Execution Insights in M&A

20:43He brings a lot of empathy and thoughtfulness sitting on the other side. And so he's our best closer. What the biggest learning that I've had in terms of working with Henry is when to deploy him. You need to deploy your CEO very early on in the process and very late on in the process. The middle is where you actually want CorpDev and the deal team to own more of the process. Part of the strategy is having your CEO being able to come in and be a little bit more friendly and having a friendlier relationship with the other founder. I don't want Henry negotiating reps and warranties with the founder.

21:14That's not a position that one, is a good use of Henry's time, or two, creates a good experience with the other founder. Leave that to the deal team. And so I try to involve Henry up at front when they're talking about strategy. How does it make sense to put these two companies together? What does their working relationship look like? And then at the very end, if there are one or two really key items that we need to nail out with the other founder, that's where we can have Henry come in, close, make the ultimate judgment call. That makes a lot of sense. Beginning of the end, there's two spots, first impression and let's get the deal done.

21:44Exactly. And then it sounds like there's a good rationale why you want to keep him out of the middle because you want in the nuts and bolts and be a little bit too hands on. Totally. And it's also not a good use of his time. That's what the CorpDev team is here for. If he wanted to negotiate every rep and warranty, then I wouldn't have a job here. What would be your advice to other corp dev folks, people in your role, in terms of working collaboratively with the CEO? What's the key things you really want to be on top of? How do you really make that relationship work well? It's entirely dependent on the CEO.

22:10With Henry, the things that he really cares about and that he really enjoys working with corp dev is, one, he wants to talk to interesting companies. So I always try to put a couple of companies on his radar every quarter, every month, and just try to schedule good meetings for him where he can learn other industries and learn other businesses that exist either very much outside or adjacent to Carta. Whether we're going to acquire those businesses or not, just expanding his aperture and expanding his learning, that's what he uses CorpDev for. That's step one. And in terms of pitfalls that I really try to avoid or things I really try to be cognizant of is, again, it's the founder CEO mindshare.

22:45And so one of the things that Henry has always told me that he really cares about is the founders have to have a good experience when they're going through Carta M &A. Whether it's through fundraising, whether it's working through potential partners, a lot of founder CEOs have had bad experience with corp dev teams or with investors or you name it, basically running deals with folks. Always having a good founder NPS going through M &A, always being transparent, always being cognizant of whether we're wasting people's time, if it's not going to be a realistic deal, just calling it like it is, always being honest and thoughtful about things.

23:15That's something that Henry really cares about. And so that's an advice that I would give to other people, especially if you're working for a founder CEO. Having a high founder NPS on the other side of the deal, I think is really important. Keep a healthy pipeline. Get the CEO in front of other CEOs. If you're pushing a deal forward, create a good people experience for that CEO, founder. Regardless of whether the deal goes through or not. Obviously, you especially want the founder experience to be positive if a deal goes through. But even if a deal doesn't go through, you still want people saying, hey, at least they acted with integrity.

23:45They were honest about their intentions. And I still had a good experience going through there. Most deals aren't going to go through. But you still want founders on the other side. Our business is dealing with founders and working with founders. We have to put that at the forefront of all of our interactions with folks. International deals. Yeah. I was told that you know how to do them. Late nights and early mornings is usually step one and step two of those. We've had the pleasure of doing two deals in the UK at this point. We've done one in Canada, one in Australia, and one in India. So we've been all over the place.

24:13And obviously, we've looked at a number of deals outside of there. It's definitely been a learning experience across the board. What can I tell you about it? Do you pick up any interesting cultural stereotypes? No interesting cultural stereotypes, but it is interesting in terms of just like generally how companies will do M &A there. Even just learning the different provider ecosystem, finding a good M &A law firm counterpart in Australia or finding it in India. So much of that helps facilitate a good deal experience that we've had a lot of learnings kind of like on the ground there. When it comes to executing international, what were these like big lessons learned from it?

