A Founder's Guide to Lean M&A Strategy with Christian Hassold

24:47So you operate at the level of certainty, but being mindful that if you do collect enough of this... Yeah, absolutely. I mean, absolutely. I'm not saying you don't pump the brakes on a deal, but you as a team be in the mindset that you're going to close one of these three deals. And you're going to close the one of three deals that makes the most sense to close. And at the point where you get a loud and blaring sort of a flag from the team that says, the culture is not right. We don't trust this founder or CEO. We don't trust the integrity of these financials, whatever those key red flags are.

25:20You want to surface those things. You want to make sure there's an environment where that can come up. But you also want to make sure that one or two people saying, oh, I don't really know if this fits with our strategy. But let's have a conversation about that. Let's keep moving things along. Okay. So the five stages. Dive deep into the business. This is where you really want to understand what your customers want that you currently don't offer, defensibility in the marketplace. Two, define and battle test the strategy. This is when you're really taking what you developed as a strategy and socializing it.

25:57Quick question on this. When you say socializing and shopping around beyond just the company, who does that include? It's really important to communicate your strategy to as many friendlies as possible. Let me back this up for a second. So communicating the strategy, what is the problem that I'm solving by talking about communicating the strategy? The problem that I'm solving is there's one of me, there are a thousand employees, and there are hundreds, if not thousands of bankers and others who are out there sourcing deals for various parties, your company included. The problem that I'm trying to solve is there's only one of me.

26:34I can only touch so many people in a day. if I can create network effect by effectively communicating what it is we're looking for with banker partners, with other advisors who I consider to be friendly and are not going to use that information in a way that is not in my best interest. I want to be able to communicate that strategy because that is just more people knowing what I'm looking for and bringing opportunities into my funnel. Remember, the funnel is fundamentally a math problem. You can get 100 opportunities into the funnel, but you're only going to be able to action one or two of them that are really going to fit.

27:07And the more that you have coming through your funnel that fit the top of funnel filters, the more you're going to be able to have your choice of the right opportunities. So it's really just using the network around you to get as much opportunities into your funnel that makes sense. So you can action like the optimal opportunities that get down to the bottom. You just want to find the one or two that you can do that you're really excited about. They're a really strong strategic fit. They fit with your strategy. There's a culture fit. There's great financial metrics. It's hard to find those opportunities out of thousands.

27:40So network effect is really what communicate the strategy. So don't be reserved about it. Get that out there. Communicate it. That's your third pillar was communicate the strategy. You had a view of not only doing internally, really getting it out externally, but this also allows you to clarify the market, very clear criteria in the businesses that you're looking for. Yeah. Just thought through and aligned with your strategy. And then four, run the funnel. You mentioned organic, which is doing your own hunting. Inorganic, working with the different intermediaries on the market. But put a lot of effort in your organic efforts for every 100 businesses you look at.

28:18Maybe one or two are actionable. I like that rule of thumb. And then commit to close. It's like approaching this deal with this level of certainty that you're committed to doing the deal. and then the skepticism is something you sort of build as your model. If you collect enough evidence, then you can act on that skepticism or red flags that you identify. One thing as I'm auditing what I'm saying with you here right now is, if I'm another corporate development practitioner or an executive, they're going to say, wow, you said commit to close. He basically is not willing to pull the brakes on a deal, but for a complete red flag.

28:51I want to say something important about run the funnel because we're being super technical here. I always say to my teammates that M &A is a team sport. One of the elements of Run the Funnel that I didn't mention that I should mention here is running the funnel includes having regular stand-ups with your deal team, with your key players, usually your chair or exec chair, your CEO, and a couple of other informants within the business and running them through what are the deals that are in funnel, what is interesting and highlighting to them what you're seeing in the funnel and having questions.

29:26is this interesting? Does this fit? Should we get on a call together with this prospect and talk to them in more depth about what they're doing and make sure that strategic fitment is there? What I don't want to leave out is running the funnel is not just the tactics of sourcing and getting things into the funnel. It is also the process of being highly commutative and highly collaborative with the team around you to make sure that the opportunities are getting to the bottom of the funnel are ones that everyone at the table says, this should be here. So by the time you're getting to the point where I'm saying commit to close, you've all looked at this thing five different ways.

30:00And now you're going into the business diligence portion where you should already have some conviction around this is the right deal to be doing. The order of magnitude of things that should stop the deal dead in its tracks should be dishonesty, fraud, or just plain culture is not fit or something broke down in the strategy that wasn't plainly obvious to you earlier, there's always going to be skeptics of a deal. And healthy skepticism is great. You should have open conversations about things that make you skeptical of deals. But fundamentally, by the time that deal got to that stage, the reasons why you should walk away from a deal process should be things that really are counter to everything that you thought it was by the time it got to that stage.

