How to Create a Positive Exit Experience in M&A

23:32So, you know, this comes back in good light. When the interest is top-down, a lot of things can be simplified. If the CXOs and the presidents and the SVPs want to work on this deal and finish it as soon as possible and they have that mandate, people start running like hell. And I think that part is very important. But who's prompting it, them or you? It's us talking to them. It's in mutual interest of both to lose this deal ASAP because you don't want to lose this deal if you're Amex. And we want to complete it as fast as possible so that we are not being dragged. So this is good. As a seller, this is part of your leverage because you haven't signed anything yet.

24:06And you're saying, hey, look, I understand your interest and we got a price. But beyond that, we're looking for a fast and painless deal. Anything else you do to frame that? Because it sounds like that's one of your bartering chips. Give me some assurance that this is going to be fast and painless. Yeah, and the best way to do that is put a deadline. This process ends in so-and-so weeks. And then if it's not ending, you can always get back to one of these top contacts and have a call and you can push it through. Just think of lessons learned of things that somebody, me, one day is going to go through this that I can take as a lesson learned from your experience.

24:37I think the lesson learned is not just for acquisition. I think even when you're raising VC funds, you go through a lot of due diligence. So one thing that I do diligently is manage your whole data bank as you're building the company. I have this folder in Google Drive where I have different folders under it. And all that folder is for due diligence. So whenever we sign any contract with external partner, we just put the contract over there. Whenever we hire any employee, their offer letter goes in one of the folders. So as you're building the company, if you keep managing all these documents in one place, it becomes super easy for you to be ready for due diligence because major part of the due diligence or the pain point of due diligence is getting all the required data in one place.

25:20And if you keep maintaining that, then it becomes easy. Even if you keep maintaining it, I think at some point you will realize that 20 % of the data is missing, but it's still not as frightening and as time-consuming. This is a fair point because that's what bankers do. I did a number of sell-side deals. First thing you do is prep the company and help them organize the data. So if you do that ahead of time, having a Google Drive, we actually have some products that help with that as well. Amazing. We're going to start bartering for our services here. So next time when I'm late on my bill, you'll know why.

25:48So I agree that prep work is really important because that allows you to say, hey, I got you on the diligence. We already have this stuff ready to go. So you're enabling a fast process on your end as a seller. So that makes a lot of sense to make the diligence process smooth. Anything you look back of like, ah, I really screwed that up. And if I were to do my next deal, this is definitely something I wouldn't do again. I think you should definitely have a legal team that you trust. And you know that who can negotiate on your behalf for certain terms that are very legal in nature. A legal counsel who understands your personalities as founders and who might know what you might do in a certain scenario and negotiate on your behalf.

26:24And luckily, we have been working with the same legal counsel across all three startups. This is David from OMM, and they are amazing. He has worked with us for so long that he knows exactly what we might want in certain scenarios, which clauses to accept, which to push back on. And having that chemistry with your legal team also helps you run faster in such scenarios. So my lessons here is negotiate this sort of ease and timing of the process. Get that down with timeframes. Have some prep ahead of time so that you can do a faster diligence process and get great legal counsel. network, figure out who's the best, this type of transaction, and make sure you get them on your team?

27:02Most importantly, keep investing in relationships and building relationships with external companies and folks and partners. How do you do that? Networking. Everyone always gets an opportunity to network. There are a few ways you can do it. Either you make connections at conferences, either you make connections at some of the VIP dinners that are happening, or some of these intimate events that are being managed. There There are panel discussions, etc. The more you are out there, the more relationships you can build. Sometimes these relationships are built when you're raising a round and someone is interested in what you're doing.

27:36So you carve out a small piece for them and let them invest in your round just so that you can be partners. Amex actually invested in one of our rounds to Amex Ventures and that is where our relationship started. And other competitors of Amex were not investors. So they were working with us as partners. When you have relationships that are deeper and more incentivized, it can lead to faster outcomes. The thing I struggle with is I meet so many people. Like any given year, hundreds of people through this channel. And then you end up talking to thousands of people. But how do you keep in touch and build the depth in those relationships?

