Scale, or Sell? | Jetlore Founder & CEO Eldar Sadikov

You look at your current capital, you look at your ability to raise more capital, you look at the current competitive landscape, you look at, you know, your current shortcomings in terms of the team or whatever that might be. And when you consider all those things, you decide whether, you know, when you have these acquisition offers, what do you do with your team? So then we, we kind of faced the question, all right, well, what do we do? So like either we need to raise a big round and basically, um, and basically try to scale this. And the way to, and the way to scale this, either, like I said, expand to a new area like onsite personalization where we face increased competition, or we have to expand somehow our core solution to more industries so that we could say not just e-commerce, but other companies outside of e-commerce can use this. But our core technology very much relied on the fact that we processed product information, were able to process, you know, use natural language to understand what products are about. If you go to insurance or any other industry, you don't have that problem anymore. So then is this still applicable? We had a challenge, or we, you know, do we come— do we consider potentially exiting if, you know, there are players that actually are interested in in, you know, in basically acquiring us. And so, so basically, you know, not that we were proactively looking for it, but we had multiple interested parties in acquiring us and based on the relationships we had and things like that. And so PayPal emerged as a, as a clear suitor. And so PayPal had a desire and the need to build marketing capabilities that they wanted to offer to merchants and marketing technology capabilities, I should say. And they obviously had the scale of working with, you know, not quoting any exact numbers, but pretty much almost every e-commerce company out there. Almost every e-commerce company out there uses PayPal for payments. And that's a, that's, that's integrated into the checkout process across all e-commerce companies. So that's why, you know, in 20, um, in 20, uh, 2018, I'm sorry. Uh, the conversation started earlier, but in 2018 we actually decided to go for, for an exit. And, uh, retrospectively, It was a big, like, I think a lot of the factors come into play when you decide to go for an exit. You look at your current capital, you look at your ability to raise more capital, you look at the current competitive landscape, you look at, you know, your current, shortcomings in terms of the team or whatever that might be. And when you consider all those things, you decide whether, you know, when you, when you have this acquisition offers, what do you do? Do you take that offer or do you not take that offer? And unlike in 2013, when we declined, you know, when we didn't go for an acquisition, here we decided to go for an acquisition. And, and so now we actually became part of a large corporation and, and, you know, you know, very Actually, I'm just looking at my slides to make sure that my story aligns with what you're going to see in the slides. So yes, I did want to talk a little bit about the acquisition process itself. So this is the slides from more than a year ago now when we got acquired by PayPal at our headquarters when we had them in San Mateo. And when we decided to go and get acquired, essentially, and signed the term sheet, it was a process with— we ultimately, we ran a process to make sure that this is going to be competitive. And so, you know, at the end of the day, what I can say is that as an entrepreneur, like, I think I recommend that if you consider exiting, you want to make sure it's a competitive process. You don't just, you know, obviously if somebody comes to you and You know, makes an offer that's, that's really blows you out of, you know, blows out all of your expectations. And I've seen, I have friends like this that basically, you know, not necessarily ran a super competitive process, but somebody came to them and said, like, gave them a, you know, just a process, a term sheet or a number that, that's crazy. Then people may not run a competitive process. But even in those cases, when you're surprised by the offer that you get, you still need to run a competitive process to make sure that, you know, you're going to get, you know, that's, you're not going to do better than that. That's my advice. I think I have a question here. What do you mean by competitive process? Well, it's basically, you either hire somebody like an investment bank to say, hey, you know, now help me out. I have, I have an interest, I have an interest from A to Z, A, B, you know, A or A, B, and C. And then now I'd like to make sure that, you know, there are no other suitors that can actually Or if you're talking about, you know, sometimes people start this process before they even decide. They might have somebody that they're talking to really early stage. We're not talking about specific number or deal that anybody proposed, but you know, that you really deeply engaged at a pretty high level with somebody and you've, you sensing that it may come down to an acquisition and people say, all right, well, let me start the process in parallel and again, hire an investment bank and actually make sure that it's gonna be, you know, what I'm gonna get at the end of it is gonna be market. But it's a steep funnel. It's like a sales process. You gotta have, when you start your quarter, you gotta have like a good enough funnel at