30:49You know, one of the other things I think about when you use the phrase commit to close is the integration piece. Because a lot of times it gets pushed back where it's, hey, we want to have certainty to close. We want to like really make sure we're going to close and then we'll loop in the integration folks. But I think of approaching a deal when you have that commitment to close, like you're really building in how you can actually hit your deal thesis, how you can integrate the business and bring that into your process with that level of confidence that we're going to close. Actually, I love that you brought that up.

31:24Between run the funnel and commit to close, there's an important point where you should establish a thesis. That's probably another point of clarification, which is there should be a thesis going into the deal when you sign the LOI. Here are the reasons why we believe this is the right thing. Here are the metrics or here are the strategic changes to the business that we believe will be positively impacted if we do this deal. You should always be testing the thesis against the deal as you are running through the process. That's one of the backboards there. And there's probably more chapters in the book as you go through each one of these steps, but certainly you should have a thesis and you should battle test that thesis.

31:59One of the things that I learned by listening to your podcast and one of the things that I learned the hard way by listening to others was post-merger integration should be stood up the moment that you're signing an IOI or an LOI. The PMI team, the team responsible for integration, should have a front row seat on the process the moment that you have agreed to deal terms. Others might say they'll be a part of the process all along the way. And basically, they're in the listening room, but you're intentionally standing up that integration process the minute that you sign that piece of paper. And the reason why you want that team there is they are there to listen in on both the thesis and also to be an audit on culture, to be an audit on how will these things come together practically in the business.

32:46Who will own it post-closing? Who will own these metrics post-closing? And it takes a lot of time to learn that. So this podcast and this discussion is not really about IMO, but I don't want to discount the importance of IMO being a critical part of the team when you get to the point where you identify that that prospect is the one that you want to carry forward and you have deal terms agreed upon. Thanks for clarifying. Can we role play this out? Sure. Of course. Yeah, let's do it. Okay. Here's a scenario and I'm being a little open here. Okay. Yeah. I talked to about 60 growth equity funds in the past year on behalf of Dealroom.

33:24Wow. I think there's two things that I've realized. One is you got to have a strong story about your TAM. That's got to be a big piece. That's the number one thing investors are always skeptical about. You got good growth now, but how long is that going to continue for? I noticed that with Dealroom, it's like, well, today, everybody uses software to sell a business, but very few use software to buy a business. In the future, I see a world where most people are using software to sell a business and most people are using software to buy a business. that's how I view TAM is that it's going to change.

33:57That's one point of something that in terms of organic growth, it's a big emphasis on TAM. And then inorganic was an area that I struggled where in our space, it's not very fragmented. There's only a handful of direct competitors. If you have an opportunity to acquire them, it's a one-off and there's only one or two really viable targets there. And when you're really trying to build a strategy, if you want to work with top-tier equity investor. That's a part of it. They'll help support inorganic growth. That was the thing I struggled with. It's like the adjacencies. I feel like the business at 10 million ARR still needs to develop that core central distribution to make it more compelling to start tacking on other products until we get that, which I felt, hey, probably another 10, get to 20 million ARR, we'd really have that matured.

34:44But when you start to look at adjacencies, you look at FP &A software, because there are things that relate to M &A around consolidating financials. And then you have private equity space, but then you start getting into more of the backend, like fund administration, which whole different customer buyer there. And then you get into the legal side, which we built a lot of competency with document AI extraction. But again, nice, big, attractive space, but a different profile together. It's on the law firm. And it was tough for me to have something that was wholeheartedly confident that this is, To me, it's where the buy side, our mission is to change the way buy side M &A is done end to end.

35:24I'm curious just kind of what you talked about. How would you ground somebody like me to rethink from your business strategy to building the NA? I feel like you're almost to a point when you're doing it backwards. You're just looking for pockets where you could do M &A deals and then tying it to your thesis, which I don't think is the right way to do it. And then it goes back to that. Are you really going to get synergies from doing these deals? And does it wind up at the end of the day? Yeah. The first question that you asked around TAM is a really good one. What is the TAM of buy-side-led transactions in the US in a given year?

35:59Do you know? We try to hone in on organizations that do two or more acquisitions a year. Got it. Because then you can sell them software that makes sense to think of like programmatic M &A. You're going to have an ongoing subscription, reoccurring revenue. If it's an organization, it's like we're doing one deal, then we're not sure when the next deal is going to happen. Very one-off. That's tough for the profiles when you distill it to that segment. Now you start to look at Fortune 2000 companies, probably another Fortune 2000. Let's say 80%. A lot of them still do an organic focus. But I would say 80 % have some form of inorganic.

36:37Then you'd have another Fortune 2000 that are privately held that sort of operate the similar way. And then that's the corporate ecosystem that you're very familiar with. Yes. You got large public strategics and you got feedback rollups. The other segment would be directly the private equity firm, which we have about a dozen private equity firms. We just don't directly go to market. Different buyer behavior. Corporate people go online and they find deal room, start engaging, they're looking for solutions. Private equity, a lot of them come from banking and it's like, they don't look for solutions.

