say, this is my plan. If you've got a good idea and you think you've got a good opportunity, I think you should try to go influence that. Even if it's not fitting with what they were planning on doing anyway. That's the first point I'd make. And then second point I'd make is just trying to be as efficient as possible with their time, them and their team's time. There's various ways you can do that. The more you can go up the learning curve in our context, our product surface area is really broad. We do a Lot of different things and some of them are very highly technical and way over my head, more so than most other things that are still over my head. But the more that you and your team can go up the learning curve on the technology, on the market, on their roadmaps, the more you can naturally filter relevant candidates and targets for them. Another way that you can be efficient with their time is just actually being efficient with their time. Not being somebody who just goes into meetings, takes notes and then sends them the notes and says, hey, I met with this company. Here's a bunch of notes, what do you think? But really more trying to synthesize it.

When I think of the pipeline, I can imagine some of it comes from the business leaders and some of it comes from your research. And like, where do you see that mix coming in and how do you.

I'd say if I look at. We've done about 12 deals over the past three years now. Over half of them were from our network of either internal, so employees at roblox that knew of companies that had previously worked in companies that had PhD partners that were now running certain companies, or from our external network, which for us is mainly VCs because we're doing early stage deals. And then maybe a third of them or so was us actually just doing more desktop research and like scanning and trying to find companies out there. So my point in saying that is similar to recruiting. Warm leads are more valuable generally. Like they already go through some degree of natural vetting because they know people or they know the network or they know you. So that's how we've done that.

Awesome. The anti M and A culture. Did you experience that from some individuals?

Yeah, if you put yourself in their shoes, it's understandable. Some people have had tough experiences with it in the past, either on the startup side. So we have a ton of startup founders here at roblox. A small number of them have come in through acquisition. A lot of them have previously founded companies at different times. Who knows what kind of experiences they've had. And they might have had some pretty rough experiences as well as people on the buy side of things. So we have people who have been leaders at tech companies who have participated in acquisitions and then just said it was a waste of time and it took me so much time and effort. People bring in their own perspective. That's okay. It's up to us to prove our worth, really. And so far we've been doing a pretty good job of that. I think people are generally pretty satisfied. Again, we're not executing on huge, super complicated integrations. But I think we are moving the needle.

What I understood is this anti M and A culture can come from somebody that experienced M and A and had a bad experience and then you got folks that just never experienced M and A. I would assume there could be hesitancy there, but there's probably like don't know what you don't know. And so maybe we got that as another bucket of folks that just haven't done it. And then maybe you've got some that just. They expose enough or get it to where it's less of a push with them.

Yeah.

How do you manage that? That's like one of the most difficult parts of being an earlier stage company, doing your first, second acquisition, managing that. We've already emphasized the value of having people have done deals before, but I can't imagine you started that way.

This is where the challenge of the more bottoms up, organic, iterative approach that I talked about, that we did, that's a bit of a challenge. And what I mean by that is it's clearly easier when you have some sort of top down mandate. This is our strategy, this is our focus. We're going to do acquisitions. The CEO is sponsoring it. Something like that. That's a lot easier. It's more difficult when it's product director so and so is really excited about the acceleration we could get from this company. Let's meet with the VP and the CTO and the C whatever, get their point of view on this acquisition. That's when it gets a lot more difficult. Because if you don't have that top down air cover, I agree with you that it's a complexity that you have to navigate. It's kind part of the fun of the job as well. At least for me. Different people have different things they like. If it was such a clear mandate, which is just go out and roll up all these companies and do that and CEOs signing off on everything, it'd still be fine, I'm sure. But some of the personal challenges and complications that you have to navigate with lots of different personalities and points of view on things. Enjoy it.

How do you overcome. Is it the way you pitch the deal to the internal team that gets that level of alignment and gets them moving the right direction or.

Yeah, I don't think it's a one size fits all. I think it depends on the individuals. Honestly. I think some people are more worried about the talent and are they actually meeting the bar that we need. You've got to really emphasize that this is good talent. And we brought them through our full interviews and they've done all that. You've got others that are a bit more product technology focused that say, okay, this is. Technology isn't going to be as good. It's going to distract us from other things. I'm not sure it's one size fits all. I think similar to management influencing people, you just have to understand them and how you can land your messages with them for the points that matter to them.

It goes back to the other perspective is understanding where that skepticism comes from. And it sounds like you got to be tailored. If it's something you need to have more of a one on one sidebar.