28:12It has to be outside the conference room. Having dinners and meeting over drinks and coffee is far more meaningful than meeting in offices and conference rooms. because they are just professional interactions. But the moment you start building personal bonds, that is where you build real relationships. And I feel the same about the key people who work at Zeny. Like I spend a lot of my personal time with them in the evenings. Whenever we are at conferences, we spend the evenings together. And as friends, we hang out together in evenings or we go out for lunches. I think those things matter a lot more in building relationships.

28:44And the same applies to even external partners. I always tell my other founders or people that I have invested in that, pick a VC with whom you can have drinks in a bar, with whom you can share some of your personal stuff because that relationship will really enhance your chemistry at the board level. Otherwise, you're just working with someone who is professional and it will be a heartless interaction. And when things are bad, they will blame you. Versus if things are bad, they will want to help you without even you asking for help. So it becomes a very different ballgame. It's true. You need a personal touch to it.

29:14You do that outside of the boardroom. On the exit part, you sold to larger entities. And the big realization I've had from doing a number of these podcasts, it's all about integration. Integration is either make value or destroy value. Yeah. Were you involved with the integration planning process? Oh, yeah, absolutely. Teach me, what were you doing? First of all, depending upon what the company is like, if I take the example of American Express, there were so many stakeholders. We were acquired by the digital labs of American Express, but we had to integrate our technology into the Amex app, which is on iOS and Android.

29:50So the mobile team was very different. Then we wanted to integrate our platform with Amex platform. So their platform team was very different. We had this human angle, like the travel concierge, just like we have finance concierge at Zeni. So we had that team that needed to be integrated with their concierge, which was a whole different ballgame. And then there were different geographies. We had teams in US, we had teams in India. So the India team needed to be integrated with their India teams, US teams with the US teams, etc. And then the business needed to be across all countries. If you as a founder are leading this from the company's side, and if you have top-level support from the Amex side, and if they open all the doors for you at the time, and you go in and you start building relationships, a lot of these things can have positive outcomes.

30:34Good leadership. Yeah, but you have to build those relationships with all key stakeholders. On both sides. Because you have your team. And it's not, hey, you're waiting for Amex or other acquirer to guide the process. You're heavily involved. And there's those relationships, the people on the Amex side that you're really getting involved with. You will need involved. But as long as you, as now the owners of this particular acquisition, you have a deal team from their side and you have all the core execs from the Mezzi side. You are responsible for making this acquisition successful. And you should define goals.

31:07and you should define those goals and you should follow those goals and you should measure where you stand at the end of every month and keep pushing it and know exactly which door needs to be opened to make this whole outcome a success. Who's key on the MX side? Like is there an integration leader there? You will always need one or two high-level people who are championing it who can take actions when you escalate certain things to them that okay, this is blocked for the last 10 days. Can you help me push this forward? So there should be someone and there is typically someone who is owning it.

31:37Their neck is on the line. So you will need such owners. And whenever you hold someone responsible and accountable, whether it's acquisition or not, they start creating magic. You have that person. Is there anybody else? That's basically like a business unit leader. Somebody that's an executive running a business unit. Is there like an integration lead there that's running the schedules, timelines, and coordinating? You will need someone to program manage all the integrations. So we had that particular person as well who was doing it from American Express side. There were too many other leaders for each of those verticals that I mentioned.

32:11But this person who owns it for us, it was Phil Norman, who was the VP at Digital Labs, who did a fantastic job in making sure that whenever there were escalations, whenever we felt something was stuck, he used to push it. And he himself had great relationships with other leaders internally. So that helped. Why do these integrations get screwed up so often? I don't know why and how others screw it. but Is this the engineering part where you get involved and start problem solving and doing stuff like that? I think there might be several reasons that integrations can get screwed up first that you never had a relationship to start with in which case you now have to first build a relationship and then start integrating and if you don't invest in a relationship first you are two people with two different agendas trying to do your own thing their success is not tied to yours your success is not tied to theirs so they focus on their own roadmap you are left in a jungle trying to figure out where to spend the night and it can become very tricky.

