The Making of an Exit - How I Sold My Company

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Welcome to the Tacos and Tech podcast where we discover cutting edge San Diego technologies and the builders making it happen. I'm your host, Neil Blum, San Diego's tech ambassador and together you're going to put a face to the name of today's tech leaders with our own blend of local lifestyle.

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Thanks to our friends at Cox Business for being an instrumental resource to our startup and tech community here in San Diego. As a partner in San Diego Startup Week, Quick Pitch and Top Tech Awards, Cox Business has helped our ecosystem grow into the community it is today. Welcome back and I'm usually your host here, Neil Bloom, but today we're going to listen in to a recent virtual event by Techcoast Angels San Diego, a local angel investment group. They recently rounded up some local entrepreneurs turned investors who will tell the story of selling their company. Listen into the event and get to know more of our local tech exits.

Today's panel fits into that fun and inspiring category. We've rounded up a handful of our members who have sold their companies successfully and made money in the startup business, which is the business that we're in. So of course it's great to learn from their experiences and and our moderator for the evening is also one of said entrepreneurs. If you haven't met or heard of Dean's story, I know a lot of you have, but we have a lot of new people constantly coming in. Dean raised money from Techcoast angels. Yes, this Tech Coast Angels several years ago when he was a startup founder CEO. He went on to sell that company to a public company and he's been a full time angel ever since. Until recently he became a executive again at a startup, but that was by choice. So Dean is going to run the panel with our great group of other entrepreneurs turned investors today and I will hand it over to him because I know we have a lot on the docket for tonight.

Yeah. So thanks Ashok. Thanks everybody. Good to be with you all again. As Ashok mentioned, I made a dumb mistake and took a day job again in one of our portfolio companies. So that's been occupying a lot of my time. But it's fun to get back into the, into the grind. So yeah, I just wanted to thank Alessandro Lozama, Nia Henna, Mike Wilson, Al Bashara and I don't know if Tim Rout is out there. I haven't had a Tim Rout sighting in many, many months. So I don't know if he's there or not. But if he is, I'd like to invite him to participate as well.

I spoke to him today and he said he's going to be on Cool.

So I thought I'd get started. I mean we're just going to make this fast and furious and try to get some war stories and some takeaways. We're going to talk a little bit about the value of investment bankers, decision making of why and when to sell a company and all sorts of other things. And actually the stories of our panelists are actually pretty eclectic. There's everything from a multi decade, almost lifestyle business with a successful exit to. I got to kind of formally announce this NI if that's okay. So I reached out to NI today just to kind of get some final notes for the session today. And NI just sold his company, which started as CPC Strategies. It was a Internet marketing agency. I actually met his founder Rick or his co founder Rick Backus back in the day. I got to tell you, NI Rick didn't make the company sound that interesting. And fast forward to today. I think you sold to private equity. You sold again this week to private equity. A little birdie told me it might have involved a number with nine figures in it. But congratulations on that. I hope you're drinking and celebrating while you're with us today. But tell us a little bit about that story.

Yeah, absolutely. So we started CPC strategy back in 2007. At the time I was Working at ebay. My business partner Rick was working@pricegrabber.com and we just saw that most retail organizations didn't know how to use websites like PriceGrabber.com, even Google.com to advertise for products. So we started the company, then bootstrapped it, didn't raise any outside capital, grew it organically 50% year over year over year consistently. And we told ourselves that once we reached year 10 or $10 million in revenue, we would explore our options. That happened in 2017. We did both hit $13 million in revenue as well as 10 years in the business. Used that period of time between 2017 and 2018 to talk to a lot of investment bankers to understand how businesses trade in our space and get a sense of valuations. And at that time we were getting a lot of inbound requests. The thing that we did that was unique was that we helped companies, brands that we all know craft under armour, sell on Amazon, which obviously, especially with the pandemic, I'm pretty sure we're all buying products off of Amazon. So based on those conversations, we actually ended up not using a banker and sold the deal in a proprietary deal to another private equity backed agency, joined that organization. That first acquisition was about 64% cash, about 36% equity. So we rolled over, became part of that group. Rick was on the board there. I became chief strategy officer of the new company Tannuity, wearing the shirt today because we sell our employees and everything. And over the last 18 months I've continued to scale that business. This year we'll probably be at around $135 million in revenue. But we also went through a process. And so that process started in September, kind of once we saw the clouds, shifted from the pandemic and everything, and spoke with a lot of different private equity partners and strategic buyers and actually announced we closed with New Mountain Capital to be our next private equity partner. Recapitalized the business, taking some chips off the table. And as Dean mentioned, that is a mid nine figure exit for us. And so super excited about the future. Going to do a lot more acquisitions now to drive down that purchase price. But yeah, I've been on both sides of the coin and excited to be here with everybody.

Yeah. So Michael Weissman just put in the chat. Bravo. You and Mike should go and grab a beer one day because he's probably the other person in TCA who sold his company to private equity twice and he actually just finished his other son. So Mike, we'll have to have you on the panel. The next time around. So before we go to Alessandra. So you said the first time you didn't use an investment banker, so how did you. Was it something that came in over the transom or did you guys just decide to spread the word yourself organically?