24:44Especially just thinking first deal, second deal. What are like the fundamentals of doing deals internationally, the challenges that surprise you? Yeah. And then how does it get nuanced country by country? Broad strokes doing international deals, the biggest thing is figuring out what the operating cadence looks like with the companies. Are you going to leave them a little bit more standalone? Do they function as more of a GM model? Figuring out the org structure and figuring out the operating cadence with the mothership is really important. Then figuring out cross-pollination with the internal Carta teams has been really helpful for us as well.

25:13What we did successfully with a couple of UK acquisitions is we had a couple of their people. Everyone's under the same roof now, but a couple of the folks from the acquired teams come work in the US offices, whether that's San Francisco or New York. And then we actually sent a good number of our US people out there to basically do stints in London. And that's kind of like to bring a little bit more CARTA best practices, bring a little bit more CARTA culture, and start to do a little bit more of that cross-pollination so that they don't feel like they're literally and figuratively on an island.

25:40That's been, from a cultural perspective, really important for us is figuring out those operating cadences, figuring out those operating models, figuring out, okay, do we have an exec that's going out once a quarter at least or once a month to go visit the teams there? Are we making sure that we're showing up for basically the teams that we acquired there? It's a big time commitment. I mean, it's a big organizational commitment to live and breathe in a different geography. And so it's really just aligning all the executives in terms of saying, Hey, this is going to be not something that you just do during the deal.

26:07This is going to be something that you have to live and breathe and learn. And we have to commit to sending people out there. We have to commit to doing specific product requirements for international geographies. That's just part of the pain and the opportunity of becoming a really global company. But we think that if we're able to do this successfully, doing this is hard and it's spawned a lot of really fantastic businesses. Deal is probably the paramount there of someone who's really been able to learn these international nuances and create a really massive business on top of it. And we think we have an equally sizable opportunity to do so.

26:37People experience is your big focus. Yeah. The tax, other stuff, you kind of leave that to the experts. Yeah, definitely leave that to the experts. We have a fantastic finance and legal team who work with a lot of our partners down there to figure out from an operational perspective, what will it take to kind of like set things up there. There are some geographies that are easier to do this in than others. UK, for example, is a lot easier to do this in than India. India brings a lot of challenges from kind of like local regulatory perspective in terms of just compliance, tax, things like that.

27:07We definitely underestimated the amount of kind of legwork it would take to build out a presence there. whereas the UK, we've been able to do that pretty efficiently and pretty effectively. All right. So I want to go back to people experience. Let's click into that. But let's step back international and get national first. Okay. I want to get a sense of what does that mean to create a good people experience? It's interesting that what I picked up on is it starts with just the CEO of the company. Yeah. You emphasize it. So maybe we can start there. What are you doing early in the deal process to create a good people experience for the incoming CEO and executives?

27:39And then how How does that continue and expands? How you structure the people engagement is probably a little bit dependent on the size of the company. And that's what we've learned. And it's something that we'll have to continue tweaking with, especially as we potentially look at acquiring larger companies. What's worked well for us in the past is again, forming that strong CEO to CEO relationship. That's definitely paramount. If Henry isn't going to sponsor the deal, if it's going to be our chief product officer or our chief strategy officer that's going to sponsor the deal internally, making sure that you have strong sponsor to CEO relationships as well.

28:08We've done that across the board pretty well here. And then as the deal progresses, obviously, more leaders from their side are going to get looped into the deal. So the broader executive team will get looped in. Then it's upon us to really bring the full force of Carta and make sure that we're forming relationships across all those individual touchpoints. Our go-to-market people are forming good relationships with their go-to-market execs and really making sure that we have strong relationships across their entire organization. And once we feel like we've done a good job of that across the executive team, then it's typically how we've done this in the past is once we've gone into exclusivity and we've become close to signing a deal, then it's really about getting the whole team at the acquired company excited about joining Carta.

28:47And so that's where Henry will typically fly out, give a full strategy presentation on here's who Carta is, give them a full look into our financials. Here's how the business is performing. Here's why we're excited about our business. Here's why we're excited about the prospect of our two businesses joining together. Here's what it looks like. Actually fully explaining the integration thesis to them as well in terms of like, here's where you guys will sit in an org. Here's how we're going to be measuring success for you guys. A lot of times when you're an acquired company, you just don't know, hey, how do I fit into this broader organization?