33:08But as long as you build those relationships and champion that this is one team trying to achieve this particular integration and we want to make it the best acquisition MX has, then I think people start channeling their energies in that direction and start running in the diet. This sounds like the secret sauce here is building those relationships early because when you hear about a lot of these deals that go south, it's always the integration team got involved too late. Yeah. Which probably means a lot of the thinking considerations for integration planning that happened too late. And the leadership alignment.

33:37Those relationships between different leaderships that are going to make this successful. Leadership alignment is probably the number one thing that you should get. How early are we pre-LOI game planning on what integration is going to look like? Oh, yeah, yeah, yeah. Pre-LOI. How many people are going to have involved between your team and their team actually planning integration? If you really care about how your product is going to roll forward when you're acquired in the next two years, you will need to ask those tough questions. How will the first three months look? How will the first six months look?

34:08Where do you think we will be one year from now, two years from now? What's our goal? What are the key milestones? Then you should be the one who says that, okay, let me talk to this stakeholder. Are they equally excited about this? If not, excite them. We spend so much time just meeting all the business leaders and getting them excited about Zeni. To a point where I think I even spoke at their all hands, which was like, I don't know, 50, 60, 80 ,000 employees. Wow. So you really have to create that excitement internally. That's before signing an LOI. No, this was after the LOI. Okay. How about before?

34:41How many people did you talk to at MX? In our case, I think we were lucky because our pilot with MX meant that we had to integrate with them. So because of that, we already knew what integration teams look like. You have some relationships. Yeah. And then you take those relationships to the next level. What's the worst experience you've had in either exit situation? We did something pretty stupid in our first startup when Dhingana was acquired by RDO. He and Snehal had a discussion with the CEO. We had two products, Dhingana, which was streaming Indian music and RDO, which was streaming Western music.

35:12Because we were going to merge, we wanted to create one product, RDO, that will now replace Dhingana and will be pushed into the Indian market. The CEO asked us, you have your own engineering team running your product. Our engineering team is completely focused on our product. So either we take your engineering team and make them responsible for integrating your product with ours, or we keep running two products. And if we keep running two products, it means that we will spend licensing costs on both sides. We will spend engineering costs on both sides. So we were like, okay, let's shut down Dingana.

35:43And we will basically focus these engineers on RDO. And we will then launch in India as Dingana. And the mistake we did is we just shut down Dingana overnight. What we should have done is we should have kept running Dingana and had a seamless transition from Dingana to RDO or probably getting more advice from more CXOs at RDO and see what we could have done. But I think we just made an abrupt call and it pissed off 10 million users overnight across 100 countries. And it was like the most stupid thing that we did. It wasn't like so directly to the M &A. It was very much the strategy. An integration strategy.

36:18And no one knows that RDO is coming and when it's coming. But this is a good example of how integration can go bad. You know, if you flaw the game pan, that could really make it difficult. Any big lessons learned going through diligence or integration that we haven't talked about in terms of making those successful? Especially the integration part. Let's make the money. Let's create the value. Obviously, there's a lot of leadership involved with it. If you really want to make the acquisition successful, you have to make it your goal for the next year or two years after you're getting acquired or after you're acquired.

36:50If you don't, then whatever you have built will just fizzle out. If you really want to live back a legacy, then you have to spend every single month getting deeper into their ecosystem and make sure that they drive value from your product and your product as a result of that will live longer. And I think that's a real win. What keeps you there? Like what's your incentive? The incentive is to make sure that you live back in legacy. That's the only incentive that you can have. There's no retention plan? There is a retention plan, obviously. And you should have a retention plan in place. We had really good retention plan for all employees for two years.

37:24So it was you and the team. It's like, hey, we're going to get taken care of really well, which is why we're not going to run away from this for the next year or anything. Oh, yeah, absolutely. If you craft a deal where the founders leave after six months, but the team is still there with incentives for two years, I don't think it's going to work. It will only work if you stay with the team. Right. And you make it happen together. So I'm looking at our first acquisition for our company. I'm small and it's in my DNA. I got to do some deals. What should I be mindful of to provide a good experience as a buyer?