Yeah. So at the time back in 2017, everybody realized that Amazon was a big deal. I'm surprised it took 2017 for people to realize that. And we were the leaders in Amazon. We were managing north of $200 million in media spent on Amazon, over 200 clients there. And so we had a massive web presence. So if you searched anything Amazon related, you're gonna find us. And so companies that had a thesis in the space, pes that had a thesis in space, sovereign wealth funds that had a thesis in the space, other agencies that had a thesis in space, we started to get a ton of inbound inquiries. And so we didn't see the need to have an investment banker for that process.

So yeah, that is the fantasy setup that every one of our TCA portfolio companies wants going into when they start thinking about selling the business. Alessandra, you have a very eclectic background from geo domain work@san diego.com, you got into the snack food distribution business, legal software, and now you're doing Internet based childcare. And I know you have some thoughts about, you sort of have a private equity sort of history as well. And some thoughts on to use an investment banker or not. Tell us more.

Yeah, so the one that you're missing is data center operations, which came way before Geodomain where I cut my teeth in so American Internet services. And that was the first time that I went through the due diligence process and it was painful. And we hired this investment banker and it took us six months and there was this whole earn out period that was built into the deal. And the reason for that was that we were dealing in long term contracts, three to five year contracts that have one year out clauses and that whole scenario. But to your point, I think that I've done four exits in the last 20 years here in San Diego and they've all been a little bit different. And this time around, Tootris is my first time founding an organization. So typically I'm brought in very early stage to either turn around and just bootstrap a company, but yet take it to the next level or help founders gain an exit. And so that has been my last three experiences. And so in two of those we went through investment bankers. And I think there's a huge value that we don't always talk about in the load that they take off our plate in creating all of the total addressable market stats and the research and creating all the pitch decks and creating their pipeline of relationships. But at the same time, there's a lot of politics involved in that and there's a lot of personal and business relationships that they are committed to that ultimately drive the deal. Whereas in my last experience with Abacus Next, I was able to take a little tiny organization with less than $5 million in revenue and 29 employees, ramp that up to about 500 employees, over 100 million in revenues, and go to market direct. And so the outcome was, while there was a process to it, obviously in the financial outcome for the founders and for everyone that had a vested interest was an upside.

My experience with investment bankers is they seem to have more value, the more niche your company is. So like if you're a med device company, finding the best med device investment banker, they have a Rolodex, they can start on day one and people will take calls and such. But the generalists, especially the tier three, tier two generalists, often I haven't found, I haven't had great success with that. So let's sort of go to the other end of that. Mike Wilson. Mike, you claim you started your business in 87, but you don't look like you're old enough to have started your business in 87. Walk us through that process and sort of. That sounds like the consummate. It was financial software, right?

Yeah. So, Dean, you're onto me. I wasn't in first grade, quite the shark tank entrepreneur that I wanted to be. So actually my business was founded by my dad back in the late 80s and prior to founding a financial software company, he was an institutional advisor and ended up selling his advisory practice, keeping the technology because he saw the need for a lot of the registered representatives, which was an emerging practice, seeing the need for those type of folks to have the same type of technology he was using institutionally. Now, if you think back to 1987, the technology at the time, and I did get started at that time, while it was a much different role than my dad had, it was, you know, you think floppy disk and PC only and you have a tower computer and whole nine yards. So. So that that's where the business started. And I think, Dean, you were on onto me a little bit before as well when you mentioned lifestyle business, because the company was very much a lifestyle business for many years. When I graduated from college, which was back in 2000 my senior thesis in school was to re engineer everything my dad had done on the PC side for then what, 12, 13 years, re engineer it for the web. And so basically he funded my startup inside of a family business and energized me to go build out what became known as Advisory World, which is a web based financial software solution for investment professionals. We were very good at listening to our customers. We iterated, we were early adopters and agile methodologies and so we iterated on what our customers were asking for and so forth. And we found a lot of success in building custom solutions, bespoke white gloves type of capabilities for our clients. So as it were, we were never up for sale. That wasn't our intent. We were doing well as a lifestyle business. But back about three years ago now, we had approximately five or six of our top clients and business partners all at the same time randomly reach out to us with acquisitive interest. And so that's when we brought in a virtual CFO if you will, to help act as investment banker SME be that liaison between us and these other suitors. As you remember, these same five or six firms were people that we didn't want to, and I'll just use a buzzword because we're all adults here, you know, we didn't want to piss anybody off. They're all our clients, they're all our partners. We didn't want to say, you know what, the deal isn't hot enough for you, so you're out. Because we wanted to keep them close and right on and so forth. But we ended up being acquired by a company named LPL Financial, which you, many of you are probably familiar with. My entire team is still intact. Up until COVID 19, we were on the 12th floor at the office there at UTC. My whole team. So it's been a real, real good journey.

But how many employees when you sold the company?

35 employees.

And how did you navigate when you're, you know, when you're, when the potential acquirers are customers, you know, they're asking things you don't want to tell them necessarily. How do you navigate that?

