Strategic Perspectives on M&A

23:03In this example, hypothetical example, you're growing 20 to 40%. So your growth rate is captured in that multiple. And so you don't get forward credit. If you were growing 100%, the comps don't make sense because all of these are growing 20 to 40%. And then we'd have to do a different model. We'd have to do an NTM model or kind of forecast it three to five years out, like all this kind of stuff. In your case, you can just see the math in this example. And let's say if you take the median quartile or something, you're 6x. And in that example, you're 6x times 5, so you're 30 million. And so what I'll say is any third party would value you this way.

23:38You can argue over which the comps are. You'd take median, quartile, top quartile, but that moves it from 6x to 7x or 6.8x, something like that. They'll move you to 10x times 10 million. So you're somewhere in that$30 to$40 million range, no matter who does it. We can show the comp set. All we're doing is tweaking around the edges. The valuation is set. What's different is once you set the kind of scientific valuation, the art comes into, do we pay a premium for you? Because one, scarcity value. Let's say you're the only asset in the space. You should push back and say, Carta, the math says 6.5x, but we're the only asset in the space.

24:16So you should pay a premium off that. Another version is I might say the math says 6.5x, but I should actually pay you less because all these comps are at scale. They're growing 20 % at a billion in revenue. You're growing 20 % at 5 million. So it's not comparable either. So I can push it down. But everything then becomes a conversation around the fair value is 6.5x. And then we talk about why you'd move it up. Scarcity value, the founder is amazing. They have strategic value to the customers that they have, whatever it is that makes a premium on top of that. And of course, I'll take the other side, which is all the things that I would take a discount on.

24:53And why that's really important is then you become very clear about what you're trying to buy. And the founder understands what you care about. You might say, look, we don't see a premium on this one. We think it's fair value. Or we might say, you're right. We should pay a premium. And what I coach founders on is there's a difference between trying to sell for the optimal price or a fair price. If you actually are bought into a vision, get comfortable with selling for a fair price because otherwise you spend all your time trying to optimize and it doesn't matter that much. Whether you sell it for 6.5x or 7.5x, 5 to 10 years from now won't matter.

25:26All that will matter is if you sold or not. And that's the thing to try to figure out. Is there a view of, hey, we're growing well. Like our business sits in the 60, 70%. Like we've been fortunate it's going well. That strategic approaches us, which happens. And then it's like, well, I just keep waiting. This is a pretty significant difference in how you value it today versus one year or two years later. You get a little bit of that sometimes where it's like, we're doing good. I get how you value today. But what if we just wait a year? Then you're going to have to, as long as things are up and up and you have that level of confidence.

25:57Yeah, always. And that's really the challenge. So for example... Is that like my sort of counter of like, why you should pay the premium? Because it's like, we're pretty confident we're going to hit this this year. So why don't you value us to what we think you'd be valued next year? 100%. And so in this example, you might say the comps are comparable. If you're going 60 to 80%, you could change the comps and say that you have to comp against 60 or 80 % growing companies. Hard to find those in the public markets today. So you have to do like an NTM valuation and kind of look forward 100%. The thing that actually makes those 60 to 80 % arguments hard is even if you could agree on the value, which is fine.

26:30The challenge for the founder of the acquired company or potentially acquired company is... So let's say we're growing 20 % as an example, because we're larger, we're at scale. Your company is growing 60%. All things being equal, everything being equal, your stock is appreciating at 60%. Our stock is appreciating at 20%. And so you're taking away to your point from your upside by doing a stock swap with us. You're effectively trading in your stock for our stock. You're trading in your stock that's appreciating at 60 % for our stock that's appreciating at 20%. If you're growing at 20%, it's actually even.

27:05It's totally fine. It wouldn't be a big deal. It wouldn't be a big deal. Yeah, just do it. But if you're growing at 60%, it's not just paying the premium, but also you're decelerating the value of your stock. And so that's why high growth companies are incredibly hard to buy. You have to buy these companies was sort of unreasonable premiums. And that goes to companies, dividing companies up in the companies that you'd pay a good price for and companies that you'd pay any price for. And the super high growth companies are the ones you'd pay any price for. You have to pay a premium. Absolutely. Even if you could get it done on a premium, because how far ahead do you pay the premium for?

