Starting Up Your Corp Dev Function

I'm Kisam 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. Welcome to M and A Science where we curate knowledge from the best in M and A to continuously improve. If you're interested in keeping up with the latest from M and A Science, subscribe to our free newsletter@mascience.com Every week we share highlights for our interviews, invitations to events, M and A role openings and other resources as we build the greatest community of forward thinking M and A practitioners. Again, that's mascience.com I'm your host Kisam Patel, CEO and founder of M&A Science. Joining me today is Veena Ramaswamy, Head of Corporate Development at Lemonade. Lemonade offers renters insurance, homeowner's insurance, car insurance, pet insurance and term life insurance. Probably going to be a customer after this interview. Traded on NYSE under lmnd. Today we're going to talk about how and why you should start a corporate development function. Bina, how are you doing today?

Good, how are you?

I'm doing good. Thanks for taking the time to chat with me. Can we kick things off with a little bit about your background?

So at a high level, my background is in strategy, corporate development and investment banking. I've always had the goal of using strategic finance and M and A to drive company growth. The first half of my career was in investment banking and strategy strategy at Morgan Stanley. I joined Morgan Stanley right out of college, spent a few years in banking and went and got my MBA and then came back to Morgan Stanley for more fun and was in the internal strategy and M and A team where we worked with Morgan Stanley executives and board there on strategy, acquisitions, divestitures, joint ventures and the second half of my career has been in operating roles in growth stage tech companies in Fintech and insuretech specifically had a variety of operating roles including special projects, GMing of business, strategic partnerships and corporate development.

I see a lot of folks that go from investment banking into corporate development, but you got this operational background blended into it. Can you give me a sense of how those skills particularly help with the corporate development practice and just trying to get a sense of that gap from somebody that goes straight from banking into corporate development versus you getting the blend of both and then getting into corporate development.

Investment banking has the core skillset on deal execution, evaluation, et cetera. I think for me the operating experience was really valuable. Now for me as A corporate development professional in that really getting to understand how a business is run is only, I feel truly done by actually being in that seat and actually having to launch a new product, create a new funding mechanism or other key strategic initiatives for a business and by truly running those and creating those for a business is how you understand how the business operates. In a corporate development seat. The success of a lot of M and A deals is really from the operational execution and the post deal signing, deal closing, integration. Having had that operational experience, it gives me a unique perspective on and really appreciating and understanding those pieces and ensuring those are set in motion long before the deal closes.

So the hypothesis actually comes to fruition.

Exactly.

Well, let's kick things off with why should companies start a corporate development function?

I'd start by saying a lot of early to growth stage companies don't actually have a corporate development function. They typically have an ad hoc process that activates when a company executive receives an inbound from a company to acquire them and oftentimes not much materializes from these conversations. I think the reason to formalize and create a corporate development function is really ingrained by the founders and executives. And if they view corporate development or acquisitions as a tool that's valuable for growth in their business, a way to figure this out is really to answer three key questions. As an executive, first, obviously, is there a need? The second is, okay, if there's a need, do I need to hire for this? And then the third is who do I hire for this? On the first piece of establishing is there a need? I think it's really important to have alignment with the founders and executives around M and A as a tool to drive growth. As I mentioned, growth through M and A can be to achieve one of three things. Accelerating, strengthening or protecting the business. For accelerating the business, this is current or future business goals or objectives, Growth in existing products, adding adjacent products, feed to market. In terms of strengthening, this can add capabilities that strengthen the value of your current or future product offerings. This can be anything from tech licenses, talent, people and then protecting the business. M and A can also be used to protect against competitive threats or market movements. If an executive and founding team believes in one of those three things as a tool for growth in your business, then I think it's important that this function is established.

Is there like a certain size that you think is ideal to even consider M and A as a function?

I don't necessarily think there's a hard and fast rule of X amount of funding or X number of people if you have at least one established product and product market fit and you've achieved some semblance of scale and you're thinking about growth, whether it be in that product, different geographies, different distribution or additional products, that's when you can start thinking about establishing this as a function. You have to really establish that core product and have some growth and success in that product.

I like how you framed it previously around accelerating, strengthening and protecting. Is there a threshold where you go from some of these founder led acquisitions to here's a point, we should really stand this up as a function and.

Have somebody lead it when the targets you're starting to look at are larger scale businesses. So if you've reached scale yourself, like I said, whether it be the number of customers or volume in your core product, and you're starting to look at companies at or potentially even larger than you, but for some reason there's an opportunity to acquire them, I think that's when you should start thinking about bringing somebody in to help run and lead this process for you. The more complicated the business that you're acquiring is, whether or not the business is public as well, I think creates a lot of complexities that it's important to have somebody in house to manage and run that process for you versus it being a part time job for another executive.

Bigger deals get more complicated.

Yes.

What are the benefits of a corporate development function?

The biggest benefit I think is that it can allow a company to turn around from being reactive to things that come their way to start thinking proactively about opportunities, getting ahead of companies that may not necessarily be quote unquote for sale that you think of as a strategic asset for your business to own and reaching out to those companies. That's where some of the best deals get done is when it's not necessarily a company that's reached out to you and is telling you they want to be bought, but is when you're proactively looking at an opportunity and developing that conversation and then hopefully opportunity with the business.