29:15What does this mean for my job? What does this mean for my team? What does this mean for our product? Trying to answer as many of those questions up front as possible is something that we've tried to do. This is during confirmatory diligence. We usually try to get it as close to the end of confirmatory due diligence as possible. but there have been some situations where we've actually done this before closing the deal. But it's usually for smaller companies. There's no way that we would do this for like 100 % plus company. If it's a smaller company and the team is a little bit more tight knit, it's typically been incumbent on the acquired founders to feel like, hey, we want to expose more of our team to this.

29:47So it's typically at the point where we've basically signed the deal, we're about to close, let's loop the broader team in, let's make them feel like, hey, this is going to close, you guys should be excited about this for X, Y, and Z reasons. The magic is transparency. Yeah. I'm very transparent. Yep. I frame this as reverse diligence. Yeah. That you're actually briefing this incoming company on your organization, the integration thesis, everything. It's been really important for us. I think the acquired teams appreciate it. It makes them feel like they're part of Carta even before the deal closes.

30:17And again, it's not something that we're going to be able to do with every deal, especially I'd imagine for most of the deals that we do going forward, This will be something that happens immediately post deal close. But the good thing is that we have the playbooks in place in terms of what does Henry want to talk about? What breakouts do we want to be doing? We typically bring a lot of cultural leaders to the company as well and have people talk about what does it mean to work at Carta? What does go-to-market look like at Carta? What does product look like at Carta? And really trying to make sure that people feel like they understand the business that they're joining.

30:44They understand the company that they're joining and they're understanding the people that they're going to be working with. That's what's really important at the end of the day. Exposing them to the culture. Yeah. Just as well as part of it. This seems like a good approach. Tell me the dirt, man. Tell me the bad. I want to know why this doesn't work and where people lose their shit during these deals. Where people frankly lose their shit. And I think it always comes down to do you have the right alignment with the executive team? Usually it's the product vision. It's trying to balance the vision that the company has as a standalone company versus what is required to create a really strong integration with Carta.

31:18That's usually where we see the biggest friction points with acquired founders is, hey, they have a standalone roadmap that they're excited to go execute against. And in many situations, not all, we're having to pivot that to focus on how do we create a really strong integration experience with Carter so that the customer doesn't feel like you're interacting with two different products or two different platforms, you're interacting with one. How do you counterbalance the desires of the standalone acquiree versus the vision and the overall product desires of the acquirer? That's always where the biggest friction point is.

31:49Yeah, I can see that. Even though you spent effort early in the deal, where before you signed it, wouldn't you have flushed a good amount of that out? Totally. You would think. We've been in situations, and I've talked to other M &A practitioners who do this too. You can have the best strategy out there, and you can say all the right things. But then all of a sudden, when it comes to brass tacks, and a founder has to not necessarily kill their baby, but pivot their roadmap in a pretty material way, sometimes that's really difficult to do. And you never know for sure. We've done a good job of it on the whole.

32:16But yeah, there are situations where he probably could maybe be doing a little bit of extra expectation setting or the founders don't necessarily fully appreciate or frankly, we might not even fully appreciate how much of an integration lifter is going to be. So again, that's where it's really important to do the upfront scoping. Usually it's expectation setting on both sides and it's, hey, are we working towards the same thing? Do we want to work towards the same thing? That's the biggest thing at the end of the day. People are the biggest challenges in these deals. Totally. People make the companies.

32:43You have to have strong alignment across the board. So now we get back to doing international and a bunch of time zone differences. Got sometimes language, cultural understanding differences, laws and regulation differences. What becomes the challenge when it comes to that maintaining that similar people experience? Because it's just you're operating in a different world. What could go wrong? It's difficult across the board, honestly. Not only are you trying to bring a different cultural standard to the company or finding the right cultural balance. It's like how much of the acquired company practices and culture do you want to keep versus like how much do you want to try to integrate with the overall Carta culture?