37:08You got to go knock on their door and show them the light, basically. What do highly acquisitive large corporates say to you? I'm sure you've had these conversations. You said a large corporate that's using a competitor's product. What do they say to you? What are the reasons why they say no to deal room product? Why? If they're using a competitor, they would say no. They're settled. It's hard to get changed. if they're using a competitor product. Because if you have a product where you're mapping out your whole entire M &A program into it, it's a lot to move over. And we've done it. This year, we moved about eight, nine accounts from one competitor.

37:44It was so much of a lift. We're talking about 15 hours of internal time between... I think now they're building automation scripts to do it faster, but their product did not make it friendly to export. So there is a little bit of that. You sort of standardize something unless you're truly unhappy with it. It's hard to get that change. Yeah. Being a customer of your product and being a strong believer that Dealroom is a superior platform for running a buy-side process. I definitely think that there is the challenge of entrenchment, which is the other players in the market are deeply entrenched.

38:22It's kind of the better mousetrap issue, which is like, yeah, it's a better mousetrap, but why change? What is the pain that we're experiencing right now? And we could probably go on and deep into customer discovery and understand what that pain is. But every time I look at the Dealroom product, I'm struck by what an easier to use experience it is. And is it possible to capture potential acquirers earlier in their lifecycle so you can cut off the supply to your entrenched competitors? I most compare Dealroom to Monday and Asana. And I think you did a great podcast with Notion, and Notion had talked about using Notion's infrastructure for their M &A process.

39:09I think you're very similar to them. And maybe it's possible that by looking for acquirers that are doing a minimum of two deals a year, you might be limiting opportunity for those who are going through their first acquisition. So thinking about what does it cost for someone to start using Monday Board tomorrow? What does it cost for someone to use Asana tomorrow? You have a way of developing product strategy. So you have an MVP that any acquiring company can use. Because one of the things that I've just been blown away by is the number of startups that are acquiring other startups. A lot of times startups are cost conscious.

39:54If they have to spend a large upfront sum, and to them, it could be$1 ,000,$2 ,000,$3 ,000. If they have to spend an upfront sum using software, that might make them just say, okay, fine, we'll use Google Drive. We'll use spreadsheets. We'll use whatever. But what they don't realize when they're going through that process is just the amount of challenges they're creating by using something that isn't purpose-built for running a buy-side M &A process. So one of the things that might be interesting is to do discovery. I can't give you the answer here, but to do discovery on those small transactions.

40:29And what is the one product wedge that you can land early on those acquisitive startups, on those acquisitive small businesses that is a pain point that you can remove from the M &A process and get that messaging to that buyer. And then by doing that, you will probably also discover adjacent solutions that are those low lift fits. So I think about one of the hard parts of buy side M &A is financial analysis and how much AI is doing to simplify it. So is there a solution for doing financial analysis on whether it's ARR or tech enabled services or What is that kind of entry point solution that you can acquire or that team you can acquire that can get you a product wedge inside of one of those smaller businesses that the large side, the Fortune 2000, might be Red Ocean.

41:24But what is Blue Ocean is all of the smaller deal activity that's taking place in market. So that's the hypothesis that I would have going in. And if I was leading in organic for deal room, I'd actually probably be looking at the lower market because if I can capture open AI during its first one or two transactions and hold on to them as a client because I'm such an irreplaceable solution, I've just caught off the supply or the competitor product. And as they become more acquisitive, I'm going to become bigger and better along with them. How does that strike you? Well, it's got me thinking about hypothesis and what to validate, maybe thesis.

42:01So we have a pipeline solution. We always think of that as the entry point. If you're building a corp dev function, you usually start off by building pipeline. But we are pretty aggressive. It's like 12 ,000 a year. And then that's our entry point. And then you naturally stack on rooms, get the next plan, do all the execution stuff. But when you start thinking and reframing it to market segments, smaller deals, it might not be about the pipeline, actually. It might be, it's our first deal. I remember I had a customer, this was years ago, we had an online flow to go sign up. I was so surprised.

42:33She signed up and spent like$20 ,000. Like never talked to this person. And they literally did a full trade with$20 ,000. And I asked her, and she said, well, I found this template. First acquisition we ever did. But this template, I looked at it because we're going to hire this advisor. But when I saw this template, this is all we need. This kind of lays out everything we need to do this transaction. And it was way cheaper than an advisor. I went and bought the product with this template. that preloads. And that's what I used to my first deal. It's making me actually think about that, where I'm like, that was actually the solution for that first-time transaction.

43:08It wasn't the pipeline. If I get back to the problem that you're trying to solve is you want to capture as much market as possible. Where's the blue ocean? So let's go back to talking about the very active acquirers that are not in plain line of sight, but we know that they're out there. When a startup or an early stage company goes to do M &A, M &A is led by the CEO, the CFO, one of the co-founders. And usually there's a second point person. There's someone who is what I call the walk-on corporate development leader who has never done the work before. What is the IP of your business? The IP may not be the software.