37:53And we're talking the corporate development folks listening in and they're interacting with CEOs and founders that have a company they want to buy. What would be advice that you'd give to me? I think like beginning like the right approach of building that relationship. No. I don't want to waste your time either. I want to be candid about it. Maybe there's ways to explore for partnerships. Ultimately, I think there's a good opportunity for both of our companies to combine together. We got a great platform and your service offering would lend well to it and service our audience that's growing and it's much larger, similar to the story you had.

38:22Give me some do's and don'ts. Are you buying or are they selling? I'm on the buy side now, but I want your perspective. No, but do you want to buy them or they want to sell themselves to you? Oh, I want to buy them even though they may not be thinking about selling. So if you want to convince them to buy you, I would say there are a few things that come to mind. One is that you should paint them a future that is more powerful than they can paint for themselves in a shorter amount of time. So that is one. So you have leverage in defining their future. Second is you will unfortunately have to make sure that they get a great deal or at least they perceive it as a great deal.

38:58And hopefully a great deal is something where you feel that you have won and they feel that they have won. And third, it's very important to buy the company if you want to make it successful. You cannot just buy the product or you cannot just buy the people. If you buy the entire company and make sure that they stick together as a company and from your side do whatever you can to make them feel that they are still that one family within your company, I think it will drive a lot of amazing results. Because that chemistry that startup has is one of their secret weapons. They will continue to run faster for you.

39:29We didn't talk a lot about that. where it's like the culture fusion or combination, culture is combining element. How did you think about that? In the last situation, you had a partnership there. But what are your thoughts around that in terms of even going back to my buy side of giving that impression that this is going to be a good thing for your people? How do you sort of get that assurance that there's going to be a good culture fit post-close? The culture fit is something that you should have an idea on pre-close. If you don't have that idea, I think it's a dangerous ballgame. Anything you do, Do you ask specific questions or do you just see?

40:01So you have to spend quality time together. You cannot say that, hey, let's get married and then let's figure out if we are compatible. You have to spend quality time together to figure out if you are compatible, if your thought process matches, if your style matches, if your vision for them and their vision with you is the same. And if that's not happening or that has not already happened, you should spend quality time doing that. Hopefully meet outside the office, meet over dinner. It was over dinner when Amex first told us that they would like to acquire us. And that dinner was at one of our favorite Thai restaurants in Mountain View.

40:33And that became a hit even after acquisition. When MX folks used to travel, they all said that, okay, let's go to that restaurant because that is where it happened. The approach that you have towards that particular team matters a lot. And start building that chemistry and those relations beforehand. Because if you can't do that before acquisition, I doubt if you will spend time after acquisition. What about the parts though of the ways of working in an organization? I'm thinking of like the fable top-down management versus bottoms-up management. Do you get that through those informal conversations?

41:04Or is there more of a formal way of understanding how they truly operate, especially like a big company versus a startup? If you have that authentic relationship with them, they will actually tell you what are the good things and what are the bad things. And then your goal as partners is to maneuver the bad things with their help and then capitalize on the good things so that you can distribute yourself faster. Going back to the timing of these events, for a founder, I feel like there's a right time to sell. Because if you hold on to a business and your growth curve tips over, and all of a sudden you become stagnant, valuation comes down big time.

41:38And so you want to sell while you're in growth. But then I've seen the organizations where they sold pretty early in their growth. And you've watched that thing bubble up, NX, 50X. And you're like, damn, you sold too early. You missed out on that. And then they're doing their next startup and things like that. How do you think about that? Like when is that sweet spot? Because even like the situation, Amex, it's six months, but like, hey, could have held it on longer, kind of grown things more organically and then pushed it out. How do you sort of judge that? The best way to judge that is, can you drive a value today that you might have X years down the line?

42:09So that way you're already capitalizing on the value and the return today for the next few years. And if in those two years, if you have multiplied even more, it's actually a good thing because first of all, you already got a value that is multiple times higher than where you were. So you have amazing returns and you should always be super happy about it. But after that, if it grows even more, that actually speaks to the quality of the product that you have built and the team that you have built because it is actually flying high. And it adds some credit to your kitty as well based on what you want to do later.