Yeah, so you know, it was, it was difficult to open up the kimono Dean, because you don't, you don't want to, you don't want to tell a customer a. What customers see is paying. So we had to, we had to keep some things bailed. And I gotta be honest, like most to a T, like everyone was pretty receptive to that and understanding a lot of these firms when they recognize that there's some conflict and some concerns. And so I don't think it wasn't too big of a pushback for us.

Yeah, it helps when there's a competitive environment because then people have to kind of behave right?

Certainly. Yeah. And people knew we weren't blowing smoke either. We're a small business talking to some bigger guns and basically looking down the barrel saying, like, listen, we've got other opportunities. And because we had such a reputation in the industry, they knew we were just, we were being forthright.

Cool. So, Al Bashar, most of you know, thanks for everything you do in our startup ecosystem, including your most recent project, which is allowing angel investors who want to invest less money to do so through your syndicates. That's very cool. Email copilot. You started a business, got some traction, and then ended up in a pretty creative transaction which involved splitting the company in two and half of it went to a big up and comer in town, Seismic. So tell us a little bit more about that because that's kind of interesting.

Yeah, I love how you jumped from, started a business to got some traction. There were a handful of pivots along the way and failures and things like that, but yeah, so ended up selling the company twice. I love hearing folks saying they've been through a couple of acquisitions. And Nia, it sounds like you sold into private equity and then later sold again. We actually did it in the same transaction. It wasn't like we set out to do that, but it happened by chance. What was going on is we sold ultimately to Seismic and Return Path. Return Path's a company in our industry that we've known for years. Seismic was a fast growing company in San Diego that we were in love with. The short version is we had worked out a deal. We were inches away from a term sheet with Seismic. We were in love with the company. We couldn't wait as founders to land at a company like that and as employees. And so we were very close to a deal. And then Return Path showed up at the 11th hour. They were in the middle of doing some other transaction of their own and were backlogged and so got to the table really late. But they came with a very compelling offer, such a compelling offer that there was no way I was going to be able to say to my investors, we'd rather take the Seismic deal. Interestingly, I had postponed the seismic deal a little bit because the initial offer wasn't good for all of our investors. It wasn't ideal for everybody. You have fiduciary responsibilities you want to do right by your investors and all those things. We went back to the table and took a couple of weeks to negotiate that deal with Seismic, which allowed Return Path to have the time to come to the table. Ultimately, what I ended up doing, after weeks and weeks, not too many weeks, but a couple of weeks of pretty grueling and stressful times of trying to decide what to do because we wanted to land at Seismic, we were bought into that. It wasn't that the Return Path opportunity wasn't a great one. It just wasn't a seismic opportunity.

It wasn't a seismic opportunity. I like that.

It's funny. So I ended up kind of throwing up a Hail Mary and I called up Return Path and said, hey, what are the odds that you guys just want to buy the technology? And they said that the short version is that would suck, but we're still interested. And so they didn't change their deal terms at all. Seismic didn't change their deal terms at all. And so instead of picking one, we ended up layering the two on top of each other. Our investors got cash and stock in both companies. Return Path sold last year. I think it was to a company called Validity Guessing here. But I think since the transaction happened with Seismic, seismic's raised probably 250, $300 million since then. So there's been some upsides on both sides of the table. But yeah, it was an interesting path we took.

Yeah. One of my long term mentors, Mark Fackler, some of you may know, started Stelcom a couple of decades ago. 500 person engineering services company in the middle of the sort of the Internet, the dot com era. And he always tells the story of he was selling his company and it turned out the only buyer that was serious was only willing to buy half of the company, but he was willing to pay that company. They were willing to pay four times more than Mark was expecting. It's the same kind of thing if you have two different entities that have a number in mind and they're willing to. In your case, Al, it sounds like the opposite kind of transaction. They were both willing to pay full price for half the company. In Mark Facko's case, they were paying for a piece of the company.

Yeah. And I mean, interestingly enough, you know, Seismic really didn't want to have to go through the hassle of acquiring an entire company because they wanted us, they wanted our brains, they wanted us to build for Seismic what we had already done. And so it was better for them, really.

So the IP went one way and the people went the other way.

Yeah. So the technology, the customers, the company went to return path and then the team went to seismic.

Okay, cool. Cool. Yeah. So we've told the, the initial story for everybody on the panel. So I'm going to start asking a couple other questions, but this is a good time. If anybody wants to chime in on the chat, we could kind of make this more interesting. If you guys want to ask live, you can also chime in and do that as well. So I have a question for ni. How much of the business was ad buys or professional services versus sort of product, IP or you know, sort of software? You know, SaaS recurring services.

Yeah. Revenue wise, I mean everything is services but we've built a proprietary technology to be able to ingest kind of the data that we're performance data and marry that with other first party data from our clients. We actually have a bidder on the Amazon side. So it's, it's a tough conversation. I mean we're a tech enabled service business but we don't license SaaS directly. That said, going through due diligence in the last three months, we found out that we have about a million dollars in an MMR that's actually licensed directly, direct access to our software that nobody really knew about. It's got a legacy for the CPC business, but 99.9% of our revenue is service based. But it's tech enabled services because it's.