I like that a lot is executive leadership. You can only reach out to so many companies and if you've got this laid out strategy, identify more targets. Now you actually got more bandwidth or folks to reach out to those companies. Any other benefits?

Sometimes you can rely on external advisors or consultants or bankers and some of your venture capitalists on your board. But the value in having this function internally is really no one appreciates and understands your business as well as somebody internally at your company. The incentives are different. As a former banker I understand the incentives of bankers quite well and they're motivated to get a deal done. That's just how their business works. Whereas if you have this function internally and someone owning it internally, they're an employee of your company, they're not motivated by the number of deals they get done, how quickly they can get them done. They're motivated on driving growth for your business.

So their motivators are very much aligned with the broader company's goals and success.

Exactly.

When it comes to reviewing this activity, M and A is becoming core part of the strategy for growth. When an organization start deciding to build out this function, how does that work? Is that seeded through the CEO specifically? Is it weighted in through the board to do that? Where does that really originate from?

Typically I've seen it's usually from a CEO or executive team member who either seeing inbounds come through or they're seeing opportunities that are potentially being missed and realizing that it can't be a part time thing for various executives to pinch it and that there should be some centralizing mechanism and some expertise brought into as well to lead these for your business. But the CEO is always usually involved in the hiring process in a lot of these acquisitions as well. Of course.

Then what happens? Is there a formal approval to get the board to say okay to this? Are we building a business plan to set up a corp dev function? Do we need a allocate capital to it?

I've seen all different versions of this. Some companies might have a formal M and A strategy that the board approves and we want to go after X targets by this year. I've heard companies say we want to buy 10 companies next year. I don't necessarily agree with that approach myself. I think that just focusing on more of a banker mentality of let me see how many deals I can get done versus actually thinking about what's valuable for the business. There might be a year which you get no deals done. And that's something that as a corporate development professional, one you have to be okay with. But to realize that that's getting a deal done is not always the best thing for the business. In terms of the dollar allocation from a board, it really depends. Typically for M and A that doesn't happen. Usually you align at a high level on the currency in which you're willing and wanting to acquire. Companies with cash stock, what the typical split will look like, what you're comfortable with depending on market conditions. But typically there's no hard and fast rules because as these M and A processes evolve Both sides are need to be a bit nimble if you want to get a deal done. I haven't typically seen the hard and fast rule in terms of that. In terms of if you're doing investing, of course there might be a bit more of a pool of money allocated towards it. But for I would say pure M and A, it's typically opportunistic.

A lot of variables. It's not like there's a M and a function of box kit out there that gives you all these parameters to build out this function.

No, there's not.

Yeah. Even with the capital too. Because you're like you mentioned, there's a lot of ways you structure deals and there's variances there as well.

And then even within that I would add depending on the type of business you're acquiring and the executives at the target business and there's different ways to structure even the deals from a short term versus long term incentive package. There's a lot of nuances and options.

I would say you already get into the fun stuff. You're going to teach me how to actually do this step by step?

Sure, let's do it.

All right, where do we start?

There's no like specific toolkit on how to do this, but for me I have a little playbook on how I think about setting up these functions and what's worked for me in the past four key things that I've done. The first is getting to know the business really well. This begins with laying out the three to five year strategic roadmap and playing it back to the founders key executives and aligning on where there might be opportunity in the next few years to accelerate, strengthen or protect certain parts of the business. The important piece here also is getting feedback and refreshing this. This is not a one time set in stone exercise that happens or should happen. It should be an iterative process that evolves over time and you keep revisiting. The second piece I would say is about establishing a process and making people aware of that process. M and A deals as we just discussed are complicated. There's so many different decision points that need to be made along the way. So I think the first most important thing you can do is just lay out what the deal steps and the process looks like. Who are the stakeholders that need to be involved, what are the typical timeline look like, what approvals are needed, Board potentially shareholder approval if you're a public company or if your target is a public company and then establishing as part of that process, what's the criteria you have for both, both evaluating inbounds and then pursuing external opportunities or pursuing outbounds, what would meet your threshold to kick off that timeline and that process? And then, like I said, the most important part of this all is just making sure people are aware of this process and how it works. The third piece I would say is I've called this historically being an information hub. And really what that means is just being in the flow, knowing the latest about what companies in your space are doing, what companies adjacent to your space are doing, talking with VCs, investors, bankers, other industry participants. And that really allows. Allows you to not just react to things again, it's just to start becoming more proactive on opportunities. When you're starting to hear, not just hear the color, but develop a point of view and a perspective on some of these companies and these businesses. Important again is to socialize not just with the executives, but interact with people across your organization. There are various functions within a company that are talking with customers and vendors and partners all day long. And they can sometimes be really good sources of information or deal sourcing, frankly, and sharing market color on competitors and things like that, and staying plugged in with folks across your business as well in some of these key roles is really important. And I want to consider part of this being an information hub. And then the last piece in setting up this function is just really helping people realize that not every opportunity is a deal. People get very excited at the prospect of acquiring a business. And sometimes that excitement can lead to speeding through or bypassing some of the criteria or diligence you've established processes that you're trying to keep in place or that you need to have in order to move forward. And so I think it's the job of a corporate development lead to be that sounding board and reminder what your criteria and your processes and hold people to it.