33:20That's always like the magic behind these things is how do you maintain often the velocity and the speed at which smaller teams operate versus bringing more of like the kind of cultural umbrella of Carta to the company. That's even harder to do in international deals where Carta might not even have as much of a brand in international markets where it's really hard to create a consistent employee experience if we don't have people that are if you're not like bringing people into the same office. So again, that's why it's really important to make sure that you have that cross pollination that you have a strong operating cadence of people that are going out and visiting the offices and like being on the ground with those teams, seeing how they're operating and getting just ultimately a pulse check because the hardest thing is just they're left on an island and you just don't know you don't have a good sense of how things are operating on the ground there.

34:04It's the visibility piece that is the hardest. Do you send people there? We typically do. Yeah. You send people there specifically for that, there's two parts. There's the people that you send out. One, how do you convince somebody to go leave home and go to a whole nother country? How do you pitch that mission? Sometimes it's a little bit easier than other times. We're lucky in that you're working at a high growth tech company. You have a lot of people who are ambitious and see it as a good career opportunity. If you're an employee at the Carta Mothership, it's, hey, I have an opportunity to go work with this acquired company that we've spent money on, that we have commitment to, but needs a little bit of injection of Carta culture, it's a really good opportunity for someone inside of Carta to take on a little bit more of a leadership role there and grow their career a little bit.

34:45So we've had good success with sending people that are mid in their careers, but are really strong Carta culture carriers and sending them to those offices. And it doesn't sometimes take a lot to convince people to move to London for a year. That's something I thought about too, to be honest with you. There are lots of really interesting opportunities from that perspective. Go ahead and try to convince me to go to India for a year. I'm just kidding. I'm kidding, my Indian listeners, I love you. There's sort of the cross-pollination of actual people, that culture, you report back out. When you think about culture, the way you described it, you push into different elements.

35:15Does that come out to be like a matrix that you evaluate? Here's culture, here's what we don't want to change, here's what we change. We break it down into a couple of different things in terms of what's the org structure of the acquired company, what are reporting and operating cadences, how often are they meeting, how do they like to get work done, are they a Slack culture? Are they a meetings culture? Are they a Notion documentation culture? All these different things we try to get a little bit of a pulse on and figure out, okay, how much of this is critical to the DNA and operating of the company that we can't change?

35:45I'll tell you one thing. One of the companies that we acquired in the UK loves documenting everything via Notion. They're big Notion users, document everything there, try to limit as many meetings as possible. Whereas Carta skews a little bit more on a meeting-heavy culture. It's like, how do you bridge those two things together. And ultimately, we're like, you guys keep operating the way that you guys need to internally. You guys are going to have probably a couple more meetings on your calendar as you're dealing with the larger card of mothership. But we're going to try to preserve as much of your core notion-heavy culture as possible.

36:16Good way to do it. Yeah. More transparency. Yeah. The card of values. How hard do you push your values when you acquire a company? What do you mean by push our values? I feel like it varies. You have some companies where it's more about getting them like operationally integrated. Yeah. And then there's others where it's actually more about the culture side of, hey, here's our big values. And we really like, they put like leadership coaching in there and that really gets all that leadership around these values and redirects or re-evangelizes it. That's part of their strategy. Is that something that you guys think about?

36:53I'd say it's usually not something that we necessarily try to push, but it's more of something that we diligence. We think that the company and the acquired team overall fit our values. In our successful deals, I've seen Henry go in, walk through the office, and he says, Oh, wow, this looks like Carta when we were a Series A or a Series B company. And usually that's a pretty good indicator that, hey, there might be a pretty good cultural fit there. If the founder CEO kind of goes through and says, yeah, I can see them being a good fit. That's where it's frankly really helpful to have Henry there.

37:19Yeah, see if they jive well. Totally. In terms of the strategy of expanding internationally, how do you think through that? Is it map out the world and say, all right, we should go to the UK? It really is like a mapping of the world. And part of it's figuring out where venture dollars are going to. You look at where a majority of venture dollars have gone to outside of the US and outside of China over the past couple of years. It's really been India, Europe, and Australia that have received the most venture interest. And before doing those acquisitions, we didn't have as much of a presence in those geographies.