Conversation and settle and it goes back to reps. I think you've got to go through those experiences and you got to have people shut down deal after deal and you go, okay, I'm understanding what really matters most to them and why these things haven't fit for them or maybe why we haven't made the case clear enough for the aspects of it that matter for them.

Got any tips and tricks on how to get my team excited about doing a deal?

I think you could do that very easily.

Just tell them that you're guiding me. Kyle says it's a good deal.

Exactly, exactly. Run it by us.

Yeah, that's what I'm just curious. I always feel like those early deals and when you're dealing with folks have just never done it and you get some are really excited about it because they just see the opportunity to deploy capital and accelerate the growth. But they think, like you mentioned, you got the other flip side. Maybe more of the engineers, they don't want to deal with that tech. They don't know how they built it, how that's going to integrate.

You're really playing the long game. The proof's in the pudding. You've got to actually execute on some deals and share the value that you're getting from bringing in these great people and that you can run an efficient process to bring in great people and technology, you can get that integrated and they're successful. And I think after you do that time and time again, then the proof's kind of there that you can do that. With that said, you probably need a few people who actually do think favorably of acquisitions to get it going. It's a cold start problem. You need somebody in the organization at a senior enough level that is willing to help you get it going.

How is it getting the team aligned? You have all these function leads to get them knowledgeable. And comfortable doing diligence, then integration planning.

Yeah, that's taken some time for sure. Some people bring in backgrounds and experience in this, which is great, but sometimes also that experience or the way that they would do it, it doesn't fit for what we're trying to do or the way we prefer to do it. I don't have any brilliant tips, but it just takes some time. There's a lot of playbooks and a lot of information out there about deal execution, about deal integration, depending on industries and size and shape and different things like that. I think there's a lot that you can learn there, but it's similar to the deal negotiations and the upfront filtering and the execution that we talked about earlier. I think you've got to get reps in. I do think there is actually a point, which is over time, we developed our own playbook and our own style. We didn't start off and just say, this is the style. We're going to do it. We just kind of intuitively acted as we went through and tried to get things done, and then we realized things that worked and things that didn't, and then we codified that. So I do think that actually if you're able to codify it or at least train people up in a certain way for your company's style, I think that's useful. Because like I said, I think people do have different styles of doing these things and there's nothing wrong with them. I do think you just got to figure out what fits for you and your culture.

When you say codify it, when do you end up documenting? And I've seen this vary company by company, where some will actually create a whole fricking handbook about how the company does M and A, explain the previous deals they've done and why.

We've been a little lighter on that. I think it's kind of like what they say about planning. The value of a plan is the exercise of creating it. Right? And I think that's the same thing of a playbook. I'm pretty sure most people have not looked at it since we did it, and it's light. I'd have to say it's probably 10 to 15 pages maybe. But the exercise of doing that, the exercise after a deal or after a couple deals have closed, sitting down with our people team and saying, okay, let's go through how we do recruiting, how we do interviewing, how we make offers, how we do relocation, how we do visas, different things like that. When it's in the context of an acquisition and a number of employees versus a one off hiring situation. That exercise has been really helpful, but again, afterwards I don't think anybody really looks at it.

What are surprises you came across on your early deals that were eye opening?

There might be some points and aspects that matter more to the other side than you would have thought at different points. One is titles for sure. You have some very capable senior people who've been doing amazing things with their startups and we bring them into our ecosystem and we run through the normal leveling process. One thing I think we do a pretty good job of is that we really take the time to understand them and level them appropriately. So that way other people in the organization don't look as people who came in from acquisition as separate or different because they got an elevated title or level. But understandably for those people who were CEOs and founders and CTOs and stuff, getting maybe a different title, which they don't think is in line with their experience can be a tough thing. I say that it's completely separate from their compensation or the deal value. Those things could be locked and good to go. But actually the title that's on it. And I understand that like titles matter to people more or less at different points in their career and I'm not judging that. But that's just one of those things that's come up that you've been like, ooh, this is a sticking point. We really should have set that expectation earlier. Reporting lines can be another one. I think we do clarify that pretty well. But you could imagine through the process they're meeting with people at lots of different levels. You're having group brainstorming sessions one to ones different interviews at different levels. And so it can be unclear where you fit in the organization and who you report to. And then even after you do that, you still don't know the rest of the company. So then maybe once you get in you're like, oh, I'm reporting to this level. I thought that was cool, but once I got in it didn't feel as cool because it seems like that's not as senior as I thought or I'm not included in some meeting or something like that. Which again is all understandable. That's been one that we've had the debate back and forth is what's the right level to have them reporting in and why do they fit into this structure versus something else.

