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Archive for April, 2011


Companies Are Sold, Not Bought

Tuesday, April 26th, 2011

“Companies are bought, not sold”

This is a cliche as old as M&A, and there is a lot of truth to it. When I started my last company, from time to time we would get interest in acquiring the business from third parties. My wife would start to get excited if I mentioned this stuff and I always tempered her with a couple of comments. These are my M&A cliches and I want to share them with you now for the permanent record:

  • Selling a company is a “large complex sale”. Just like real sales. That means you probably need 100 meetings to get a buyer. So I always tried to imagine that you need 100 meetings with different people to sell the company. That means that this meeting, no matter how optimistic the potential acquirer might sound, is unlikely to result in a sale and you should remain even-keeled about these things. The thing you should celebrate – and this is what my wife and I always did – is “We are one meeting closer to 100 meetings!”
  • No matter how good a fit you think you are for the business, you have virtually no input into the process. This is where I always thought half of the cliche came from – the key things that have to happen to make this transaction take place are events inside the buyer where you have little or no control. The CFO wants to focus on integration of the last transaction, your champion is job-hunting and suddenly quits, there is a spat about who would manage the acquisition and someone ends up going scorched earth (“If I can’t have it, then no one can!”, the CEO resolves to focus on maximizing profits to hit a number this quarter, the buyers chief competitor announces a new product and they send M&A off to focus on other things as a result, or technology says they could recreate all of your core technology in a week. This kind of thing happens every day. Every day. There are third party forces at work, which you are unaware of, attempting to derail your acquisition. If the buyer gets distracted, the opportunity goes away.

But I am here to tell you that this is the truth, nothing but the truth, but a partial truth.

There are things you can do to make the sale of a company more likely.

First, go kill it. If you build a great business, people want that. It needs to be a blend of great proprietary technology and a large and growing customer base/revenue stream. Duh. I assume you are reading this because you don’t have all of that. Sales is easy when you have the perfect product.

Second, there are things I don’t know about. I have sold two companies now, and I know that there were things I did to make the sale more likely, but there are lots of people with bigger exits, more exits, and more experience here. Good lawyers probably have ten things that they would put on this list.

Third, momentum is your friend. People talk about deal heat all the time. If the deal is moving, make sure you move it along. The faster you move, the less time a naysayer has to insert obstacles.

Fourth, ABC, baby! Always be closing. When Greg Yardley founded Flurry and I was still at Aol, every time we had lunch, the running joke was that he would start the lunch by saying, “Just so you know, I have a fiduciary responsibility to let you know that we are for sale.” That is a little, ok maybe a lot, tongue in cheek, but you get the idea. Greg was doing two things right: Networking with potential acquirers and looking for opportunities.

Because here is the other half of that cliche: You never know when a company will suddenly decide they need to buy something in a space. When that happens, you want to make sure you that you broke bread with a player in the organization recently and told them your story. Otherwise you might not get the call.

Here is the bottom line: In every transaction I have been involved in, the buyer knew someone on our team, had a long term relationship (greater than one year) with that person, and was familiar with our business as a result. When they felt like buying, they called us.

And that is how we sold.

Let’s get an awesome comment thread started. Give me your reaction now!

Judging Startups & Judging Startup Weekend

Sunday, April 17th, 2011

Mike Brenner was kind enough to ask me to be a judge at Startup Weekend this weekend. I passed, but I never really told him why. I was talking to an entrepreneur this past week about his ideas and I better articulated my thinking. I thought I would document it here because I think my conclusions have interesting implications for some of Startup Weekend’s participants:

Judging start-ups at an early stage is a bullshit business. Having said that, lots of people do it. But they invariably take a portfolio approach and invest only in areas they feel like they can understand. Because usually they are guess wrong.

Everybody knows it. The best one can really hope for is to understand if the business might be interesting to you.

Josh Kopelman has probably made as many early stage investments as anyone in the country over the last couple of years and he passed on Twitter.

I probably talk to an entrepreneur or two every week, so I hear a fair amount of ideas. Here is the trick: most ideas, your average idea, it is hard for me to tell if it is a good or bad idea. All I can really tell is if it is an idea that I could, if time were invested, come to a conclusion regarding whether it is good or bad. The answer to most of these is no: I can probably never tell if your consumer Internet app is a good idea. I can usually never tell if your enterprise software app is a good idea. In fact, the closest I can probably come is that most online advertising start-ups, given time, I could probably determine if they are good or bad ideas.

Unless they are in the affiliate space. Then I wish I would be able to figure it out, but I probably won’t be able to.

The good news for founders is that most people think most ideas are terrible. That means nothing.

If Ev had taken JoshKopelman’s rejection personally, no more Twitter.

Josh passed on Deconstruct Media, which I subsequently grew and sold!

Josh is a better judge than anyone else that is going to look at your start-up and he is wrong all the time.

The only judgements that matter are the yes’s that lead to people writing checks – and the best kind of checks are customers.

The last place team after 54 hours could easily be the most financially lucrative. Don’t trust outside opinions. Unless they are right!