Would you say that's like knocking out deal fever or trying to, I don't know, what's the right word for it a little bit?

I would say maybe taming deal fever. Don't get me wrong, I also get excited at the prospect of doing a deal and getting a deal done. But it's my role uniquely too, to just make sure that doesn't cloud judgment on other things.

So maybe alignment's a better word to say across your stakeholders.

Yeah, that's exactly right.

Okay, I was thinking about this too. Your background, you were in, in that corporate development realm at Morgan Stanley and then which is assuming pretty mature as an organization. And then you're involved two Times in terms of standing up an M and A function. Yeah, this is where I want to make that point because there's a lot of folks that come from the mature function into that startup realm to stand up an M and A function we talked about, there's no real playbook on it. We're working on publishing a book called how to Stand up an M and A Function. So this is highly relevant to it. So, so let's take these apart, starting with the first one. When your step one is basically doing diligence on the company, understanding that three to five year roadmap like you mentioned, regurgitating it back to that executive team, getting feedback, starting to see if there's a refresh needed. Tell me more like, how do you do that properly?

It really, I think is a bit of coming in first to the company and really engaging. Not just with the kind of C level executive team, but I would say the business leads and functional leads under that layer as well, to really get under the vision, the product, the target customer, how you make money. What are things that are interesting to these various stakeholders in terms of growth or how do they see themselves achieving their growth targets in the kind of ensuing year or year plus and longer term? Oftentimes, as I was mentioning before, also a lot of these folks, they're the ones that are seeing what's out there in terms of technology development, things that make underwriting or claims more efficient or capabilities that might enhance some of our offerings today. And so spending time with them and understanding what their function is and what drives their growth is really important. Really understanding your company model and how your economics work and where the growth in the business is going to be from going forward. And I think having a good sense of that, of course will only enhance how you're thinking about opportunities that can add to your business.

I'm trying to get a sense if I'm somebody that's maybe coming from banking, just entering corporate development, or coming up through a business function into M and A, what you described is very much the strategy thinking. And maybe if I haven't been exposed to that, how do I wrap my head around that?

Depending on the business you're in, if you have experience in that industry or not, you have to be just a knowledge seeker and somebody who's curious and eager to learn. You have to go in a bit humbly too and soak in all the information from the experts in your business. And I would say also there aren't a lot of dumb questions or there you shouldn't Feel like there are a lot of dumb questions because you're really to get to the bottom of some of these core pieces of the business. Going in and asking a ton of questions and becoming an expert on some of these areas is really important for a corporate development profess. I didn't have insurance experience before I joined Lemonade. I quickly ramped to understand the ins and outs of our business. And I think that's just part of the personality and background too of some of these corporate development professionals is that you're just, you're intellectually curious. You want to learn and get to the bottom of how a business works, how you can optimize it. That's also to some extent investment banking training. You have to really dig into a company to understand how it works. You bring that to in house and you take that kind of learning point of view and from all these discussions and then materials that you're reviewing as well.

So if I were to talk to business, try to understand the business, I'm new to my corp dev role or trying to stand it up. Could you give me like an outline? What are the key things I want to touch on to make sure I'm getting the information I should be getting from those conversations?

Depending on the role of it's like a GM of a business or a functional leader, if it's a GM type of person is really understanding what their product is that they're managing. I think a big part of this is you yourself going through the user experience and testing out the product experience online so you know what the actual product is. Also it's understanding what their objectives and their okrs are for the year and go forward. A lot of times these GMs will also say in three years I want to be at X position and I want to offer Y products as well. And I want are usually very forward thinking and so getting insight into that is very important. That really starts with just understanding what their goals and objectives are and what the actual product is. For functional leaders it's important to ask what their okrs are and what their goals are for the year. But I think it's also really important for them to understand what's interesting for them. What are some cool things happening out there. When I talk to our head of data science and AI, I want to know what are some cool technologies out there that he thinks are interesting going and either learning them myself or learning from him what is compelling or what could be compelling for us. And so developing that understanding of what key functionalities that can be Helpful for your business going forward I think is really important. And that's again just like having a learning mindset and trying to learn even if you don't have the experience in machine learning or AI getting smart about it quickly, whether in through internal resources or external resources.

Are there any like hidden gems of people that could be valuable resources that may be overlooked for a newcomer and maybe be surprised about the information that you can get which is similar to doing diligence on a deal?

I wouldn't call this necessarily surprising, but I think you can get a lot of really helpful information from some of the partnerships folks in your or your growth team. They're having conversations and they're seeing certain companies take off in terms of ad spend or they're just seeing trends in the market that I think are helpful to here. That's not necessarily a surprising role. That's helpful. One of the ones that I guess are not as intuitive. A lot of times people, especially with investment banking backgrounds will talk to the finance team and talk to other finance professionals. But I I've found some of the most interesting conversations to be with our head of data science or R and D team folks that I may not have had the experience interacting with before. So it can be a little bit maybe for folks daunting because they don't necessarily speak the same language but those are the most most interesting and illuminating conversations you can have.