These are good examples. You got titles, reporting line, anything else.

Those are the two that kind of stand out. There's other fine points on deal execution and diligence and things like that, but I don't think there's anything too novel or interesting. There's.

If there's anything unique that you do when you bring in new leaders to set them up for success.

Yeah, that's something that we started doing late probably. We probably should have done that a little bit earlier as much as possible. They're exceptional people and we hire exceptional people every day. We want all those exceptional people to feel the same amount of love and attention as they should for joining our company. With that said, I can understand how somebody who is running a company and has sold that whole company might feel like it's a slightly different scenario as they come in. So a few small things that we've done and don't know if they've made any impact, but we've got a founders group at Roblox and we get all of the founders of the different companies that have come on together occasionally, just more for social sort of stuff. I think that's actually valuable for them because they are startup founders. They've been in that ecosystem, they know the VCs, they like to keep track of what's going. And a lot of them can share similar stories from investors and things like that. And we share what we're up to and what we're hearing just from the market because we're spending a lot more time out there now that they're in a company operating. So I found that to be fun and useful. We do depending on it. We will set up some time with more executives early on. And part of that is alignment on culture. I think more exposure to executives just talking about what they're up to and what they're doing is helpful. I have heard of other companies that do things quite differently and will do a lot of different special things for startups that come in or founders that come in. I don't think there's anything wrong with that. But like I said, we're fortunate to hire really exceptional people and we don't want somebody who came in as a hire versus came in through an acquisition to feel like they're materially different because they're all great.

A good way to look at it. I like creating the network for the founders so that they can socialize and complain about common things.

I got a tip from, I can't remember who, but somebody gave me that tip who'd been doing that before and said it was valuable again. I think they've got just some good commonalities. Most of them work in fairly different parts of the business, but certainly they've got common experience as startup founders and then they probably have some common issues and experiences joining a company.

How's your corp dev team evolved? Where do you start off with? Just get somebody as an analyst to build models and then back on somebody more operationally from there. What has the evolution been like?

It hasn't changed much, honestly. It's been me and another individual who've been doing it mainly and then we've had a couple other people come in and out to help out on different things. But we keep it pretty lean and it's worked so far for the strategy that we have. I could imagine as we evolve and if we start doing some bigger acquisitions, we might need to add on some more people. But the way that we run is basically a couple of corporate development individuals and those are probably what you call deal captains. If you had a bigger team with multiple layers, those people run the end process. Everybody does upfront pipeline development work. Everybody's participating in negotiations, everybody's participating in execution and integration. And so we quarterback that all the way through. And the other thing is on cross functional Partners, we've gone back and forth on should we hire an integration manager or should we get more dedicated resource from a team or two? We haven't done that so far and it's actually been okay. I think we've had to develop our integration chops and our project management chops to be able to do that. And we've had to be really efficient about it because we're also doing other aspects of execution at the same time. And then with the cross functional Partners, we haven't had dedicated resource, but we do have individuals from most of the teams that have a percentage of their time carved out for this.

That sounds pretty efficient. It sounds like a big lift. Is very product oriented too. I feel like your engineering, your integration approach, it is.

If we were doing things that were a bit more financially driven and we were having to dig into their customer base and quality of revenue and we're looking at the mixed P and L and all sorts of stuff, we would have to step up because that would land naturally on us. But like I said, it's about tech and talent.

Yeah. Because you don't have like this. What does a joint go to market look like? And you're just really focused on the.

Exactly one of the 12 that we kept as a separate standalone business and have just progressively integrated pieces of it over time. And that one definitely stretched us a little bit to think about how do we Run this business as a separate business and a separate P and L and kind of separate reporting and leveling and comp and different things like that, and then evolve that over time. But you're right, the complexity of it is something that we can manage. The deal sponsor ultimately is the person who has to. Who's held accountable for this. Of course, we have scorecards that I hold me and the team accountable for, but ultimately it's them. There's so many benefits to a setup like that, because at the end of the day, the negotiation and execution is the easy part. It's the integration and actually doing the work together is the hard part. So naturally the person who should be accountable for that and saying, yes, I want to do this, I think this will work, and I'm highly confident that these people in this technology will be able to achieve these goals that we've outlined. It's got to be the person who's managing those people.