37:48And so now we do. So for us, it was just like, how are we creating a global company? is taking a step back and realizing, hey, is the industry that you're in necessitate a global footprint? And we are firm believers that venture at scale is a global industry and a global business. There are great companies that get formed in every country across the world. We believe that if we're going to ultimately be the map of where capital goes to and the ultimate capital map in kind of the entire venture ecosystem, we need to be in each of those geographies and have a part in each of those major companies.

38:16Spending a lot of time in international flights? During those deals, yes. There was one year where I did two flights to Australia and six to Europe. So it was a busy year. Brutal. Yeah. But it was fun. I mean, these are like early deals. Like you got good conversations going and now you want to just do the meet and greet. Stuff to do. Stuff to do. I literally did 36 hours in Sydney just to put a little bit of time pressure to sign a term sheet. So my chief strategy officer and I flew out at the time and we basically said, okay, we're going to do 36 hours. It was on my birthday actually. Flew out there.

38:44We said, we're going to spend 36 hours there. We're going to try to get them to sign the term sheet. put some pressure on them and basically say, hey, we're flying out to Australia to do this. And if we leave without a term sheet, we don't really know where the deal is. And so thankfully, we got the deal signed there. But you have to figure out how to do things like that. And it can sometimes work to your advantage where you're putting a little bit of artificial time pressure on things just because you have such limited face-to-face time together. So you can kind of work in your advantage from a deal perspective.

39:09But yeah, it definitely is a little exhausting. That's a lot. Yeah. Any other tips, advice on sort of moving from domestic to international? Have great partners on the ground there. It's the biggest thing. Making sure you have good partners on the ground from like a law firm and a tax perspective that can help you navigate these things. That was the biggest thing for us. I'm going to read on that because it does like fundamentally apply. Like you got to have a good attorney. Totally. Period. But internationally, it's different building the relationships. It is. Like here, it's pretty easy. I can go ask you for some referrals for an attorney.

39:41Boom. Yeah. But if you go in a specific segment and do a deal with Germany, I don't know. How do you approach finding those partners? Usually from our council in the US, they'll have partner networks because part of what can make global M &A a little bit difficult is sometimes you need to use two sets of councils. For a lot of our deals, we had to have our US council opine on things, but then we also had like a UK or an Indian council that opined on the more country-specific parts of the deal as well. So you have to figure out what the division of labor is between the different councils. That's where it's really helpful to have people that you know and trust on the ground there and people that are competent and can work well with your network of partners in the US.

40:15Sounds like the right way to do it. any other big gotchas? It's really figuring out the cultural and operating cadence piece of it. That's the hardest piece of it. And going into it, you always underestimate how much, not work it's going to be, but how much it does change the DNA of the company. Hey, you want to do an all-hands at 3 or 4 o 'clock Pacific? Okay, then you're shutting out a lot of the world from that perspective. You need to think about how are you changing the fabric of your operating cadences, communications as a company to facilitate more of an international presence. There's really a lot more of just looking broadly at operating the company, how that's going to get modified as you bring international team members.

40:51Yeah, it becomes less about how do you do international M &A, but it's more about like, how do you become an international company? That's what it really comes down to at the end of the day. Before we wrap up, I want to ask you about negotiating deals. Yeah. I talked to Henry about like this bid-ass spread and this market, everybody's got, I got high valuation expectations. Totally. So I was kind of like venturing with it. This is what I'm thinking. Yeah. I'm curious, like you sort of click in, you're running a lot of the execution stuff. Love to hear your thoughts And how do you balance that?

41:15And I'm just kind of wondering, what are the levers that you're looking at in being able to negotiate that deal? It's difficult, right? I mean, we're in a pretty much a pretty consistently changing valuation environment. Obviously, you saw what happened in the stock market yesterday. Yeah. So valuations can change on a dime pretty significantly. So one meme could change the whole market. You never know. At the end of the day, I think that's one why you have to have a pretty consistent view on valuation of, not even valuation, but of like strategy and what you ultimately think that you can do with the company internally.