What's the intro script like when you want to reach out to introduce yourself? Because maybe they don't know. Maybe they saw a little announcement of this new had a corp dev and they don't even know what that is. How do you reach out and make that introduction to get that conversation going?

People don't necessarily know what corp dev means as just the words corporate development. It's a vague terminology for a function. If you don't actually know what it can mean that it means M and A but but sharing with them that you joined and what your mandate is and how you're you wanted just to get to learn what they're doing and what's interesting for them. Most folks will always take an intro conversation at least and are excited. Like I said, M and A can be very exciting for companies and so I never really face much pushback. I think people usually want to talk and share their thoughts and share where their ideas are cool.

So we get the strategy lay of the land. Is there any deliverable that comes out of this strategy part? The sort of diligence we're doing on the company to to get that started.

There's no set in stone thing. But for me, what works is having a synthesis or a document where I have my thoughts on not just absorbing and understanding these conversations, but I think really important is to have my perspective or point of view of where there are opportunities. Sometimes this can manifest itself and I've done this before of a SWOT analysis, weaknesses, opportunities and threats. So once you do your kind of evaluation of the business and talking to all the key stakeholders, playing back how you see strengths, weaknesses, opportunities and threats for the business, and that's of a centralizing document that you obviously can iterate from and go from. But that's a good way for me to have synthesized this in the past.

How big of a document do you end up with?

It really depends. I like to keep things in very simple and efficient. You can always have 100 page documents or 100 page decks, but who reads them? Who has a time for that? And so I'm usually very much a one pager type of person of here's a synthesis and then obviously they're supporting materials as needed. But try to keep it as efficient as possible, especially if I'm sharing it with other folks too, playing it back to them.

The next step we had was establish a process, the timeframes for activities to get done and then communicating it so everyone's aligned on it. Yeah, I'm curious if that's documentation that you're creating or some kind of training, but can you walk me through the steps around establishing the process?

Sure. From my perspective, it's a kind of simple one pager and what I've done before of just outlining what the steps are to get a deal done. It's very helpful for folks who haven't gone through an M and a process in particular to see there's an initial piece of of evaluation and then there's usually a letter of intent or some type of term sheet and then there's further diligence and then alignment on pricing and negotiating and then there's various checkpoints with the board as well. And then obviously before a formal offer is typically made, you need board approval. And so just simply stating those and outlining those steps in the process I think is important. I think key to this and why I think it's also important to have this as a function internally is to have one owner of it, which is typically your corp dev head, so that there's not information or questions flying around, that it's all quite centralized and there's one kind of point of contact and so that's really important, I think, to share as well. But it's usually just simply laying out the process. Like I said, every deal has nuances to it, different regulatory considerations you need to think about depending on your company or the type of company you're buying. And so there's no hard and fast rule that this is the exact process, but it's at a high level, the process. And I share that back to both the stakeholders and as part of my kind of education to the company, I would say on that part too, what's important for a process for others to know as well is I typically shared what is corporate development and what does corporate development mean at what company I'm at with the broader company as well, the entire company, either through a town hall or a lunch and learn just so that everyone is aware at a high level what our roadmap looks like, what's interesting to us, what's our criteria, and what the process looks like in a very simple kind of document. So that it's pretty straightforward for folks to then be a part of as well. Obviously there's anyone who's done a deal know that deal's not usually straightforward. But for I think the broader community to understand how it works, I think is really helpful because then when people are pitching you ideas or sharing ideas, they have some type of filter themselves too and know what the ensuing process will look like.

That's actually really interesting. So you will have these town halls or channels of broader communication to the general company or is that just to management?

Both of the times that I've set up these functions, I've done a town hall with the entire company where I'll walk through what corporate development is, what the roadmap looks like, what's interesting to us, in some cases I've walked through at a high level, what are deals we've looked at, what are interesting to us. And so that gives people a flavor for the types of companies that are worth pursuing potentially. And then usually from that it'll become a little bit ad hoc where I'll get inbounds from folks across the company, which I actually really enjoy across functions that I may not interact with typically because like I said, they're interacting a lot with vendors and partners that I don't typically see sometimes. And so it's helpful to get these names even and to hear about companies that may not have passed my radar.

You turn the whole company into a crowdsource of. Of opportunities.

They're all sourcing. Yep, yep.

It's a cool thing too, because you're starting to get the culture of M and A established versus oh, here we're buying this company and then you're fighting uphill to get that culture established.

Yeah.

In that introduction you mentioned a lot around the strategies and things of what you're hoping to achieve with that help understand ideal type of companies. But the process itself, you get into some of the fundamentals there when you speak broadly to those town halls.

Not usually. Like I said, a lot of these deals are quite nuanced and different and there's no like hard and fast way of doing them. I will say though, my current company, when we did announce an acquisition and we did walk through it with the company of, you know, what the thinking was, how we thought about it, how it was structured at a high level in terms of the process. No, I don't get into it with the broader audience, but if and when a deal happens, I think it's really helpful to share that color.

