I’m a fan of trusting your gut. It has served me well over the years. I sometimes have a tendency to overthink things, and the way I overcome decision paralysis is by following my instincts. One of the most challenging times I've done this has been when deciding to sell GroupMe and Fundera.
Selling a company is an incredibly emotional process. The thing you’ve spent years dedicating your life to is going to end up in someone else's hands, and the team you’ve grown to love and build things with has an impending timeline to disband. It's hard for things to feel perfectly right.
With GroupMe, the decision to sell was a relatively easy and organic one. Steve and I never had a successful exit under our belt. The NYC tech ecosystem was just beginning to emerge and $50-100m acquisitions were far and few between and a Big Deal. We were also hemorrhaging money as we covered the cost of every text message sent (not all messaging was done in app) and our growth was bankrupting us. We were also young, the price was life changing, and we knew we had enough energy to build more companies. Skype made a compelling offer and we jumped on it.
People ask me all the time if I regret selling. GroupMe is exponentially more valuable today than it was when we sold. It’s arguably Microsoft’s most compelling mobile asset. But when we were acquired we had something like 1m total users (we had been around for roughly one year) and we weren’t growing as fast as we wanted. I don’t regret it. Of course it would have been nice to have sold for more money, but it was the right thing for all of our constituents: investors, the team, and us individually as founders.
Fundera was a more complex story. We built the business to a profitable $30m annual revenue company with decent ebitda margins while growing 75% a year (and ultimately grew to over $100m in annual revenue with excellent ebitda margins post-acquisition). There were many times when I was absolutely certain that if we kept plugging away we would have built many hundreds of millions of dollars of enterprise value strictly based on the fundamentals of the business. Maybe even a unicorn one day. But we got absolutely wrecked by Covid (all small businesses and smb lending temporarily shut down). We managed to survive and come out the other side in a strong position, but it was a taxing and exhausting experience for the team (as it was for many companies whose businesses were adversely impacted by the pandemic).
Our team was facing what was effectively a total reset, both in market conditions for our industry and our own collective energy as leaders. Did we have it in us to buckle down again for another 5+ years and commit to seeing the business through to its potential? In my gut, I knew my answer was No. I simply didn't want to. It was time to close a chapter and move onto my next adventure, and after a grueling year I no longer has the same fire and passion within. I had a series of hard and honest conversations with the leadership team and it became clear that we were all on the same page. It was time to find a new home.
In some ways I felt like a coward - it is a founder's job to inspire people and see things through. Was this abandoning ship and a dereliction of duty? We always read and are told that whenever we take money from investors we are signing up for what is a decade-plus long commitment. That it’s a roller coaster and it’s on us to have the grit to ride it to the very end, wherever and whenever that may be. After selling groupme I once had a VC tell me he didn’t know if I had the courage to build a great company since we sold so quickly. These stories and interactions compound and create an illusion of the characteristics we are supposed to have and the iconic people we are supposed to emulate.
But fuck that. My take is so long as you always value and treat your team, investors and customers well, you’re okay. And if you can make everyone money along the way all the better. When you know you know. And sometimes it’s just over and you're ready to move on and that’s perfectly okay. No excuses necessary. So when I hear founders say they are ready to sell their company or move on as CEO, there’s no judgment, only support, so long as they’re doing it the right way. No shame in building something while being honest with yourself. Only pride.
In my experience building and selling companies, the time between signing an LOI and closing the deal were some of the most emotionally turbulent moments of my life. It's an extraordinarily stressful period. One of the things Emil Michael taught me early in my career is that time kills all deals, and that you need to diligently compress the time between signing a term sheet and closing as much as humanly possible. One of the reasons is that as more time elapses you increase the likelihood that things can fall apart. In my opinion an equally important reason is that you need to minimize the mental anguish the process imposes on yourself and the team.
Pre-LOI you experience a honeymoon period. You fall in absolute love with your counterpart. Your shared vision is going to take over the world. You'll manifest your mission in a way you never dreamed of before. Teammates you care about deeply are going to make life-changing amounts of money (including yourself and your family). And all of the hard work everyone has put in over the previous years is going to be rewarded.
Then you sign a term sheet and everything changes on a dime. As they always do, incentives explain part of the story. As a seller, you want to make sure you quickly realize the terms in the LOI you happily signed. But as a buyer, you need to make sure you know precisely what you are getting and that you're mitigating any unnecessary risk. Even though both parties want to close, their respective priorities are inherently in conflict with one another. This creates a tremendous amount of emotional volatility. In many instances, things that seem impossibly small and insignificant in retrospect come dangerously close to blowing up a deal. Esoteric indemnity clauses that protect against .001% catastrophic scenarios feel completely insurmountable.
The feelings of love, respect, and excitement that emerge between buyer and seller in the pre-LOI process are promptly thrown to the wayside and things can become an irrational zero-sum game. It becomes difficult to differentiate between what is subjectively desirable versus what is objectively important. Ideally, you have a relationship with the counterparty CEO, but you can't escalate everything because it erodes goodwill and time kills all deals, so you choose your battles wisely (hopefully!) in belief that both sides can compromise along the way.
This is where counsel is important. Normally, your lawyer won't ruin your company unless they are flat-out dumb and do something egregious along the way. But in M&A the difference between good and bad counsel can make or break a deal. I've worked with people I consider to be good, and some I will never work with again. Every deal has its own dynamics, and sometimes outside counsel is not sensitive to your unique context. Sometimes they're sharks, other times they may be trying new techniques and tactics with you unwillingly volunteering as their first case study. Reference the living hell out of whomever you select because the last thing you need is a shitty lawyer derailing something special and driving you crazy. Choose wisely.