What do those goals look like?

We basically have two categories of goals. People and product or technology. That's the way we run our business. We certainly have performance metrics that different teams are accountable for, but the level of acquisition we're doing, you couldn't assign a whole metric probably to the acquisition. It's people, which is solely retention. We don't look at performance evaluation goals on that. And then it's product deliverables. So we have usually an 8Q2 year roadmap with milestones that we map out and we track against that. And then every board meeting we update on the scorecards and our batting average, and so we do it.

Do you have goals around how many deals you'll do?

Nope, nope. I've hung out with a handful of other corporate development people and I haven't heard anybody who said they had that. Have you come across.

You're in Silicon Valley. That's why, okay, if you're running off of a real rigid private equity playbook and all of a sudden it's like acquisitions are associated with revenue and you start building those things up.

Outside of private equity, do you see other corporate development folks having yield targets?

That's a good question. You see them, but it's almost like they're operating like a PE firm in that regard, where so much of their growth is driven through acquisitions that they're betting on it. And those are real M and A platforms where their business vastly developed around it. I think in the Silicon Valley, you see it's tech companies and a lot of them have strong organic growth. So when they do have that it's very much of being strategic on all their acquisitions. Strategic should be. But when you're seeing some of these other companies that are just literally created off of acquisitions, then. And I think it's more about incentives to make sure they're doing good quality deals as opposed to acquiring revenues.

Yeah. How have you seen corporate development practitioners evaluated individually? If you're the leader of that function, how are you evaluating your deal captains?

This is shifting and this would be fun to get more. I know there's folks that do research on this specifically because they have the traditional here's your base and here's some option package on deals that you would execute. But you're seeing more accountability in post close. The other flip question what I brought up to you is like do you own success? Who owns success? Larger companies tend to see the business unit leader owns the success of the deal, where if it's more of a smaller private equity owned company, you'd actually see corp dev that had ownership of the success of the deal.

That makes sense.

I think those are some of the things that would define it. And then again, just general theme. People realize you can negotiate 5%, 10% on the front end of the deal, but has nothing to how well you can integrate the company, which makes the 0 to 100% difference.

Yep, that's the hard work. Aside from comp which I guess is part of it. But just how they're actually evaluating. If you had three deal captains, how are you evaluating them individually? What I've heard when I've asked people this and I ask most corp dev people I talk with, I ask them this just because it's something I'm curious about. Most of them say there's not a target and it's basically qualitative. It's really hard to have objective, quantitative, measurable goals. I guess you can make some qualitative still somewhat measurable. They get a lot into the how it's how they operate, how are they operating. One thing we do is we measure our pipeline activity as well just to understand the level of activity. So we don't have a target that says you must have this many outreach, you have this many corporate dev screenings, this many prod eng meetings, this many X, Y, Z. But we do monitor that and track it monthly. And so that's just a way of keeping a pulse on what's happening. And again, I've got a teeny team. But I can imagine if you have a bigger team, it'd be a good way of understanding and numbers could change a lot. You could have somebody who's had zero new calls in a month, but they're in the middle of deal execution and that's perfectly fine. But you might have other things that you notice where you're like, wow, we really haven't had many prod eng meetings in a while. What are we sourcing? Why is it we haven't found anything that's relevant for them? In the past month, have you found.

Anything particularly that works well to incentivize your team?

No, nothing other than normal comp. I know this is the easy thing to say, but ideally you have ambitious people who are doing work that they really like and that they can see value in their future career, whatever direction they want to go in. If it's corporate development, great. If it's something else, that's fine too. But that they're at actually saying, this is productive and useful for what I'm going to continue to do in the future. So I want to do a great job at it and learn.

Agree. That's the best driver. I think that's why I like working with corporate M and A. We only got deal points, then we'd all be in corporate M and A.

That's right.

I got a note here about how to combat very common cognitive decision biases throughout the process.

You and I first spoke when I was like a couple months maybe into starting the team. I think it was super early on and one of the things I was saying I would love to be able to do is just to combat some of those common biases, just normal decision making biases that everybody has, that everybody goes through that obviously are prevalent and exist whenever you're doing a deal and you're having to make a decision on that one. I don't know that I've actually done anything great on that. It's something we try to pay attention to, but it's just the confirmation bias. It's the sunk cost. You're down the line, you've spent a lot of time on something, so of course you want to get it across. And maybe you're getting a few more warning signs and a few more things that aren't as good to your thesis. But you're like, yeah, but that's fine. Come on, this is going well and you just push through it. There's been a few times where luckily nothing's been a big issue, but there have been some things that we've just plowed through and then later on as they're working here, those things bubble up again in some way. So that's happened a couple of times for us. But when you're in the mix of it, you're excited about it, you genuinely feel like it's going to be a good thing. You're not. I don't think you're doing it just for the win, but obviously there is some bias in there that you've put a lot of time and effort into this and you want to get the win.