Interesting because like in a typical service based, it's always tricky. Like if you hold it at arm's length it could almost be a small multiple of ebitda. But then when you look at the economies of scale and the gross profit and such, then it starts to get interesting.

Yeah, I would say the biggest thing with us is that our contracts are pretty much evergreen. Right. Like the Internet never stops. Our CEO likes to joke that Wall street is easier because there's a lunch break. There's, you know, it's on and off and you start at 9:30, you end at 4 or 4. Eastern doesn't exist with Google. Google and Amazon and Facebook, they're on 24 7. And so you have to figure out how to DO Yield Management 24 7. So we're not project based, which is extremely attractive to private equity.

Yeah. Cool. So Mike, I got to ask a personal question. So we have had some, and I use this term only a little bit lightly, we've had some horrific cases of meltdowns in family run businesses that TCA members have invested in over the Years. How did you guys do as a family business for a couple of decades?

It sounds like my dad and I just have an amazing relationship. And of course there were those moments where you're just like that you go back and forth on. But yeah, but the thing is my dad, like I've just been blessed with a dad who just trusted on me and kind of yin and yang. He's more fly the seat of your pants. I'm a little bit more calculated and measured and analytical. We've kind of come to the middle a lot together over the years. Me more so than him. I've learned a lot from my old man. But yeah, like there's a lot of that now. I'd be remiss to not speak about my mom who while she didn't formally spend day to day in the office and so forth, not only did she break all ties, she was the influencer, if you know what I mean. And so she definitely helped a lot. And there were plenty of times at the dinner table at night that she'd say, okay guys, enough is enough. The way we work together was really successful.

Yeah, that was inspiring. You could probably do some consulting or mediation with some other family owned businesses. And were you all aligned on the sale of the company?

Yeah, it was odd. Like I said, we weren't up for sale. We didn't have any, any sign out front. Like it wasn't about that. But it just, it would have been crazy for us not to seriously entertain the cool.

And then Alison, you, you know, you, you had a bunch of gigs in the private equity world. How does your private equity background and your CEO background of bigger entities inform your sort of launching a startup?

You know what's interesting is that I've had four exits as a senior executive in the life found from the ground up. And I just wanted to piggyback a little bit on the conversation because I think it's so important. So when I stepped into Abacus law, it was a three decade family owned business, primarily husband and wife and best friend for three decades. They could never break the $5 million threshold there. And when they brought me in, they were tired. You know, they had done everything right. They were a software company to the legal industry. And I think that although they really put their heart and they enjoyed what they did, they never really understood those KPIs and the metrics that a PE firm or a strategic buyer is going to look at at the moment of exit. And so when they brought me in, they were ready to just, you know, kind of Navigate and exit without a sale, without a transaction. And I came in and I said, look, for the last 20 years you've transacted with over 250,000 clients, even if it's a single transaction. Let's re engineer the business model. Let's think about how we can take all of that captive audience and build upon that. And I think that was the key, key element to the success of Abacus Next, which was the next generation of Abacus law, which gave us that exit to private equity. And so if I were to bridge that conversation over to the startup, I think that the background that I've had dealing with both private equity transactions and strategic buyers is to build in reverse engineering, expecting that exit and targeting the exit that you want. So building it from the ground up, it's almost like Candyland, right? It's the best case scenario because rebuilding and re engineering KPIs and reporting and systems, it takes a lot of work. So there's nothing better than to start early age in the organization, set a culture, set the KPIs and just set the foundations that you can create those building blocks to ultimately provide the information that gets investors excited. Because the best time to sell is when you have that hockey stick, right, right amid that hockey stick, where there's a true upside potential for the investors and you have proven the model and yet you can then make it your terms. And the next recommendation I would say, is put it in the loi. We all get so excited when we have these bids and these buyers and the strategics and the fees coming in and they just give us these really light. Lois. No, because the LOI is the vehicle to the ultimate MSA or whatever agreement that you're in. So they want you. It's kind of like dating to say. But it's true, you know, they want you so much. Before they give you that loi, before you sign that loi, you know, make sure that you make your terms and conditions at least clear in the LOI without getting into the weeds. But just saying, this is my goal, this is, this is, you know, this is my timeline. Because you can in fact dictate the timeline. American Internet services for us, AIs was an almost 18 month diligence process that was painful. It took a toll on everyone. There were disputes on the earnouts, it was just disastrous. We could have changed that had we incorporated our timelines in the loi. So all I'm saying is it's kind of neat when you get that first opportunity to sell your business. But be Smart. Look at that loi. And there's never a better time to make it your terms than that loi.

Yeah, I found, yeah. Actually in my own transactions I've found that there, I'll call it a sort of a negotiating arbitrage where at the LOI they're not paying that much attention because it's non binding. So you can actually get things in there without going to the mat over them. And then once they're in, it's really hard for.

It's hard. It's like taking candy from a baby. You can always refer back to the loi. So that was my, I think my most important lesson from the first transaction all the way to the, you know, sixth transaction is like get it in the loi. You can always point back, hey, this is what we agreed on.