42:41If you want to start another company, this acquirer and all these stories will start circulating. It will basically start building a reputation for you, whether it's investors, whether it's team members, every good thing that you do helps and it comes back and returns in multiple settings. There's a network effect. The way you frame it, it sounds like you're willing to take on consideration at any point in time because you already have this vision of where you're taking the company and that anticipation of the growth curve, whether that holds truth or not, but you sort of have a target in mind, what you're striving for.

43:13Based on that, if that consideration offered to you is aligning that you're going to see that return, and you're going to see that. It makes sense because you're going to save a lot of time. You're going to get that realization a lot faster. And then still, there's some incentives for you to be part of some of this growth and things like that. One important rule here is you have to hit when the iron is hot. If the iron is cold and if you're trying to hit it, it's not going to work. So you should sell when you're in an amazing phase in your company and you have built something that is attracting a lot of people.

43:43In a certain amount of time, that phase might pass, but then another phase will come. So you should capitalize on that. Try to do things when something amazing is happening because all those you yourself will carry a certain energy if you know that your company is rocking. If they meet your team members, they will all be in a different spirit when they are talking to a potential acquirer because people keep cross-pollinating. So if everyone feels that they are doing an amazing job, it will show in the way they present themselves and the price will keep going high. Similarly, even from their side, the excitement will keep increasing and that will mean that the multiples that you are getting hopefully will keep increasing.

44:17This is another way you can negotiate. This is really good advice. For that founder, I feel like the challenge with selling a business is it's a once-in-a-lifetime for most people event. And it's a very fragmented thing. You learn through your experience this ecosystem of investors, lawyers, bankers, and people that do that one time. You don't learn that. Given that, what would be the advice you'd give to somebody that's going to go through their first exit? First of all, don't believe that it's once-in-a-lifetime. Just believe that it's an important milestone which will give you a lot more credibility to do something in the future.

44:52I'm so thankful that we sold Dingana because if we didn't sell Dingana, Mezi would not have happened. And Mezi was such a lightning fast journey from zero to hundreds of millions of dollars in cash in 2.5 years. That's unheard of. And that too in the AI space is now the hottest. If we didn't sell Mezi, Zeni wouldn't have happened. And Zeni today is already multiple times bigger than Mezi ever would have been. growth trajectory keeps exploding with every startup that you do. So understand that, understand the network effects of every acquisition. I would say the size doesn't matter. Even a simple acquisition will give you credibility.

45:27It will open more doors than no acquisition. And if you keep repeating it, it's magical the way doors open up and the kind of people that you will start networking with. And it's true, the bigger the acquisitions, the bigger personalities you will interact with, and you will suddenly find that it's easier to make friends who are millionaires and multi-millionaires. So all that is really true. It will be easy for you to enter circles which are highly influential which actually comes back because when you're connected to influential people, they open doors that are close to others and when you go in, walk into those doors, you can create magic for what you're doing in your current startup, for your employees, for your investors, etc.

46:06To give you an example, like when we started Zeni, we raised a$13 million series around zero customers, zero employees, no website. It was all based on the fact that we are starting our third company and the investors who believed in us wanted to be part of that dream. It doesn't matter what the dream is, whether we are going to start a burger shop or whether we want to automate finances using AI, it doesn't really matter. I think that is where your credibility and your hard work for years plays in. Then we were raising our next round series B. It was a$34 million round. We closed did it in 10 days.

46:39We didn't run any process. I had an investor that I had a call with on Friday who said that let's meet on Sunday. I will give you a term sheet on Monday and let's close it. Amazing things can happen no matter the size of the round, whether it's 10 million, 30 million, 40 million. Amazing things can happen if people look at the journey that you have had. People look at the team that you have had and all the core people in our company today have been with us over all three startups. So a lot of our investors even know them personally and all those things help a lot. At the end of the day, team is what helps you execute and execution is what differentiates a winning startup from a losing one.

47:15It's not the ideas, it's not the VC you raise from, it's not even the amount of money you raise from. It all boils down to execution. And execution comes with team dynamics and the bonding between the team. And you will see I keep repeating these bonds and relationships between teams and partners. And that's, I think, the winning mantra. That's the mindset of a serial entrepreneur right there. How about the first time selling to make sure the process goes smooth and the exit successful. What advice you'd give for a first time seller? I think create a checklist and be very structured about it. Create milestones and make sure that you and the acquirer are on the same page.