Eel fever. Yeah, this is it.

Yeah, That's a tough one.

I don't think there's a cure for it. I think once you get it.

No, at the extreme, you have these Red team exercise. I think that's what they call it, Red team exercises, where you basically have somebody pitch the case on why this is a horrible idea for an acquisition and you hear both sides of that.

Could you do it at your size and scale? They feel like, I only have heard of it. Like 3m these really large.

Yeah, exactly. I don't know. I don't know that you could. You could certainly do the exercise to see what the case would be against this and actually articulate that and share that with people when you're talking about the case. And I'm sure people present that. The way I've seen it presented is generally risks. People are like, well, here's some of the risks, or these are some of the key assumptions we're making in this case. But you could probably go harder on it than that.

Could do a. Convince my mom this is a good idea as an alternative to Red Team exercise.

Okay. Pretty skeptical mother.

Yeah. She'd be like, no.

Okay.

Yeah. Spending how much money to buy this company.

You find the most skeptical engineer leader around and you tell them about. About it and see if you can convince them. Like I said, I think it's true of all decision making. So I don't think it's necessarily unique here. I just think in the context of a deal, you're making a decision that has a bigger impact than probably some of the other decisions you make, maybe on a new hire or a new product feature or something like that. Some of those, at least in our business, are a lot more iterative and less of a risk and less of a difficult thing to unwind if you do that.

I've seen a lot of these larger companies where they create these pretty elaborate scorecards, have that logic or rationale behind their deal thesis that, hey, they're being very objective and trying to eliminate those kind of biases. I don't know if that's something that.

You'Ve Tried or looked at say more about the scorecards.

I personally don't agree with it because I think you're overcomplicating your assessment of a deal. It gets complicated to weight everything. All of a sudden you're creating a Matrix of Here's 12 different areas that we're going to assess this deal on and trying to be as very tactical basically on how you're assessing a score to an opportunity.

Yeah, I haven't come across that, but I know what you're talking about and it gets into a lot of false precision. At the end of the day you got to go with your intuition as a leader. If the deal sponsor and you as the corporate development partner on this one aren't feeling it for whatever reason, for whatever combination of variables, this is great. This isn't good. This is going to be difficult. This would be amazing if we had it. You've got to weigh those things out in your own head and your own intuition and make the call.

Yeah. Almost like you got to find it within of like where's that tipping point? And just being really open minded to know that there's a tipping point right there. You're in tech. AI is the buzz of the town. You see AI making changes to the way you're doing deals.

It hasn't yet, but I think it should. We've briefly talked about this before and I know you're spending time on this it seems in the initial pipeline and like research that you do seems like that's an obvious area where it should be able to help. We've played around with some models and tried this before and haven't actually gotten too deep into it. So I'm sure there are models that are pretty capable of doing this. Now I don't think it's a super advanced activity but so far haven't spent a lot of time on that one. But that seems like an obvious one. I just feed it lots of criteria. I maybe feed it my previous deal history. I feed it all sorts of information on my company, my culture, all the people that work here, all of that sort of stuff. And then it helps me to filter out good companies, good individuals, good leaders.

We'll experiment. I got a new series called AI Emanate Teardown. I just pick a public company and we just scrape as much data as we can and we start testing it on these LLM models. I might call you out for that.

Yeah, that sounds exciting.

Yeah. Just be commentaries.

Yeah, yeah, sure. And that's what we would do as well. Sometimes we look at like what it says about roadblocks and find out how accurate we think it is. So that's an obvious one. I think in diligence as well. That's another obvious one where you just have so much data and so much information and text and you're trying to answer questions like I believe a lot of law firms are already using AI assisted tools in various ways through that. I think that's another obvious one. And then finally I could imagine it also if I was a founder, especially maybe a smaller early stage founder. Don't want to spend a ton on legal fees but need to navigate something and maybe it's less about the legal fees, maybe it's just more about better understanding. But to navigate all the legalese of a deal and an execution, I think that could probably help them a ton of. Because we definitely spend a fair amount of time doing that and we should and anybody doing this should make sure the other party really is comfortable and understands all the things. But that's going to take time. And I can imagine again AI tool that just synthesizes things and simplifies it. That could help.