41:43You need to have a really strong synergies case, pro forma model in terms of what you think you're going to be able to do internally with it. And then in terms of the different tools that you have, you have price, you have consideration mix, you have founder retention bonuses. You can play around with so many of these different things. At the end of the day, what you really need in order to structure a good deal is you need to know what everyone is solving for. So you need to know where the founders are at. But that's where I utilize Henry in terms of trying to really get a sense of, okay, such an emotional, intimate experience for a founder to think about selling their company.

42:14Why are they engaging in the conversation? What do they want out of a potential transaction? What are they optimizing for? That's so much more personal and it's often something that Henry does one-on-one with the founder because it's such an intimate and personal experience. Also, what is the board solving for? A lot of the deals that we did early on, we didn't necessarily engage the board until the actual transaction. Now, for a lot of the bigger deals that we're trying to do, it's how are you engaging the board six months or a year before a transaction even happens? Knowing, okay, where are they in their fund lifecycle?

42:41What are they trying to optimize for? Understanding what are the different perspectives and what are the different incentives around the table of a deal that you're in really gives you a better insight in terms of, okay, how can I structure a deal that hits the check marks of as many people around the table as possible, or at least the important people around the table? Yeah, it goes back to like digging into the real underpinning drivers for people, which is different for the different stakeholders. In many cases, you will have competing priorities. And so it's figuring out how do you balance those.

43:11What's like the variation? I know I talked about the vision for the founder of where he wants to take the company. A lot of it's like product distribution. You create an awesome solution. You want to get it activated and get market share. Boom, that's one big vision. What are other things that really are these non-pure price-oriented factors you want to get aligned on? Come back to culture. Besides product distribution from the founder, oftentimes it's, Hey, if I have a 50 or 100 person or even a larger company, it's, am I putting my employees in a good home and a good situation? As much as we need to understand the culture of the company, it's equally as important for the founder and the executive team of the acquired company to understand who we are as a company.

43:48And also to have a good brand as a corporate acquirer that, hey, we're going to take care of the company and people and the product that you built. I don't want to sound like a broken record, but it comes back to transparency. So what are you doing with the product? What are you doing with the company? What are you doing with the people? Making sure that you're crystal clear aligned on that and that they have the trust that you're actually going to go execute on that. That's really important for the founders at the end of the day. Underlying drivers and then the cultural match. Yeah. Where you create that transparency, you really understand if there's a good fit that gets people excited about combining the companies.

44:17Totally. What's the craziest thing you've seen in M &A? The craziest thing I've seen in M &A, I've seen international deals. It was actually a deal that we didn't do, but the counterparty was using a law firm that primarily only did dental family law. You can imagine their surprise when they got a 60-page SPA from our council here in the US. That was pretty crazy. I've seen crazy deal structures all over the place. That was the first thing that came to mind when you were asking me about good partners in other ecosystems and other geographies. Having good counterparty counsel as well is equally important.

44:49Davis, I got to give it to you. We didn't do any prep. I didn't get a chance to meet with you. I did that with Henry. I got to chat with him for a little bit. We didn't do any prep. I think he did pretty damn. You didn't even look at the outline. We made up an outline. I didn't even look at it. This is a pure riff. He did a great job. Oh, thanks, man. I appreciate it. That's been awesome, man. It was super fun. I mean, it's been doing this for five years now. And sometimes you kind of forget how much you've learned and all the different little nuances that you kind of experienced going through these deals.

45:16It's been a really fun journey. It's not something that I take lightly. It's been really fun and a really enjoyable thing to do here at Carta. And so it's great to talk about. This has been an awesome conversation. Yeah. Thank you for helping me become a better M &A scientist today. Those of you still listening, fellow M &A scientists, I want to thank you. Love to hear your feedback. Tell me how I can get better at doing this. Reach out to me on LinkedIn. Until next time, here's to the deal.

45:53Thank 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.

46:38Again, that's mascience.com. Here's to the deal. Thank you.