Yeah, I would agree that was one of the best advice I got was to negotiate the term sheet. Don't negotiate after the term sheet. Like spend the time up front. Get those things down so that you know, because you're going to be locked in if you go to bat with these guys and you go to diligence, you can't even talk to other companies. So get that, get that correct, get it right so you don't have to pay the lawyers afterwards.

So this is sort of a toss up for everybody who on the panel has had earnouts as a part of their deal. I'm assuming the PE people did. Yeah.

Painful, painful, painful. So take it all up front.

What kept you there if you didn't have earnouts?

You know, I'm getting a pretty good salary and I've got my whole team with me. I actually am. I have a vested interest in the product. Like it's kind of my baby and so I want to see that live on and given some new firepower that I have to build out. Some of the things I always wanted to build out at scale, I'm enjoying that. Plus Dean, I'm also for the first time in my career, remember I grew up in a small family business. For the first time in my career I'm afforded executive coaching opportunities. I'm learning things like I don't know, okrs. Like that's a whole new framework for me. So I feel like I'm getting an executive education along the way too. So it's a great company that I'm a part of and I'm enjoying my run right now.

Yeah, I mean when I sold my last company I ended up in a public company. I had no earn outs. I ended up there for about 15 months, same sort of story, right. It was just like, I didn't want to abandon the team. And then I started to sort of. It was just a different world for me. I didn't have to worry about meeting payroll. I could go home on a Friday and actually enjoy the weekend. It was just a different sort of.

Yeah. The other thing I want to mention really quick is there's some parallels to al one side of your house. What we learned after we were acquired is, number one, we were acquired for us and for our, you know, our team, our mindset, our view of the outside world to what's inside the LPL walls. And so when. When that was communicated to me, and I circulate that among my team, amongst my team, you know, it feels good. And we join an organization that wants to be more entrepreneurial. They want to think smaller. That's something I didn't realize about big corporations, is they want to think smaller. At least my larger corporation does. I'm not sure that's universal, but it's been an opportunity for us to be that beacon to the rest of the organization. This is how a small business unit can be. Lean and agile.

They wish they were more like you in a lot of ways. And you wish they had their resources, which is why it works.

That's right.

Yeah.

It's an interesting point. Right. Like, you know, I think one of the best things you can do for an entrepreneur that you've acquired is to let them be an intrapreneur. Right. Because you still have that entrepreneurial mindset. You get to work and drive and get things done, but you don't have the same weight on your shoulders. And I think that's why a lot of, you know, there's. There's tons of failure where founders go in and they just can't wait to leave because they can't find a place. I think a lot of times it's because they're not allowed to be intrapreneurial.

Yeah. So that happened with me, but it took 15 months. Great company took care of us, but I just couldn't get past the Dilbert kind of stuff, you know.

But that's the core. That's the core differentiator between, you know, a PE or institutional transaction versus a strategic buyer. Right.

Yeah.

Yeah.

So my advice, having, you know, experience both is when we're in a transaction with a strategic buyer is really understanding what their goals are and what their hot buttons are, because they may just want to tap into your talent and really let you soar and bring value to the product portfolio or they may want to just park you. I mean LexisNexis, I've spent too many years, I guess in the legal space, but LexisNexis was known for that. Just coming in with like big daddy with these big pockets and just really aggressive bids for businesses and then buying them and parking them. Right. Or shelving them. So I think that there's a lot to be said with understanding where the strategy is with those strategic buyers. But at the same time that can also be true with the PE or institutional buyers as well. Right. You know, what, what's their overall strategy and what are they hoping and how quickly do they want to flip you and you know, do they have parachute executive teams and. Or are they really buying into your vision? And so there's. Right. It's just a really broad spectrum. So I would say don't be shy to ask be point blank about your intentions, your questions, what's important to you and truly what you are seeking from that transaction. Because the honeymoon phase is over in 12 to 18 months.

Well, I was going to say two weeks, but yeah.

No, no, typically it's at least a year, that honeymoon. Yeah. You know, they'll kind of pet you and they'll let you know that. But I mean, honestly, it's just important I would say that, you know, the truth shall set you free and candid communication can never go wrong in any transaction. The more direct you are with your expectations, your, you know, wishes, wants and goals and then get it in that loi.

Yeah. So ni. I don't know if this is personal or not. So private equity transaction the first time around presumably was a percent of the sale in cash and a percent of the sale, either it was withheld or there were earnouts or such. Did the cash part of that transaction the first time around, was that enough for you to not care about the rest and it was all upside or did you have to perform and make sure that they performed the cash?

Yeah. So that cash side, I mean I have partners that are retired. So yeah, we partners have less of the company that are retired off of that initial cash kind of infusion. So for us, our earn out, I mean you can kind of call it an earn out. It was really. We closed in September with the first acquisition, so we had an earn out through the rest of the year. To have a whole fiscal year, we had about 20% of value. We could increase the deal value by about 20% and we earned 100% of that. So that was a Very short tail turn.

And what was the KPI on that? Is that revenue? Is that.

Because it's always EBITDA for us.

Okay. And that wasn't. And that was straightforward. It didn't, they didn't wrap in a bunch of overhead that you didn't have before.