Okay, what about when you, you get new people? I'm even thinking about the early days of standing up a function. Maybe you got a few people familiar with it because they've done some founder led or C suite led acquisitions, but I guess building that muscle up with especially the folks that have never done it before and getting them acclimated, how do you approach that? With an iron fist.

Yeah, really. Frankly, I should say there are certainly folks in any company that have not either gone through an M and A process or done a deal at their company and. But, but I think people are very curious. Like I said, people are excited about the potential for doing M and A. So we'll often get questions or I'll have people come up to me in the office if we're in person. They're just asking questions of what I do, how it works. But yeah, it's not as much of a formalized process of training every new person who doesn't know what M and A or hasn't gone through an M and A process before. And frankly, I think once you start looking at opportunities as a business and you do diligence on some of them to various degrees depending on how far you go with the target, you are involving other folks at the company. And so people will start through that process as well and going through diligence, know what it is like be a part of that. And so I think the more times and the more reps you go through in terms of looking at businesses and targets, the more that becomes part of the culture of the company and people.

Learn so they may initially be introduced in a passive way, but then as you do more deals, as they get into integrating companies, they essentially become more proactive.

Yep.

It's interesting because I'm always curious about that. Seems like that's a thing that definitely is a maturity curve for organizations too. And it seems like most of them do that. They basically do reps and get stronger at diligence integration.

Even if you've done M and A deals before, but if your business that you're at has not, it's still a new thing going through the reps of diligence integration planning. And then actually if you close the deal and do the deal, post integration planning is huge learning for a business, especially the first one. And then you just get better at it over time and you develop your own processes and systems. You might have done five deals at your last company, but every company is different. I think the important thing, and I think what's really great about growth stage companies is you're nimble and you're flexible and you're able to adjust along the.

Way any shortcuts or things to reduce the learning curve around that.

One of the things I think about, especially when you're involving folks outside of the C suite and as part of your diligence process, is really having them be in the mindset of when you're doing diligence. You should really be thinking about if this were part of our business and this is something that we own, and you'd have to either manage it or we have to manage it, manage it and run it. What do you need to know in order to do that? What do you need to see that's there or not there? Having that mindset of thinking five steps forward of when this is our business, what do we need to know? I think really helps ask those questions during diligence and really push for those questions during diligence. Either see them or you don't see them there really important when you're doing diligence is to start already thinking of integration planning. Again. This is tied together what I was saying. But you can't just think of integration planning like post deal close. You have to start that, frankly, when you're doing diligence even before you sign a deal. This is why people say most M and A deals fail, is because you sign the deal and you move on to the next thing and you're not actually thinking about how to integrate that company and how to achieve the targets that you had hoped to achieve through the deal. And so integration planning Starts as part of frankly the diligence process.

What are the negative consequences if you don't do that?

It can be viewed as wasted time. There's a lot of time and energy put into the diligence processes. A few things that can help counteract that or that feeling of wasted time is to one time bound it. A lot of these processes are time bound, intentionally or not. But I think it's really important to time bound it so we have X days to come to a decision or an agreement, 30, 60 days, whatever it might be, not view it as wasted time. I think it's important even if you this is the same. That's true also for either an M and a professional or an executive team. If a deal falls apart or a deal doesn't happen, it's not wasted time. I don't think it's wasted time. I think it's important because you won. Like we were saying, more reps is always better. I think for getting better clarity around objectives, how you guys are as a team are aligned on what's important for the business and then also just just getting the process honed for your company. You go through a few of these, you have a pretty solid process in place going forward and you tweak things along the way. So I don't think it's wasted time. I also think it makes you smarter in future negotiations to have done a few of these even if they haven't come to fruition or closed or been signed. That being said, I'm sure folks at the company that are involved in diligence might feel like it's additional time on top of the spent on top of their day to day job. And so that I can understand but I don't think it's wasted time at all for any organization is that the.

Goal is to have those functionalities due diligence and integration planning at the same time.

Yeah, you obviously can't do a ton of integration planning before a deal is signed and especially if there are certain regulatory approvals that you need to have get to get done obviously between signing and closing. So there's like somewhat of an arm's length that is needed between yourself and the target. Internally you can do a lot of integration planning. I'm even just thinking about from what you know, how you can see the businesses combining that obviously ramps over time between when you sign and when you close. And so, so when you actually do close, you have your day zero plan.

Ready to go on the front end. Part of getting these opportunities from the different sources Sounds like you got multiple sources. Since we create the advocacy group internally, I'm sure bankers are hitting you up with opportunities, especially since the brand name of the firm is growing like wildfire. How do you manage that? And then how do you build this bandwidth to go after those companies that aren't for sale or actively trying to.