Completely agree. They're awesome use cases.

Yeah. Do you have other areas where you think AI will help with M and A templates?

I feel like everything in M and A is a template. Your investment, thesis, diligence, findings, rapport, integration, progress. So being able to run a sequence or several different prompts at a time to be able to aggregate a volume of information and really get a head start at compiling it to get those analysis done, that's like the value is taking unstructured data and structuring it. And then integration planning is an interesting one. But what's interesting is if you look at a company, they typically plan integration. If you're using a large language model, you need to think of it more as a comparison. You need to build a workflow to provide IT information about your company saying hey, here's roadblocks. This is what we do. This countries, we operate the people this and that and really provide that context and then bring in the company. This is the company we're looking to acquire. Let's start thinking through integration. So it's a little bit of a different. It just doesn't naturally plug in. You can just start prompting in and get answers. I think thinking through that extra perspective of providing that information on the parent company and then I think there's like an organization AI that as you do more deals it'll keep learning and carry along. So you have all this historical or the Common red flags that we encounter. How long does it take people to get their diligence done? Those kind of insights that could help optimize the process as you go. Those are probably the main ones. I've seen a lot of people want to automate valuations. It's probably later in the roadmap for AI. But I do agree, once you start seeing, even early as this year, being able to start putting large sums of data into a learning language model, it's probably the current bottleneck. Then you're going to be able to do a lot of cool things with being able to synthesize and organize information.

Yeah, for sure. I look forward to your next product.

Yeah, I'll come bug you. I'll just pop in the office and keep demoing until I can get you to sign.

Yeah, sure. We've got a big scale here, so we'll be big customers.

I want to figure out how to exchange for Robux.

You want Robux?

Robux is costing me. I want to figure out how we can barter for Robux here. This podcast is brought to you by Roblox.

There you go. There you go. We could probably get you something for that. That's worth something, huh?

Hey, you know, if your kids want to learn good professional skills, put them on Roblox. They get to learn how to manage their virtual currencies. They get to invest it correctly and do some fun stuff.

Yeah. Get them creating on Studio, which is our development environment where you create everything.

But yeah, what are the ages that you see kids that are starting to create on that studio?

If I just think about in our. Just in the city that I live in, summer camps, I think they six to eight. They'll have Roblox, Minecraft, other coding camps that they do. I'm not sure what degree they're teaching coding versus just game development and kind of low code environments, but still, it's engineering work that they're learning.

Awesome. Yeah, this is it. I'm coming to work for Roblox, for Robux.

We've got a decent economy. We've got a lot going on out there.

I'm going to work for Roblox. I need to. I got three little kids. That's all I do.

That's your retirement plan. Get them building on Roblox.

Kyle, what's the craziest thing you've seen at M and A?

I've heard you ask this question many times on your podcast. I would say I have not seen many crazy things. Honestly, I've been fortunate. Again, the nature of what we're doing. It's very important decisions that we're making with these startup founders for them and for us. So I'm not downplaying that at all. But I don't know if it's as high stakes as probably some of the stuff that the real crazy stuff happens when there's lots of high stakes things involved and big money and bankers and lots of different things. I don't have any great crazy things.

I don't know about that. I want to find the little dungeon around this Roblox campus where the bad engineers get tortured or where is it?

No, none of that. We've been very fortunate to bring in some great people.

Craziest thing you've seen a founder purchase after closing?

I've seen a few show up in some nice cars. We're in Silicon Valley and people are generally well compensated in this area for the work that they do. So yeah, you see some nice cars rolling through every now and then.

Nice cars is pretty common. Pretty staple thing.

Yeah.

Nothing crazier than that. Nobody buy like a.

It's pretty boring. I know.

Jetpack or anything?

Not that I know of.

I'll check back in. I'll let you do another deck of deals.

It'll be my first email when I see something real crazy. How about that?

This has been great. I appreciate taking time. I know you had a busy schedule. Thanks for making this happen inviting me here on campus. Those of you still with us, thank you for tuning in. And until next time, here's to the deal.

Thank you for taking the time to explore the world of M and A with our podcast. We love hearing feedback. Tag us on a LinkedIn post. Add a review on Apple Podcasts.

We'd love to hear from you.

If you need help standing up an M and A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email. Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.