43:47The software may just be an enabler. Your IP is that you have a framework for them to run with. What are the boxes that need to be checked? What are the things that need to happen? And in what sequence do they need to happen? And do I have an easy to follow playbook? You can't get a playbook from your competitors. They just hand you a box with a key on it and say, hand out some passwords and usernames and start dumping materials in there. But what about the process? What about the intellectual property and the pain that goes through running an inefficient buy-side process? So many processes go sideways because you skip steps that you don't know you need to be crossing about what should a shared expectations workshop look like when you've decided that you want to pair up with someone?

44:37What is the right way to go about deciding from both perspectives how you want to run the business once you're together? What are the conversations that you should be having? The intellectual property of the business that you've built? The software is sort of a workflow layer, but the knowledge of actually the process is the value. We need to build a first-time buyer kit. Yeah, something like that. Something that maybe it's a right-sized playbook. I go back to my expertise. My expertise is M &A for companies under 1 ,000 people. Why is that my expertise? It's all I've done. So how can I claim expertise for 10 ,000?

45:14I won't. And when you think about HP, Cisco, Alphabet, Meta, they have corporate development teams and functions that are largely staffed by people who've been doing that kind of work forever. And they have their established systems, their tools, playbooks, or frameworks, whatever they may be, they're already built. So it's hard to penetrate that inertia. But what you can penetrate is going back to my open AI example, Sam Altman. If you can get to his number two or his number three, who is a person who was put in charge of doing M &A and help them do M &A 10 times better than they could because they didn't have a playbook and they hadn't done it before, what did they learn through their first five transactions that they can extend to the next 10 transactions to make M &A much more effective and a creative.

46:01We know that 90 % of M &A fails. If you as a player in the market can be someone who can put the odds in favor of the acquirer, that is a superpower. I like this. This is a good exercise. We validate this by talking to the customers, right? Absolutely. And then it gives us direction. So you have a few different. There's this sort of practice play, maybe the software component. There's things that we always think about too, which is the cost of doing a deal. At the end of the day, you spend a significant amount on diligence between lawyers, consultants, bankers, etc. We always look at how do we chomp away at that with software?

46:38How do we get into that and optimize it and drive efficiency there? I think there's a lot of businesses that are trying to solve that problem. And I think there's a ripe field of inorganic opportunities that with the right financial partner would make a lot of sense, that sort of disruption of the cost of doing a deal. And one other thing that you said that is an important double click is talking to customers. Take care to define your customer, the customer you know today and the customer you desire to have. Be talking to both of them and balance the input from both because the customers you have today, they already love you and they're going to give you feedback on what they need to be more successful and what they need to stay.

47:12But what we're talking about here is the customer that you don't have, that you desire to have. How do you find them and how do you have a conversation with them and get product market fit with that population? And that's something that in strategy gets missed a lot, which is we over-index on the feedback from existing customers or what we know about the business to be true today. Inorganic growth is about frequently getting capabilities or talent that you don't already have in the pursuit of getting customers that you don't know already today. I can 100 % see that. This segment, I want to go after first-time buyers.

47:46Yeah. And then if I go talk to my existing customers, they're the ones more inclined about, hey, I want to reduce the cost of my legal bill. Yeah. First-time buyer has no idea what his legal bill is going to be. Yeah. So you're absolutely right on that. So let's say we go through this and we start getting some validation. Let's do the first-time buyer kit. Somehow I feel like in three, four months from now, you're going to be a co-hosting the buyer kit. Seriously. On the first-time buyer, we validate it that here is an opportunity to really go to this market. once you start going through this and surfacing some validation on your strategy, how it could shape, for example, going up to this market, first-time buyers, how does it evolve into an M &A strategy to support it?

48:30There's the customer discovery, the prospect discovery, and then mapping out what is it the most effective way to solve the gaps or to address the opportunities that are identified. Some may be very cost-effectively and easily solved organically. and some may be best solved inorganically. So let's go back to the deal room example. What can you organically solve? You have the know-how. You have thousands of interviews with thousands of subject matter experts. And now we have the power of AI. You can turn that into a playbook. It's out there on the open internet. You've got thousands of podcasts out there.

49:08So anyone could theoretically do it. But what you have is the know-how of segmenting where those people came from. 10 ,000 person companies, 1 ,000 person companies, just thinking about breaking that apart. So organically, I believe that you have it within you to build that playbook in your business. And now that you've broken deal room and M &A science apart, you basically have the intellectual property in M &A science that can be somehow attached organically to the business. Now, what are the things you can't solve inorganically? It's very expensive to build new software. It's very expensive to hire people to get them to build that software.

49:48Even in an AI era where maybe what used to take a team of 10, you can now do with a team of three. You still have to have the idea. You still have to have a team that really understands the problem that they're solving. And then you need to be able to retain those people and get them excited. Sometimes it's easier to acquire them, especially if they have the subject matter expertise, and they can run very fast at solving the problem in two quarters rather than doing it in six quarters. You know, you got a good point of when it makes sense to organic versus inorganic. That's one thing I noticed in software when I ran Dealroom.