The biggest thing, I mean, that's feedback that we got when we spoke to all those bankers in 2017 was like, I mean, WPP is a huge acquirer in our space. Right. Agencies typically required by a company like WPP or Omnicon or one of those companies, they have three to five year run outs where there's a lot of kind of like, oh, here's our ERP that costs $500,000 a year that you have to use. And so we were very deliberate about making sure that our terms were 100% in control. So we closed in September. We still operated independently. In fact, our team members didn't come onto the corporate payroll till May of the following year. So we ensured that we had complete control over it, which is a huge thing. If you're gonna sign up for an earn out, make sure you have control of the factors, both expenses and revenue and your ability to invest. Otherwise you're setting yourself up for disaster. And we've seen that in our space time and time again.

Cool.

So Alan, your acquisition by Seismic, what percentage of the team that went is still there?

Well, as of two weeks ago, everybody. I quit a couple of weeks public knowledge yet, so my last day was a couple of weeks ago. But yeah, the entire team is still there minus myself.

Cool. So I won't dig into that. But, but congratulations.

Thank you.

So I always, you know, when there are, when there are buyers, where they're like pseudo aqua hires, where the, where the talent is the big thing. I always am curious a year later whether that talent survived, you know, in a new culture. Plasmic has a pretty interesting culture. So it's much more startup oriented than other companies.

Yeah. And you know, when we first got there, we were, they literally put us in and be entrepreneurs. Here's your bubble. We're not going to bother you with anything. You have a task, you get it done. And within six months we had our first release. Right. And so, you know, again, my happiness has always been, you know, attributed to whether or not I'm being an intrapreneur in the company or not. And we got to do that for quite a while in the beginning.

And how many employees at Seismic when you were acquired and how many today? Was there a big change?

Yeah, Quite a bit. So we were somewhere between 200 and 250 when we got acquired. And this was four years ago, right before COVID hit. We were 900 and we're at 1,000 now. So without Covid, who knows, we'd probably be at 1200 or something. But yeah, very, very rapid growth.

And there's some folklore. I don't know if others on the call know, but there's some folklore about both seismic and telium on whether or not they were actually tca, whether they actually presented to TCA or there was a TCA connection in the early years where we passed or not. I hope we don't learn that it was a case where we passed because you know that's going to be painful.

It would be a bummer.

Yeah, yeah, yeah, yeah. So any questions from the group, you can either shout them out by unmuting or you can go ahead and type anything on the chat, but otherwise we're just going to keep the conversation going.

Well, I want to ask a related question. I guess part of the reason Al left is because he's enjoying angel investing so much. Like you said, he's got a new syndicate. But I recall before we get to the angel investing side and that transition, talking to one of our other members who I think went to a dinner at Alessandra's house with some of the other women TCA that she hosted and you told them something like starting a company is like throwing your bag of money over the backyard fence and then going and chasing it down or something like that. I mean, it was a Alessandra ism. Can you share, clarify, you know that plan?

I've got to share this story. So I exited Abacus Next in May of 2019 and I had big plans. I was going to travel, I was going to take some time off. And I've been sitting on the board of directors of the San Diego Regional Chamber for years. And we had all these committee meetings about workforce and childcare and this and that and the other, blah, blah, blah. And so everyone came to me, you have to do something about this. Alessandra, you are a technologist. This is what we need. Automation, this and that and the other. Anyway, long story short, that was me. By June, I had hired 40 developers to start on a proof of concept of this tech enabled platform. Kind of the marriage between an Uber and a Airbnb for childcare. And I did not have an appetite to go out and secure any office space. So I literally emptied out my garage and I said, this is going to be one of those garage startups. So I emptied out my garage, sent everything to storage and I got to share the picture. I created a magical three car garage startup environment, the whole works. And so then we had this end of the year TCA event and so all these wonderful ladies, just amazing backgrounds, come to the home and we're having this discussion and we're talking about, you know, the campaigns for 2020, this and that, the other and we're talking about startups and early stage companies and they're saying, you know, what does it really take for entrepreneur to engage? And I said, you know what it takes? It takes just taking your freaking wallet, throwing it over the fence. I literally took everybody, the whole crew. We had a three car slot garage and we had 50 workstations and the whole, you know, peripherals and blackboards and words, a little kiss room and the whole works up on the walls. And we hadn't even gotten to the point of making that a formal end. We had proof of concept by September and it's been, you know, just explosive ever since. You know, never forgot that childhood education and you know, child care in all would be such an issue and percolated to the very top. So we're very lucky that we started an organization that is tech enabled with a platform that has helped parents connect with childcare. But more importantly that we were able to navigate this Covid situation through right now what is and has been explosive growth in the last four months. But you know, we're lining up our KPIs to ensure that we know what is going to be important for the next raise. So we're excited.

Yeah. So Caitlin shared in the chat that your garage wasn't much like a garage at all. I don't know if you're in your garage right now. If so, I'm going to call BS on your garage.

I wish I could just paste, cut and paste the picture, but it was pretty neat.

I was involved in a VC backed startup in the late 90s and we moved into a 200 square foot office and put world headquarters on the front door.