47:51Take an approach where you have a very important product release. It's make or break. So everyone is working day and night towards it. Just have the same philosophy and you will probably end up getting acquired 2x faster in the, like the process will be 2x faster than, Because once you decide that and once you iterate it and you keep iterating it every single week, even legal people start running. I remember our legal team used to work like 4 a.m. in the morning, 5 a.m. in the morning. It was insane because when they see you are running at 500 miles an hour, they are not going to walk at 10 miles an hour.

48:25They will at least run at 100 miles an hour. And then suddenly things start happening sooner than later. I like that. Being proactive, making that the tone of doing the deal. Yep. When you get an exit and you get a pretty sizable check, what do you actually do with the money? I would recommend you not do anything with it. Just let it sink. I have heard stories where people start doing crazy things. By big toys. Yeah. And end up spending a lot of that money on the wrong thing. So just, I think, let it sink in. So you have it just sitting there in the bank account? How much will you spend? You can do some funky things here and there.

49:00But importantly, I think, ground yourself. Don't lose, if you're a humble person, hopefully don't lose that side of you. Try to surround yourself with friends and family members who will help you ground as well. Give yourself enough time before you start making big ticket item decisions. What was the biggest thing you bought? I bought many things. I bought this watch because this psychologically reminds me of MX acquisition. And I think this was important for me. You don't have a Lamborghini in the garage? I bought a Lamborghini, but I don't think it was after the acquisition. It was, I think, three years ago.

49:35Oh, wow. I think I bought it when I was at Zenni. Then we moved to Los Altos from Sunnyvale. So that was a big change. No, yeah. No boats, no flying things. I need to keep something around on my checklist after the Zenni journey is over to Senni. Awesome. That's cool. I have to borrow the Lambo so I can get out of my system. Oh yeah, next time we'll go for a ride. Stay humble here. What's the craziest thing you've seen in M &A? A lot of things happen over the weekend. I believe that the most amazing things at startups happen over the weekend, whether it's hiring, whether it's firing, whether it's acquisitions, most of it happens outside the conference room over breakfast, over lunches, over drinks.

50:19So you pick up meetings on the weekends? Oh yeah, all the time. I have a crazy story actually. You might have met Megan, our VP of sales. So we were introduced to her on a Friday morning. And the introduction came like this from one of our investors. And they said that, hey, just introducing Megan. She already has four offers. She's joining a new company on Monday. Why don't you just exchange notes? And I met her. I loved her on the first call. I was like, this is the kind of revenue leader I want. Then I immediately scheduled a call with my co-founder Snehal. I immediately called my board member and I was like, you have to talk to her today.

50:53and then four or five calls happened in three to four hours. And then I get on a call with her in the evening and I was like, Megan, you should come over to Palo Alto to meet us in person. And then she flew down on a Sunday. We had lunch on Sunday at Itan. Post that, we went for drinks at Nola's here in Palo Alto. And we shook hands. She flew back home. She signed the offer letter that day and on Monday, she joined us. Imagine, she was ready to join a company on Monday. So anything can happen and weekends are the most powerful two days in a startup's life and a lot of magic can happen during them.

51:27So never shut them off. In fact, do all the amazing quality networking you can and explorations you can over the weekend because there is another advantage to it. You don't have a lot of other busy things going on in your mind. You are at peace. So if you have one thing to focus on, you will put 500 % of your energy behind that. Do those strategic things over the weekend. I've been told I'm a disease workaholic and I don't think the apple falls far from the tree here. I appreciate this time. This has been very helpful. You've helped me become a better M &A scientist. See ya. Bye-bye. Thanks for having me here.

51:59Those of you still with us, thank you for sticking through. I hope you got some good insights out of this conversation. Until next time, here's to the deal.

52:18Thank 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.

53:03Again, that's mascience.com. Here's to the deal.

53:17Views and opinions expressed on M &A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is