50:22Some of my best deals were licensed deals. You end up licensing some solution that you'd embed in your product, then it becomes a premium feature. And then you want to give them more money because you're making more money. I'm wondering when you mentioned that, like here, we looked at chomping away at the cost of diligence. There's a lot of point solutions popping up the market or going after it. How do you decipher between, hey, these are a little company, we can just go acquire them, or maybe just do a good license deal with them. I guess at that point, they can still license with your competitor.

50:54We could do a license deal, get that technology, and just keep making our solution more competitive that way. This goes back to the lean M &A strategy that we talked about earlier in the podcast. And again, the time that we have, I oversimplified. But one of the ingredients of running the funnel is partner first. If you go after an M &A prospect that you just started to get to know in the past few months, building the trust and building the mutual understanding and building sort of the proof that this will work, it's a higher bar. And that's why deals sometimes take time as the trust building and the getting to know one another and working through obstacles together, you can de-risk that by partnering first.

51:38One of the elements of running the funnel that we're building live here as we talk about this framework is be open to partnering first. And so I think the licensing example is a great example. So what if others have it? The one thing that you should know is that whether you license it on an exclusive basis or not, think about the whole conversation that everyone's having about the NVIDIA chips, whether we should be exporting the NVIDIA chips to China or not. The conversation isn't about whether we're exporting our IP. The conversation is about how soon will they figure it out on their own if we don't let them have it.

52:11They're going to figure it out on their own. They have. In this world, it's the same thing. Intellectual property at one point or another will be disrupted by a competitor. So go ahead and license it on a non-exclusive basis. If it sticks and it works and that relationship becomes very fruitful, you have a natural opportunity to acquire if it makes sense. But you also might identify, look, I can just license other tools in here. We can take a cut of the revenue and share it between us. Sometimes partnerships stay partnerships and that's okay. That's a nuance of these pillars is of running the funnel, which is a part of that funnel is a partner track.

52:46That could be a thing to focus on now, where we are still thinking through what an M &A as a strategy would look like. Think of like where we could just partner in some of these areas that we talked about. Yeah. M &A is incredibly high risk. How do you de-risk it? There are multiple ways to de-risk it. Partnership is definitely one. That is good. What about like when you're trying to buy a competitor and partner with your direct competitor? Do you believe that by acquiring the competitor, you're solving the problem of defensibility or you're just buying time? I would say a younger version of me thought a lot about buying competitors, but I'm less interested in that because I believe what happens in most cases is you erode value along the way by buying a direct competitor.

53:34you should believe that you can build a business through organic and inorganic means that will ultimately eat up the share or outwin the hearts and minds of clients and therefore you can take on the market. Now, I want to be careful about saying I've acquired a competitor in the past. There are pros and cons to acquiring a competitor. But ultimately, if you're just trying to capture market share and get three or four quarters of advantage on other incumbents in the market and your ultimate goal is on a short timeframe to exit the business as a larger ship, then maybe acquiring a competitor is the right thing to do.

54:13But you have to take care in acquiring a competitor because you run the risk that you're just doing more of the same rather than really innovating the business. I look at it as we're participating in a market we anticipate to grow sort of cam expansion. And if we can get in and go from 40%, 60 % in terms of market share, that sort of gives us this stronger position. I'm failing on anti-competitive language here. Some lawyers listen to this shake their head like, man, this is on record. You screwed that one up, Mr. Patel. Yeah, yeah, yeah. I mean, the devil's in the details. Speaking academically and in sort of broad strokes, That's my thinking about acquiring competitors.

54:57But there's definitely a devil in the details. If you have two similar kinds of competitors that for various reasons you think strategically you should come together, one for synergies, and two, because you're very like-minded and you're going after the same thing, maybe that makes sense. I would take care in acquiring competitors because that doesn't always solve the problem. Fair enough. That would be the right circumstance. Okay. We've been talking a lot about my deals. I want to talk about some of your deals. Okay. You told me a really interesting story about... It was like a company that was going to shut down and then you ended up taking it over.

55:33Oh, yeah. It's a great story. This is kind of out in the public venue, but I was running a business between 2007 and 2014 that was essentially a tech-enabled agency that did content optimization for automotive and industrial distributors. We had a licensed product that participants used to get data before Google and a lot of other solutions disrupted that ecosystem. And within that business, I recognized a really interesting pattern, which was the clients I was working with, they generally had 5 ,000 products on their shelf. but they were asking us to build 50 ,000 SKU digital catalogs so their clients could look at those products, get the specifications, and ultimately buy them.

56:20It occurred to me that, well, your warehouse has 5 ,000 of these products, but you want to sell 50 ,000, where are you going to get the other 45 ,000 products from? And they said, well, drop ship them from our upstream supplier or what have you. And I said, well, how will you do that? Well, I don't know. I've got someone who sits at a desk and will punch the orders. I created a business called Order Pision. And Order Pision's sole purpose was to take a catalog and match it with not only your inventory, but your partner's inventory and availability and pricing. And eventually, we built it into an order optimization product.