If you're not working with a banker, the other counsel you have is your board. Most entrepreneurs are not in tune with the incentives and experience of individual board members. For some, your company may be their first exit and they're super eager to put a point up on the board. For others, your acquisition may be a rounding error for their fund and your process is met with abject indifference. Some board members have been part of countless acquisitions on both sides, and others have done zero. You'll get conflicting advice. Some may say some terms are "off market" and that your counterparts corp dev team are a bunch of idiots. But they might be totally wrong because they don't have enough data points to actually pull from. As much as you may want to treat every board member the same, their respective sets of experience are not all equal. Consult them appropriately and hone in on whose advice actually holds the most credence. If not, conflicting advice across the table can spin you up into a tornado of confusion.
Another source of emotional tranquility or discontent comes from the acquirers corp dev team. I've sat across from people that I trust completely who know exactly how to run a good and fair process. They know what's important and what is bullshit and they'll explain to you why it's important in a respectful and objective way while thoughtfully listening to your reaction. I've also worked with people who are just not good at this role. Once again experience and incentives matter here. If the acquirer is early in their M&A journey, they likely have no idea what they are doing. Their corp dev person is probably junior, or its their first time in the lead seat, and their personal incentive is to make themselves look good. You are their training ground and they don't really care about you or your relationship. They're likely optimizing for making it appear like the company got a good deal and aren't giving much thought to the fact that you will have to constructively work together to make the deal successful over the upcoming years. Being treated disrespectfully by these people will make you downright livid. You will want to lash out but the only thing you can really do is complain to your colleagues. You have to play the shitty hand your dealt to the best of your ability and not let it get to you. I have profound appreciation for great corp dev people after having worked with some not great ones. They are unique in their ability to understand why people feel and react the way they do while not letting their own emotions impact their ability to get things done effectively for all parties.
The source of the most feelings, both overwhelmingly wonderful and not wonderful, is how your teammates react along the way. Some other important advice I got from Emil early on is to keep the circle of who knows about a deal as small as possible. Seldom does anything good happen when word gets around that a company is being bought or sold. The more people that are involved and aware of the process just means more avenues for things to leak. People grow excited. And concerned. The last thing you want is a company were everyone is super excited about an acquisition that subsequently unravels and you're left with a despondent employee base. Morale takes a long time to build, and it can take a day to evaporate. This reality in and of itself is a heavy anchor of stress.
Unless an acquisition is a life changing home-run for everyone involved (it seldom is), people start thinking about themselves. This is totally understandable and appropriate. Teammates spend years of energy investing in your company. They chose to join it and they chose to stay there. An acquisition is something that they do not choose, but you likely want them to continue along for the ride. I've seen a spectrum of reactions ranging from absolute euphoria to people lawyering up and insinuating or threatening to hold up a deal. Emotions run high for everyone involved and people process things their own way. David Weiden once told me that every team gets the jitters at the final yard line, and if you fail to make the play the game always unravels. Some of my strongest emotions in company building have taken place at these junctures. I've been both blown away by selflessness and astounded by selfishness. It's an experience that illuminates who you want to work with forever.
You learn (and feel) a lot at the finish line.
Several years ago I was listening to a podcast where someone mentioned how change happens slowly, and then all at once. The phrase has stuck with me. I looked it up and the quote is attributed to John Green by way of Ernest Hemingway's The Sun Also Rises where he wrote, "Gradually, then suddenly" as an answer to the question, "How did you go bankrupt?"
I think about this concept a lot with regards to how we experience things. Within technology, we are beginning to see how AI is permeating our daily lives in small ways. Search results are changing with Google Bard, auto-complete populates our emails and documents, recommendations about what content to watch or read are surfaced to us in every nook and cranny of the internet, and we are beginning to engage with new chatbots to ask questions, get answers, do work, save time and get inspired. These changes have been happening for a while, but they are beginning to compound and rapidly accelerate, becoming omnipresent in our lives.
It feels something like an exponential curve.
A Midjourney image from the prompt: "A simple graph of an exponential curve with no labels on the x and y axes"
More than ever, it seems we are experiencing this type of change across so many different vectors.
The social networks that defined our digital lives over the early 2000's and 2010's have morphed into algorithmically controlled media channels. It happened slowly, and now it's pervasive.
Adoption of electric vehicles was a slow slog for decades and has now hit an inflection point.
Solar power was a blip on the energy map and now is a leading form of energy production.
The erosion of democratic norms and personal freedoms happened slowly, and now these issues dominate the agendas of state legislatures across the country and the Supreme Court.
The climate crisis went from something some people experienced and talked about to something everyone experiences through widespread floods, heatwaves, and fires.
The list goes on and on, and the pace of change in our world continues to accelerate. These are changes that are hard to recognize in the moment, but are always abundantly clear as they inflect and in retrospect. The thing that's helped me most in navigating these times is practicing mindfulness (I really like the Waking Up app by Sam Harris) and finding the time to slow down and observe things as they are. When it comes to building and changing things, a nice complement to "Gradually, then suddenly" is the Bill Gates quote: "people overestimate what they can do in one year and underestimate what they can do in 10 years." It's hard to change the way things work quickly, but grit pays off in the long run.