There's a lot of inbound channels, whether it's from bankers or other kind of industry participants or frankly, there are a lot of internal channels as well too. Whether it's our founders who are getting inbounds or folks across the business who are seeing opportunities. And in terms of managing it, I think what's important is that I don't think you necessarily have to, I would say take every call or pursue every idea. You have to over time, especially establish as part of the process is your criteria. And I think you can tell pretty quickly if something at least least passes your initial criteria and is worth that conversation. Given what you know about the business and your own business and what you know about the target business. It's important to manage your own time, frankly and to manage your own function is to triage a bit and have those conversations with the opportunities that make sense and fit your criteria.

Now you structure it. You have ideal targets and they're prioritized and you allocate your time according to that. Because I feel like it's a long sales cycle to do an M and A deal and there's a lot of nurturing involved.

There is certainly a lot of nurturing. I'm not necessarily a believer in having a target list and rank ordering them and having having a status update on each of those. I've done that before. I don't necessarily think it's the best way to manage this function, but I do think that it is important obviously to keep track of all the opportunities you're looking at or that you think are interesting. Because again, your motivation is not just to get a deal done. You have a list or if you have a set of companies that you're either looking at or pursuing just to align on you focus on the ones that make sense for you and that pass again your criteria. Again, it's not just to be like, I talked to this company and we're this far along. So that I need to get this company that far along too because if this one doesn't work, I need to get this one to work. It's not like that. That that's a little bit actually of a banking mentality of I need to close X deals and get X revenue by the end of the year. It's not that mentality at all. It's more of like what passes your first criteria when you look under the hood, what passes your seconds at do we want to get on the phone with them and talk with them? It's just following things that make sense for your business.

I'm curious if that part's actually documented or how do you keep everybody on the same page on the qualification of these opportunities?

I've documented it before. I certainly have a list of things that we've looked at that I think what's important actually is less so the like the list but what the assessment is or was why it did or doesn't pass your criteria. Because I think that's important to keep track of. Because over time new things will come up, new products will come up, new adjacencies will come up and you might either forget or lose track of not just how you evaluated similar things before, but also what the perspectives were maybe a year or two ago and be open to things maybe evolving. So was there a there there? If not, what was it? Just like the why it did or didn't work I think is important to keep track of of.

Do you spend a lot of time reaching out to these companies to convince them to sell?

No, I do not try to be a bit more opportunistic. Ones that we are serious about, we obviously reach out to. I think it's important too when you have a role like corporate development, if you reach out to just to get to know them or to be introduced, sometimes they immediately assume you're going to buy them or immediately assume you want to buy them. And that's not always the case. I actually often don't lead the outreach myself and I will do it through a partner in the business who might be more of a natural introduction either on the partnership side or if it's a capability with that functional leader, just to get to know them a bit better. Before we jump to any conclusions, I'm not actively talking to a ton of companies at any given time.

And it's framed that way of hey, I have a friend in corporate. I'd like to just make an intro and get to know your business a little better.

In fact, I'm actually a little bit even one step removed from that is hey, would love to get to know your business better, have read XYZ or think this is interesting. And then I'm including my partner or my colleague as well. So just to make it a bit more informal versus a formal this is our head of Ms. Because that can be a little either scary or exciting depending on your business.

Awesome. I want to get back to our how to stand up M and a function outline here. So step three was becoming an information hub. What does that mean?

Being in the flow of information as much as you can. So it's reading the relevant newsletters, reports that are coming out, et cetera. I don't necessarily attend a lot of conferences, but if you find those to be helpful attending conferences, I find the most value in having one on one conversations with various stakeholders, whether it's external or internal, like I said, and external it's again, bankers, consultants, even people that are maybe adjacently related to your business I find interesting and helpful as well, keeping up with those conversations.

And over time every company has a unique approach to it and like you referenced, it's pretty unique to your company depending on your industry and those sources you follow, this information you gather because you mentioned the stuff you share around, what does that look like? How do you condense it? Share it in a way that people actually get value out of it.

We're all about efficiency and so I only typically play back to folks. Folks or depending on what the information that's relevant or interesting is to the relevant folks of, is there something interesting that I've learned or a potential opportunity that could be interesting for us? I'm not usually just providing market color that we can all read about in a newsletter. There often isn't a ton that comes out of a specific conversation, but when there is, I certainly share it back and what my takeaway from it is and how it could impact our business.

Can we make up some examples? Is it like, hey, this competitor got acquired and here's whatever some things are, what it may mean to us or what are some examples?

Yeah, that's a great question. So yeah, it could be a hey, this competitor is fundraising, but it doesn't sound like it's going well because they haven't shown growth in XYZ markets. Let's see what happens for them and what that means. It doesn't necessarily even have to be in an M A context, but that market color, even though they're trying to enter XYZ market and it's not going well, is interesting because we either might be in that market or might want to go to that market over time. So it's not even again from an acquisition perspective with just market market color. That could be helpful if that's the case and I'll play it back and say we should monitor this or see what happens and what the results are when we get more information.

Yeah, I like that. Are there other examples of stuff you would pick out?

Competitors that do get acquired or deals that do happen? Getting market color on how the transaction transpired, whether it was a public company deals, you can read about it often. But in private company deals there's not usually a lot of detail shared. And so getting that color of they went through a process, they talked to X number of bidders, this was the feedback they got. They went with this bidder because of xyz. I think that strategic rationale I think is probably the most interesting. That and also typically in a private deal, how they landed on price, what multiples they looked at and what multiples they landed on. And so that color is interesting and that usually is typically shared in conversations versus necessarily in public documents, especially for private company deals.