56:51We bootstrapped this software business inside of an agency. I realized that we needed to fork the two out. And I did. So I successfully sold that business to what is now SPS Software. And the other business I put out on its own as a bootstrap SaaS business. And for a year, we went from a quarter of a million to a half a million to a million in ARR. And we kept running up against this one other competitor, HubLogix. I went to my investor and said, I think we're going to need to raise money because we're going up against this competitor. They've raised$6 million. All of the clients keep saying, you guys should just get together.

57:26You're basically doing the same thing. They have a great user interface. You have great technology. It's really like the pairing of two things. I wrote that off until one day I got a phone call from one of our customers. And they said, Hey, HubLogix is shutting down. They told us we have 30 days to get off of the software. One way to play that game was to just take all those customers and try to onboard them and get them onto our product. But I very quickly realized that the use cases were slightly different and I would have to build a different product in order to service that customer base. So I took the time to talk to the CEO and ultimately the investors, and I gave them a proposition.

58:03The proposition was that my investor and I would acquire Hublogix, but the public-facing way we would make it look is as if Hublogix had acquired us. Really what it was is a merger combination. But what I wanted was their brand, and I wanted their customer base, and I wanted the capabilities that I didn't have. We put those two businesses together over the course of 18 months, cleaned out all the things that weren't working, got all the right customers, and aligned ourselves to a couple of strategics. And one of those strategics was Channel Advisor, and they ultimately acquired that combined business in 2017.

58:37Now, in that sort of short narrative, I make it sound a lot easier than it actually was. But it was one of the ways that I use the superpower of Inorganic to bring two like-minded businesses together to serve a very specific population of customers and to align our product capabilities with the needs of a much larger enterprise to ultimately drive an exit to a public company, which was a very, very proud moment for me. It took a lot of work. It was very hard to do. And I'm grateful for the team that helped me get there. How'd you do it? How'd you make that deal actionable? There are a couple of steps.

59:13The first thing that I want to do is just understand what was going on. The company had laid off a lot of employees and it was based in Atlanta. So the first thing I did was got on a plane and started interviewing the employees. I was interviewing people because I wanted to see if there are any good people to get, but I was also interviewing people for Intel Gathering. What was going on? Why was the business shutting down? What was working? What was not working? Was there dishonesty? Was there a bad product? What was it? And what I found the common denominator was, is the founder of the company was really smart, but hadn't built a business before.

59:43And the investors kept putting operators in there who didn't understand the business and we're running it sideways. The founder was put in not a great position by too much money too fast and trying to grow too quickly and a lot of bad ideas on top of one another and probably a lack of commitment to strategy. It took me about a week to figure that out. And then I immediately started talking to the investors. And what I positioned the investors was, you actually have a great business here. I know it's a great business because I'm running something similar to it. But you have a bit of better of a product strategy than I have.

1:00:13You have a better plan than I have. I want to put those two things together and save you from the pain of having to completely shut this business down. One thing to understand in this scenario is the intrinsic motivations of an investor. It's the calculus that an investor is going to invest in 10 companies and only one or two are going to work out. What they ideally would like is just to soften the blow of a company completely failing and being able to say that there's continuum on this. So if you go and look at the investors of Hublogix, they still proudly talk about Hublogix as a business that was successfully acquired by a public company.

1:00:49Behind the scenes are a little bit messy, but I was able to understand the motivations of the investors and what they ultimately wanted and set aside my personal pride of the business that I'd created to put them out in front so we could both win together. That was really kind of the steps. Talking to the employees, understanding what was happening, talking to the founder, getting to the investors and convincing them that there was a better way. Bear in mind, I had to put capital on the table. I had to put personal and investor capital on the table to make this happen. But it was highly accretive in what we did.

1:01:19Talk to employees, then you kind of understand what's really going on. Talk to the founder, then you got to get the investors on board. Yeah. And he'll probably help you with the key investors or have the influence. Yeah. In this case, it was a small investor pool. Okay. So it didn't take a long time to get to those investors. What was the pitch that got them to go along with it? One, I assume that winding a business down was some costs. And then here, we're going to take over the business and continue. Did you have to pay significant goodwill to do that? There was their expectation. Because for me, there's one deal I'm looking at where they've raised a significant amount of capital, say like$20 million.

1:01:54Yep. And they're realizing they're not going to get the$20. Yeah. It's been a process. Nobody's done anything with it. But at some point, they got to start thinking about winding it down. But teach me, how do you get that delectionable? The first thing that you need to do is you need to set aside the capital they raised. The capital they raised is their problem. It's not your problem. What is it worth? And what are their intrinsic motivations? What is the problem that they want to solve? Most founders, most investors don't want to completely junk a business. If there is some intrinsic value in the business, they want to get some value.