That's right. It was the nicest garage setup I've ever seen. It was absolutely beautiful. This was not your average startup garage. Not even like nicer than some professional offices.

Yeah, clearly. Although I know you're in a very nice, I've heard professional office now, Alessandra, and clearly you didn't go all of your money over the fence.

You saved some of my wallet. My wallet.

You kept some of it.

The fence. Yes, my wallet. Is way over the fence. So we secured our headquarters in Sorrento Valley, which is just a beautiful office that it sits on the perch hill and has beautiful views. It's 100% all windows. And the day that we moved in, Gavin Newsom sent out his stay at home order, and so I had to send everybody back home. So right now we're kind of hybrid, but it's been busy times and we're just thriving and we're just really, really lucky that we're in the business that we're in.

That's Startup Lifeview. So, breaking news, Dean. We have a Tim Rout appearance. He has joined us.

So I'm going to set up just the Tim Rout background. Hopefully I get it right and then you can. So Tim is like the entrepreneur that every longtime TCA member, TCA board member, I think Tim, you ran tech committee at one point before you decided to throw your hat back in the ring. But he is the consummate entrepreneur that we look for at TCA because he is a repeat entrepreneur and already made people a bunch of money the first time around. So talk to us about that. You became this czar of wi fi on DoD defense installations and then parlayed that the second time around. But instead of defense, it was national parks. Am I close?

Yeah, that's pretty much it. Dean, thanks for the great introduction. But yeah, started out in Silicon Valley back in the late 90s and then decided to go into telecom for some reason instead of software and learned a whole new business. Ended up doing WI fi for US Military installations. FBI Academy, vhs, Marine Corps, army and Air Force. All these hundreds of military bases around the world. Who knew that they didn't have WI fi in the barracks? This was sort of back in 2009 or so. Nothing groundbreaking. Not nuclear fusion, but just being in the right place at the right time with willingness to work hard at it and see an opportunity. That's pretty much all it was. And then 13, that's when I joined TCA, of course, and got heavily involved. Traveled the world for a couple years as well, but really just sort of decompressed at that point. And then about four years ago, the National Park Service reached out and said, hey, we love what you did for military bases. We also have 300 million people a year going through the national parks with no connectivity. You know, can you do what you do for us? And so that was the beginning of this new venture. And I sometimes regret jumping back in. It's brutal being an entrepreneur, but we've done very well. And this, this year with COVID you know, I like to say, you know, we all like to say it's sometimes better to be lucky than good. We happen to be in a perfect position because this year everybody's been ditching their houses and buying RVs and getting out to the outdoors, social distancing in RV parks and campgrounds and so on. So our business has been going bonkers this year and we just happened to once again be in the perfect spot where we had a couple years of really good background and references and big cash flow customers, and we had a good story to tell, and so we're just killing it.

Cool. And did you literally bring the whole band back together? Like, was it the same management team that did the next one or was it all new people?

Yeah, it was a lot of the new. A lot of the same people because Point Go acquired Endeka, my company, back in 2013, and I worked with them as a VP for a couple years. So I got to, you know, I got to know a lot of people at, at a big public company, learned what that was all about, didn't want to ever do that ever again. And once I left and then started Access Parks, I just called those folks up and of course, 80% of them jumped ship and came on with me again. So, you know, they have a lot more upside with what we do, of course, with stock options and so on.

So, yeah, we did. There's a. There's another. There's another team that had a successful TCA exit in the kind of. The niche, kind of finance, kind of wholesale part of the business, Wall street. And. And then they turned around and did it again with a company called Findox. And they basically closed out their round just by the same Rolodex who had seen them operate and seen them perform. And that's. I mean, I remember you got some pretty material funding just based on your existing sort of relationships, right?

Yeah. So, I mean, you know, being. Being an entrepreneur is no easier this time around. It's still 80 hour work weeks and it's absolutely brutal. But I won't lie. I mean, having that history and the exit and the contacts in the industry definitely helped and they've accelerated the business. And, you know, three years into it, we're a lot farther along than we would have been if I hadn't had those contacts, definitely.

So some of the questions we asked before you joined us, of the others in the group were, was the Boingo acquisition sort of an accident or was it part of a intentional process to Sell the company.

Yeah.

Almost nothing's ever intentional.

Right.

You can never really predict where these things are going to go. We were trying to raise a series A of 15 million, and so we had a bunch of offers on the table. And then my COO actually knew the CEO of Boingo and said, hey, do you want to invest? And Dave Hagen said, well, we don't want to invest, but we might want to buy. And at that point, you know, I was ready to just do anything to make the pain stop, as you like to say, Dean. And I was ready to put a gun to my head. So an offer of exiting and not having to worry about the darn thing again sounded really appealing. So it wasn't a home run exit for me. It was good enough at that point. I was just lucky to get out.

I was happy to get out.

So we just sort of backed into it.

So question for Mike and Ni. So were you always running the business sort of EBITDA positive, such that you didn't have to raise money or. I know, necessary. Neither of you, as I understand it, neither of you actually raised money in your businesses, right?

Yeah. I mean, from 2007 to.

All right.