27:41Is it one year, two years, three years? This thing's compounding at 80 % and you really feel like it's got the ability to continue. It's very hard to pay five, 10-year premium. This is like the WhatsApp deal. They paid way ahead. And then looking back, they didn't pay ahead enough. They could have charged a lot more. That's ultimately what it comes down to, if you're willing to do that. But I feel like there's just that counter argument on both sides. That's fundamentally the approach to solve the valuation gap. Is there any tools or anything else you use? A lot of folks lean on earnouts. You sort of look at that way of, okay, if you're going to look at that 60 % growth being continuous, why don't we throw an earn out there and hold you some level of accountability to get that current valuation you're looking for and help bridge that spread?

28:26I'm personally not a huge fan of earnouts. They can be a useful tool to close the gap if you're really close, but you're not quite covering the bid ask. And so you throw in an earn out to make everybody on both sides feel a little bit more comfortable. And practice earnouts almost always get paid regardless if you meet the numbers or not. I'm not a huge fan of earnouts for that reason. But also, it does potentially create conflicts of interest. So for example, let's say you buy a company and you have an earnout on revenue. But you realize after six months or a year of integration, you don't care about revenue.

28:59You care about ubiquity. You care about usage. So you're like, let's discount this product as a loss leader for other products and put it in the market. Now you have this earn out. Conflict. Yeah, you now have a conflict because the people in charge are trying to get revenue. Somebody's going to sue somebody at that point. Exactly. And then you got to renegotiate the terms. And so ideally what you really want is that founder that's just bought in to the vision and wants to support the company. Be a little bit upfront and just pay that value out, especially doing some of it as an equity swap. Yeah, I would say in general, making up numbers.

29:31If you're willing to pay a hundred million dollars for a company because you think it's got a lot of potential. They want 120 and you're like, I'll do a$20 million earn out. I would just say, just pay the 120 and don't make them take the risk, make them join you. When we reference multipliers, are you looking at last year's number trailing 12 or run rate? It just depends on the growth rate of the company and what the right comp set is. For example, the company is an ARR-based company growing 20 to 40%. It's very easy to get public comps on that. If the company is growing 100%, for example, you then need to do forward earnings because you need to give them credit for forward progress that isn't reflected in the comps in public markets.

30:14If you're saying, hey, 10x revenue, are you referencing primarily last year's revenue, billing 12 or run rate? Sometimes I talk to too many bankers and everything's like, run rate, whatever is a bigger number. Yeah, it's super conflated and convoluted how they do that. In general, when we think about it, for us as a B2B SaaS business, we usually think of multiple on current ARR. If we're looking at bigger companies that have transitioned to really more of a revenue, when I'm talking revenue, gap revenue, not ARR or bookings, we'll look at gap revenue and it's usually on a NTM basis. So the big takeaways, there's got to be ultimately this business case or vision better together that you're both locked in and lined on, or just ultimately, this is really the right path forward, then get into the pricing.

30:58And that's when we can get into those details and how do you overcome the bid spread there if there is one? Absolutely. For us, it's typically two steps. One is establish the conviction with the founder that we should work together. And that's my job. And then the second is cross the spread on the economics. And ultimately, that will be my job. But usually that's done with my CFO and Charlie and Davis who runs CorpDev. And they usually do most of the financial negotiations so that I stay out of it unless I need to be in it. Going back to strategy, where you kind of use this initial example of acquiring the book of business.

31:36Aquahires are interesting. You've done some aquahires. Yeah. What's the premise around that? Because I always feel like, can't you just recruit the talent? I don't know. You hear companies are spending like, what is it, like a million bucks per engineer? Like, why would you do an aquire? Our biggest aquire was about 60 people, almost 70 people in Waterloo. And it was actually a company called Kick, which was a consumer chat app for teens that couldn't quite hit the inflection point and was starting to run out of money and ended up having to sell the company pretty quickly. We got hold of it because one of our investors was also an investor in that company.