1:02:29Some of the value is monetary. And some of that value is, I just don't want my LPs to see that one of our portfolio companies failed. So what can you give to them that they want beyond trying to recover money that they're not going to get back? So the things that I would be looking at is, okay, they raised this money, but how much cash do they have on balance sheet today? What obligations do they have? What debt obligations do they have? How does that venture capital firm or that investor think about the long-term messaging to their LPs about the success of the businesses that they backed. Sometimes it's just about people.

1:03:04This is about trust relationships. Can you trust me that I've built a great business, Deal Room? I've been successful at building Deal Room. I understand this market and I can be a great home for your team. The things that break down in a business or in a startup are over-investing on things that don't have a good return, whether it's sales and marketing, whether it's engineering or what have you. Those are the things that among many other things that break down, culture breakdown, leadership breakdown. What are the things that are broken in the business? And I think the question you should ask yourself is, what are you getting?

1:03:35What do you value? Are you getting talent? Are you getting tech, software, team? What are the things that you're getting and value those things and just completely set aside the money that they raise because that is someone else's problem for you to solve? What is it worth to you? Okay, you're absolutely right. And then the messaging to the LPs is interesting. I feel like you start getting a delicate conversation. Yeah, of course it is. You're never going to say to the investor, don't you want to look good in front of LPs? That would be a kind of thing that we get thrown out of the room. But what you want to do is say, look, I want to create a success story for you.

1:04:10And I think the success story looks like Dealroom acquires so and such company. And we've come together to create a world class insert your story. I'm going to take the pain of having to wind down a company off of your hands and give it a next great home. And in exchange for doing that, I'm going to give you a little cash, I'm going to give you a lot of stock, and I'm going to get your employees really excited to being part of the next chapter of something. And if you think about those pieces, investors want to be known for a couple of things. Again, back to intrinsic motivations. One, investors want to be founder-friendly.

1:04:43Founders fail all the time. I was just having this conversation the other day with my executive chair, Stephen Power, because I'm constantly fixated on success or failure. Just the intrinsic way that entrepreneurs think is, was I successful or did I fail? You fail every day. Founders fail all the time, but they come back. And they come back in a big way very frequently. No investor wants to be seen as not being founder-friendly. So that's the first thing. The second thing is they want their portfolios to tell a good story about the kinds of businesses that they back. They invest in 10, two will be successful.

1:05:19Some will exit in different ways that may not necessarily be economically accretive to the fund, but you still want to have a great story to tell. The last thing is you want to do right by the people on the team. Can you preserve the careers of the employees? So when they look back and they say, wow, when we were funded by X investor, they took care of us, they did the right thing. That's the calculus that I see a lot of investors follow when they're exploring these kinds of opportunities. And when financial returns are not going to be a part of the calculus. But if you don't want any of the employees?

1:05:53Well, then that's not very good. Yeah. If you think that the team is not a part of it, then I would just go back to what are the things that you value and helping put together a win-win story. That's what I'm wondering. The fallacy is you're going after revenue. It's like this revenue plus our revenue. We cut a bunch of costs. We blow up the EBITDA margins. That's the private equity playbook. That's financial engineering. The private equity playbook. Let's just call it what it is. You don't think that way. There are a lot of people who are really good at financial engineering. You're like a real true strategic I'm not a financial engineer in that way.

1:06:31You're looking for real synergies. I believe in people. I believe in product. It was even a 50-person company. Look, when I acquired Hublogix, I gained two employees that were so phenomenal, so transformative to the business. They created three of them. And along the way, because of my investor relationship, I got a chief product officer, Steve Frechette, who was like magic. And I had been looking for someone like him for so long. I got through that process, that transaction. People, the thing I would flag is financial engineering is financial engineering. I always believe that in a stack of 10 or 20 or 50 people, there are three or four superstars.

1:07:15You should not write off that there are superstars there that can 5x your business and make everything more valuable because you brought them along. The other one I'd have to say is Kelly Martin, who is now... She's so senior at Rhythm, which is now the successor company of Channel Advisor. She saved my life a million times. She replicated a lot of my superpowers and also balanced out some of my weaknesses. You gain through these processes people that really can do magic. So I just say that I believe in the power of great people. And those people are not necessarily on paper super seasoned or super experienced.

1:07:51They're just very passionate. and they are really committed to the mission. How do you differentiate your conversation or relationship with the founder versus the investor when making this deal actionable? Again, it goes back to intrinsic motivation. What is the intrinsic motivation of anybody that you're talking to? A founder and investor have a little bit in common in that you want to save face. No one wants to shut a company down. Is it catastrophic failure? I don't know. If you're a brain surgeon and someone dies on your operating table, that's catastrophic failure. That must feel really terrible, whether it was inevitable or not.