Do you write this up as an email that you send now? Is there a frequency? How does it communicate? Is it just conference call calls?

It's usually calls or slack messages. It's not usually something more formal than that. It could even be you're on a call and you bring it up as a talking point as well. So it depends on the stakeholders and the cadence in which or the relevancy for them too. In what I've learned.

Okay, see if you had a big enough corp dev, you can have somebody rate the corp dev newsletter, the Microsoft's.

Of the world or those kinds of size of companies, they must have a monthly or bi weekly newsletter update or market color or commentary. I'm sure that they have and maybe that's something over time that we do as well. But I don't typically like the. Because I think sometimes when you have a monthly update or a quarterly update, you're forcing yourself to find content to put into that versus actually sharing relevant or helpful information.

It makes a lot of sense. Step 4 In the process was alignment amongst stakeholders. Can you walk me through how do you turn that into a practical how.

To getting alignment with stakeholders? There's no playbook necessarily on that, but I think it's important, a really important part of the process. If you're going to do a deal, everyone has to own the decision to do a deal. It's really critical for the company when you're pursuing something to do that. The downside of not having alignment is one or two years post acquisition close when things may not be going as well as you thought. You're not hitting the targets you thought you were going to hit. Is when people can say, well, I didn't want to do that deal in the first place, or I never want, I was never into it, that's a bad outcome. That's not what you want. You want people to be aligned up front and own either the good or bad that happens post close and take accountability for that. And so that's why I think the alignment up front is important, so that there's no necessarily finger pointing or anything like that after. It's so different and dependent on organization and leader. It can be done on a one on one basis. It can be done in a group setting. It really depends on the company and the founding team. And I think it's critical, especially amongst the key executives, that everyone's aligned in a deal.

Is there a preferred format that you have?

I think it's important to actually not do it one on one. I think it's important to do it in a bit more of a group setting so that people can hear other people's doubts or concerns and respond and react to them. And you can be a part of that process of either convincing people or not being able to convince people that it's the right thing to do. I think that's really helpful for everybody to observe and be a part of and either work towards getting alignment in either way you go. It's important to get alignment to either do the deal or not do the deal. And being a part of that process is really critical for the executives.

What's the frequency of those specific meetings that happen as you progress through a deal?

They are pretty important early, not necessarily on the first stage, but once you pass the initial, we're interested, we want to do this. It's really important to start getting that alignment because pretty soon you're simultaneously thinking about valuation and negotiating along the way. And I think that alignment is critical as you're doing that. You don't want to be to a point where you've aligned on a price and you're ready to put forward a term sheet. When half your team is not on board with doing a deal, it has to be in conjunction with, I would say that not first step but the step right after.

So it sounds like the frequency would be pretty dynamic that based on these sort of decision points you may have a higher frequency and have some, some critical information to make decisions around.

Exactly. And then also important too is if you, because you know, typically you don't have entire alignment in the first meeting. And so I think it's important in those first meetings is to establish or play Back of what are the gaps in getting that alignment? What are the things we need to figure out in order to either get alignment to do it or not to do it? What are the data points we need? And then go gather those data points and play it back to folks and then progress to their next step to get alignment. Just really clearly playing. Back of what do you need to get to that alignment? Alignment.

I wanted to go back to the overall because when I think of a corp dev functions, a team around this, where do you start with hiring a team? What does that look like? Is that planned from the beginning or is it shaped up as an ad need basis?

I think it really depends on the organization and two really important things. The first is how strong your finance or your strategic finance team is. And then the second is there an athlete or what I call an athlete or the presence of athletes within your organization? And this is just people who have a financial acumen but also like a curiosity or wanting to learn about a business. It's typically former bankers and consultants in your business. I think if you have those things at your company, you don't necessarily need to immediately go and hire. For me, I actually think it's important to. In both of the instances where I've stood up this function, it's. I've had strong strategic finance teams that have athletes on them and they're athletes of the organization. So I think it's really important to go through that process and then see as you're thinking about either doing more deals or maybe being even more proactive, adding kind of a bench for your team. What are the skill sets you need? If you have a strong strategic finance team, you don't necessarily need five bankers on your team, but you might want them if they're good at the other things as well. I think it helps you narrow in on the skill sets you're actually looking for that can help you either do more deals or do larger deals or do deals in different geographies. And that's also a way in which you can add to your team as well people who have certain international or geographic experts expertise.

Okay, that's like a whole other interview that we can do. Just on the strategy of building out the people side of this a function. What do you find to be the most challenging part of standing up a corporate function?