each stage so that you finish the quarter at, you know, the number that you need to hit. And same thing here. If you wanna have, a good term sheet at the end of this process, you gotta make sure that at least 3 term sheets come in. And to get the 3 term sheets, you gotta have a very wide funnel to begin with because there will be a lot of drop-offs throughout the process. The second thing is that at the end of the day, like when company acquires you, and it's actually tougher as a small business because we were, a pretty small business compared to a lot of the other acquisitions that PayPal makes or any other Fortune 500 company makes. And so you gotta have very good reasons of how this fits into their strategic roadmap and the best way The best way to describe it is that the customer needs to be ripe to acquire you. You can't— I think I've never seen this, at least, when an entrepreneur is so charismatic and so enthusiastic that he can get into the office of, you know, an executive in any Fortune 500 company and just excite them with the vision so much that they're going to be like, oh, I need to buy this company. It might be like in some, I don't know, movies or something like that. But most of the time the way it happens is that the executives at that company must have been thinking about some, you know, like with that they need to make a move in this area and they need to buy a company of certain profile. And, you know, and this is kind of the area that they're looking at and, and it's been prioritized and, and they've been studying and, and, and thinking about this for a while. And then this company comes along and that's not, that may not have been the way they've been planning it all along, but they already ripe, they already on board with the underlying vision. And then that's when they can say, you know what, this aligns so well with what we're looking for. We're gonna, we're gonna pull the trigger and actually, you know, acquire this. And so that's very important. And I think that, you know, that's why people pay attention to what the big companies are saying, what kind of things they say in their earnings calls, and what gets put out in the press releases and things like that, because that gives them an indication what areas each business considers strategic, you know, for the next year or 2 years, because that gives you an idea of what the next move might be for them on the chessboard. So, Tim, Um, and then the next thing is that as a small business, it's hard to be acquired by Fortune 500 companies because you don't have the scale to prove it. Because most of the time companies get acquired when they at least hit like $20, $30 million in, in, um, in revenue. But, you know, more, more likely even more, uh, because Fortune 500 companies need to see scale because they make billions, uh, in revenue per year or per quarter. And for them, anything less than, you know, $50 million or $100 million is negligible. And so they need to see scale. That's why the bigger your business is, the easier it is to get acquired. But the controversial thing is that the bigger your business is, the fewer suitors you're gonna have. Because if you build a company that's, I don't know, for example, sells to retail, Right? The number of other companies that serve the same segment that are Fortune 500 or have like billions of dollars will be pretty small. So you're gonna have very few suitors that actually can absorb you because you're gonna be, you know, maybe unaffordable to everybody else. So that's kind of the dilemma that every founder is gonna face. You gotta show scale to be interesting to get to liquidity event, to sale event. But at the same time, you have to have, you know, the bigger your business becomes, the fewer suitors you're going to have. So that's kind of the dilemma. Some people solve it. I mean, I've seen this as well by, you know, not that you should build your business to sell, that wouldn't be right. But I've seen also businesses being built specifically with, with certain players in mind of potential suitors of how they could get absorbed by larger businesses. That also happens. Not that I ever tried to do this myself. In no way I would have positioned Jetlore this way. But there are businesses like that. And the next piece is that— let me see the time. The next piece is that the acquisition needs to be supported at all levels. So either it's important to have a champion to actually champion the deal. But the champion at the end of the day needs to get everybody else on board because acquisition is one of those things even largest companies don't make more than like 5 of them per year. I mean, 5 is a lot actually. So like even if it's a small number, you might say, well, it's not a big number to this company. Like it makes, you know, tens of billions of dollars. But at the end of the day, if they pull the trigger 3, 4 times a year, it's a big deal. Like he needs to get everybody on board, including the CEO. So, and that means that there might be potential mines in the process. There might be other stakeholders, political issues, somebody who might object to it because it might conflict with what they do right now. Be aware of that. Watch for that. You know, you know, there are a lot of ramifications and kind of things that might all of a sudden be blown out of proportion when somebody starts zooming in on this deal and saying, are we doing this deal or not doing this deal? So that's kind of all the things that happen as part of the acquisition process. Thank you.