In 2017, I mean, we were always profitable. I mean, I started the business when we were. I was 22, so I didn't have that much carrying cost. And obviously, as you scale and chips and beer don't necessarily. It's not all you need. And so we scaled the business kind of accordingly, and then kind of with the Tunuity chapter, this is extremely profitable on its own. But leveraging private equity to, you know, do the acquisitions that we've done, that's really an accelerant on what we're doing.

Yeah, that's amazing. I mean, that's like every entrepreneur's dream is to be able to. I'm working in a company now which is a TCA portfolio company. They raised a little bit of money, but then they just sort of shot to the moon. And cash flow is sort of funding the company at this point. Cool. Mike never had to raise money or debt or anything.

No, we did not. We were fortunate enough to have really good margins, and we had a few handfuls of customers that were big ticket.

Final lightning round in the last couple of minutes. So 60 seconds or less for everybody. What is the one thing you learned from the sale of your company that you would do different next time or you would share with TCA entrepreneurs or the group?

For me, obviously, if you recall, I sold the company twice in a single transaction. And so My lesson learned there, and it wasn't by choice. It would just sort of happen. And I was forced into the situation of being creative. I think the point that I tried to say is, you know, as entrepreneurs, we spend all our time breaking every single rule trying to disrupt our industry and do things differently. But when it comes to an acquisition, there's just a couple of options, and we think, okay, here's the process, here's the path, here's what I have to do. We stop being creative. We stop breaking those rules. And until I was put in a position where I was uncomfortable and I. I didn't want that result. I wanted a better result, I didn't actually start thinking outside the box, so. And it worked, right? A little bit of luck, a little bit of skill, big Hail Mary, and everything came out great for everybody involved. So that would be just it. Break the rules. Don't stop doing that. Be creative.

Cool. Alessandra.

So I think I kind of beat the dead horse. But I'll say it again. Negotiate early, because the desirable effect happens prior to the transaction. Not as much post transaction. And although they'll whisper sweet nothings into your ear about all the wonderful things that they want from you and your team and the vision, we just don't know what we don't know until the transaction closes. So don't be shy to negotiate prior to the transaction, because that's when you have the most leverage. They want you more than you want them. And I think that, like anything, that's when you have the most upside.

Okay, Mike.

Yeah. As I mentioned a couple of times now, we weren't for sale. And so the firms that came to us were all suiting us without a for sale sign out front. But that said, you know, looking backwards, I wish we would have done or had a little bit better window dressing. A lot of the companies that we talk to at TCA, they're pretty polished with their. Whether they're their KPIs or their projections or whatever they might be, and we were okay with that, but it was never really our intent to raise money, so we didn't. We didn't have that.

It's like the highest value could be on the vapor, right? It's the vapor that they get you emotionally attached to, right?

That's right. And it's a watch out for all of us investors, right?

Yeah, yeah, yeah, yeah. Okay. NI What'd you learn? Learned a lot.

Would I change anything? No. I'm very happy with both outcomes, Very happy with the partners that we have previously Very happy with my position with the organization today. I think the biggest thing I learned is that you don't know how your partners are going to act until the wire hits their account. So again, two of my partners have quit, but I'm okay with that because I have new partners.

Cool.

And then, Tim, I have two very.

Boring ones, but I think they're just critical. One is hire a bookkeeper earlier and keep your darn books somewhat straight. You know, we all as entrepreneurs lose sight of what it takes to actually run the company. Logistically, we're so excited about breaking the rules and building companies, but if you're going into acquisition mode and you don't have your QuickBooks up to date and you don't have the right ledger accounts and everything else, I spent two months during the acquisition having a forensic analysis done on my books and it absolutely cost me money. I left money on the table because they saw a company that wasn't fully big. And so I'm not making that mistake this time trying to keep all the books in order as much as possible. And then the second thing is just if you're going to sell, hire the best attorney you can and pay the money. Somebody who has experience with billion dollar deals and hundreds of deals don't cheap out. That's another regret I had. I cheaped out. I paid 50k for the acquisition instead of 100k and it cost me millions. So make sure you hire the best attorney you can find.

Cool. All right, on that note, Ashok, take us out.

Thank you. Great job moderating. Really appreciate all of you, my friends and inspiration. And hey, we got to find some entrepreneurs like these folks to invest in, huh?

Dean?

Yeah.

So I just wanted to say thanks to ni, Tim, Alessandra, Mike and Al. I'm thrilled to be in this journey called TCA with all of you and learning from you. And hopefully all of us on this call together will continue to find the next things in our community and have them do really big things. So thank you on that note and we'll see you.

Likewise.

Good night. Thanks everyone.

Congratulations to all. Good night everyone.

Thanks for joining us on the Tacos and Tech podcast with Neil Blum. Thanks again to Cox Business for helping make this possible by expanding the reach of the San Diego tech ecosystem. Big shout out to School of Rap for our rad intro musician. And thanks as well to Nest Podcast Network where we are recording live inside their studio at Nest Co working in Bankers Hill. You can find Neil Bloom on Twitter eelbloom as well as fresh brewed tech and tacos and tech pod on Twitter too.

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