I think the most challenging part to standing up a corporate development function can be sometimes of because the deals can be more opportunistic and maybe infrequent or seemingly infrequent when you're in banking, you're working on three, five deals at one time. In a good market when you're internal, you may not be working on three or five things at a time. You might be looking at a few things and you likely are. Some might be in different stages of your focus. But it's not that I would say the abundance of deals that you're working on is not as high as it is in your banking. That's actually a good thing because you're focused and you're targeted. But I would say that uphill battle you might sometimes face is when you're adding to the team and you're looking to expand to the team of we may not actually do a deal in this market or this geography for a year. Why do we need someone today that might be some of the pushback or feedback you'd get? And I think this is true for any function. When you're trying to build out a function and to grow a function is to just show obviously what the roadmap looks like and how adding a person, whatever period of time, whether it's today or in six months from now, can help you get to that deal and to execute that deal in two years time. You always have to plan ahead for these things in any function. I think that's important and that's sometimes an uphill battle.

Yeah, it's like all the considerations around doing this and, and I also see that when it comes to standing up the IMO as well where maybe it's ran through the function purely through a centralized pmo. But then same thing like that consideration around it. What's the biggest lessons learned from your experience in doing this?

There's a lot that you learn along the way when you do these deals. The first thing is, and this might sound obvious, but nothing ever goes according to plan. And it's really important, especially as the corporate development lead is to be nimble and flexible. Know where you and your team's not limits are, but where your criteria and thresholds are and know where you can push and not push. But just being flexible is really important. The second thing is that a deal is never done until it's closed. I say this all the time. People sign a deal, announce it in the press and go celebrate which great celebrate then. But that's, that's only step one. Things can always either be delayed, go, not necessarily go wrong, but just take different paths that you're just don't anticipate. And as we've seen, even with the public M and A deals with Twitter, et cetera. Like things are just not done until it's closed. I can't emphasize that enough. And then the final piece that I've learned is just to maintain perspective. A lot of times deals can get heated. Whether you're negotiating internally, externally, you have advisors, lawyers, consultants, et cetera. You can get caught up in the almost theatrics of it. And I think it's really important to keep perspective that at the end of the day, none of us are curing cancer. Unless you're in a health care company, maybe. Hopefully in most cases, the success of a deal does not make or break your own business. And so it's just a tool and a part of your growth. You will be hopefully fine if it doesn't happen. And so just keeping that perspective when things can get heated I think is.

Really important to great takeaways and I need the most important takeaway. What's the craziest thing you've seen in.

M and a founder? Relationships at a high level are really important and nuanced both for the target that you're looking at and then obviously also your own company. I think what I've learned along the way is understanding people's incentives and motivations is really important. And assuming, and hopefully this turns out to be true, that people are well intentioned, I think is really important. I think when you go in with that mindset, things can go smoothly and you can adjust and react to things that might come up. But founders care deeply about the businesses that they've created and it can lead to, to different reactions at different points of a deal. So I think it's really important to just assume people are well intentioned and address concerns and needs along the way, I would say is my, my, my way of answering that question without getting into too many specifics.

Well, I'm wondering is the crazy around that where it starts with misalignment there and then sort of spirals out?

Yeah, sometimes. In some cases I've seen is if the target company has either multiple founders or a very involved board or investor and a founder. There's so many different iterations of this. But of aligning of why are you even talking to the acquiring company? What's the purpose? What do you want to gain out of this? Do you want to work at the acquiring company? Do you want to just get cash and move on? What is the motivation? And people typically don't have the same motivations, but that's okay. But aligning on even why you're in the room to begin with I think is really critical and it sounds silly, but it's not often done because people on both sides, like I said, get excited to be a part of a acquisition discussion. It's really important to have that alignment and then also to the acquiring company to be aware of that dynamic. Dynamic, whether it's through one on one conversations or through just observing the way people interact with each other, I think is really important.

You had a good point. Boy, the founder alignment could definitely lead to some pretty crazy situations. It's interesting too of thinking of how much relationship building goes into getting a deal done. I'm curious about how do you balance with what you described from really understanding a founder's intention with a professional approach to building the relationship. Relationship versus a personal when you know, you go out and get somebody drunk to really understand who they are.

That's a great point. It's a combination of everything we've talked about so far is the process, the criteria, the diligence, everything. All of those pieces are really important to keep. But the founder piece is also not just the alignment and understanding their alignment and what their motivations are, but just getting to know them as humans. Going out to dinner, not necessarily having to get drunk with them, but just sitting next to them and eating dinner, I think is really important just to know because in most cases you want the founding team, the most of the employees to come work at your company after the acquisition and you should treat them like a potential future colleague and you want to get to know them and know what motivates them, what their life is like, as much of that interesting or relevant for you. I think it's really helpful. It makes the just acquisition talks, negotiating talks, less confrontational almost. We may not. The acquiring company is not just like this big kind of black box just trying to acquire you, slice and dice you and rip your business to pieces or whatever it might be. It's like we're all humans at the end of the day. And I think understanding people on a somewhat of a personal level too is important in going into these negotiating talks and hopefully integration talks and then hopefully post integration and post closed talks as well. And when you're actually working together as.

A business, I like how you distinguish the difference between getting dinner and getting drunk.

Those are two different things.

Vita, thank you so much for the time today. I enjoyed this conversation. Those of you still listening, till 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 at 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 Masscience.com for a lot more content and resources sources. 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 individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.