1:08:32A company failing is not catastrophic failure, but most founders, it feels like catastrophic failure. In a way, unless they are sort of written off and don't care, you want to be thinking about and want to understand, is that one of their intrinsic motivations? The next thing that you want to do is get a sense of, are they really committed to keep going? You have to suss out whether that founder is someone that you want to partner with long-term or whether that founder is more of a transitional character in the narrative of the coming together of the business. And if that founder is not going to stick around, I would encourage any inquirer to look at the next two or three people in the business because you do want human continuity.

1:09:16You want that knowledge to exist with the business on an ongoing basis. If you don't, all you're doing is acquiring the customers and the revenue and you're not acquiring any of the people, at least in this kind of a scenario, I raise the flag of who has the institutional knowledge of a customer base and the revenue and how the business works. If the founder is not going to be that person, it needs to be someone else. But you were asking the question about the founder. I just say, focus on what is it they care about the most and what is their level of commitment in the longer term existence of the business.

1:09:50Would you work with them to get influence on the investors? It depends. If they're a component of the deal getting done and you feel like they are honestly working to help you get the deal done, then you should, by all means, partner with them. But if they're not, because you're going to fire them after the deal's done. That's not a card I would advertise, but... Well, wouldn't you want to be honest about that? I think you want to be honest about, ultimately what is their motivation and interest. I think if you don't think that they should be a part of the continuing story and they're not really excited anyway, then your interests kind of align in a roundabout way.

1:10:29If you think that founder is just not a fit and it's not really worth your time to spend time with them, then by all means, skip jump and spend time with the investors. But just remember, founders exercise a lot of control and influence on their business. Now, they could be really bad at what they're doing and they may have alienated their team along the way. You can have to make some airtime calls on that. But I've always found that ultimately founders who started a business, there are some tentacle ties that they have to the business. So you have to proceed very carefully in terms of how you treat them.

1:10:59I just generally believe that you should always endeavor to want to treat people as you would want to be treated. So having an honest conversation about where you have alignment, where you don't have alignment is incredibly important. But you just have to be delicate in terms of how you deal with relationships. That's the intricacies of these conversations. You really got to pay attention for the detail and there's no one size fits all. Yeah. Hey, I know we're hitting close to time here. We only got halfway through our outline. Maybe there'll need to be a part two. I don't know. I was going to say, I'm staging it up.

1:11:30I'll stage up for a part two where we can talk. Because after this role, you got acquired by Channel Advisor, where you stood up the corporate function. Yes, I did. So that's a topic of its own. is how do you stand up a corp dev function? Yep. And then we didn't talk a lot about the whole, how do you actually drive the success post-close and integration, teeing that up, understanding the culture or the shape integration, planning forth. So that could be another topic we tack on. Absolutely. And I mean, again, the framework I ran through in this episode, full disclosure, I was oversimplifying given the time constraints, but there's a lot more details to it.

1:12:06And I would say to anybody who's listening to podcasts and said, wow, commit to close. That's like you're putting on blinders. There's a lot of details to committing to close and maybe committing to close is a whole episode in of itself. Before I let you go, I got to ask, what's the craziest thing you've seen in M &A? Oh, my goodness. I was at the KPMG Tech M &A conference a few weeks ago. And just the size of deals that are happening. So we're here in Boston. Cvent just two days ago announced the acquisition of Goldcast for something like$300 million. That company raised roughly$38 million. The crazy thing to me, the new exit multiple of companies is not ARR, it's the money raised.

1:12:50There are multiple deals that have happened this year in 2025, where the exit price paid, the EV of the business was 10x the money raised, not 10x the ARR. It's wild. I think that this AI craze has created a whole different metric for what is the right EV for an AI company that's breathing life into what are otherwise sleepy businesses. Wow. I know that company. We use their product. I know they found it pretty well. So that's so crazy. Yeah, because I know, too, it's a company that raised it behind time. So that's so fascinating to see valuations. A Series B company exiting for$300 million after four years and raising$38 million.

1:13:38Reportedly, they had somewhere between$12 and$15 million in ARR. So just think about the multiple on that. It's wild. It's wild. That's the world we're in now. And I thought we were going backwards. I thought people wanted to keep it out of tech companies again. The stats are out there. The number of deals is considerably smaller than they have been in the past. But the valuations are much larger. That's what we're seeing in the data. You're giving me some sense of optimism with the tech company I'm involved with. This has been great. I really appreciate you coming down and taking time and helping me become a better M &A scientist.

1:14:11Thank you so much for having me. I really appreciate it. It's great to be on. If you're still listening to this podcast, my true diehard M &A scientists out there, reach out to me. I love hearing from you, especially if you're committed to listen to the content through and through. Let me know what you thought of this interview. Give me some feedback to share with Christian. Let me know if you want it back. you know want to get some indicators i'll bribe him to come back with sushi or steak or something it's not going to be hard and then uh feedback if you got other topic ideas you got some tips for me to improve my interviewing skills here love to hear from you until next time here's to the deal

1:14:58Thank you for taking the time to explore the world of M &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 an M &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, at mascience.com, or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

1:15:43Again, that's mascience.com. Here's to the deal.

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