32:09So we got early access. And they basically were willing to go with whoever could move quickly enough. And this is an example where being small, nimble, at the time, we were were only 100 people, 500 people. We had an inside path to the CEO. I had met the CEO previously at conferences. So we immediately could start engaging. And once we got the call that this company was up for sale and the team was up for sale, we all jumped on a plane to Waterloo and started interviewing and wrapping our arms around it. Those types of deals where you have inside advantage because you know the team, you know the investors, you know the founder, it's a forced sale are powerful.

32:45When these acquihires have more time to shop, it's very hard to compete with the big firms, the Googles, the Shopify. They are much more likely to pay for talent. Our thing was we basically gave them enough money to clear some of the preference stack, pay off their liabilities, and then promise that we'd give everybody great jobs, which is what we did. But these other firms that will pay the million dollars a year per engineer instead of recruiting them. Those I think are out of sight for most venture-backed companies. Those are really like a Google, Facebook playbook. That was really for the engineering talent, ultimately.

33:17Yeah. When you look at the product tuck-ins, it's accelerating your roadmap. You know, when we think about product tuck-ins, there's maybe two ways to think about it. So one is stuff you think of that you go out and hunt, and then stuff you don't think of that's opportunistic. A product tuck-in example might be, we want to go build this product. We don't have the time. We don't have the engineering resources. We want to get this to market faster. It's our idea. We know we want to do this. And M &A is just a way to accelerate that to see if we can find a product that fits what we want to do and put it in the portfolio.

33:50That's probably the right and best way to run a corp dev strategy is to go find the things that you want to do. And the corp dev team is effectively an extension of the R &D team. They are just an accelerant of that. The other side that we spend a lot of time thinking about is opportunistic stuff, which is we didn't think of something. We don't know much about the space. We don't know much about this product. But boy, we come across a company that we're just canvassing. And we come across this company and like, wow, they're doing something really interesting we hadn't thought about. You start talking to this company and you have to form a thesis after.

34:25So maybe another way of thinking about it is like there's acquisitions where you have this thesis a priori that you've formed beforehand. and there's acquisitions that you have the thesis afterwards, after you meet the company. And sometimes those can be most conventional corp dev or M &A sciences. Don't do that. That's like rationalizing an acquisition. That's what gets you in trouble. That's what gets you in trouble. Our perspective is we find those things incredibly fascinating. We love looking at those because this thesis, it's like the, as Andy Grove has said, no matter how smart your company is, people are smarter on the outside.

35:00There's more smart people who don't work for you. Just like, hey, other people might have come up with better products than we have in certain segments. Some founders may have better ideas than we've had. And we don't have to generate all the ideas in this space. So we have this approach of accelerating the strategy, which is where you may find products that would fit in your roadmap or what you're trying to ultimately achieve. And then you've got stuff that doesn't come. We talked a little bit about this, but this is like bounded versus unbounded. Is that the kind of similar framing here? Yeah.

35:29Or if it's really aligned with the strategy, it's pretty bounded in the effort versus like there's stuff out of it. But then all of a sudden you're rationalizing why you do the deal. Yeah. So I think there's another way to segment ideas or companies or targets. So one is bounded targets where you're like, look, we can buy this asset and it gives us a path to a hundred million in revenue. And we just know that's the bounds of this. It's got limited runway. And then there's another type of asset, which is this unbounded, which is this could really inflect and be a nonlinear curve for us. They're both good strategies.

36:02One is I would call a private equity strategy, where it's a bounded target and entry price matters. So you would only pay a good price for it. You wouldn't tend to overpay. Value. Yeah. Looking for a good deal. That's right. At least fair price, if not value price. And then these unbounded targets, you think of them more like you're doing a venture portfolio. If you're doing bounded targets, these are singles. You want to be very disciplined on pricing in how you run these things and making sure you're successful on them. Writing one of those to zero is very painful. If you look at these unbounded targets, you run them more like a venture portfolio.

36:36You will expect several of these will go to zero in the hopes that one will be the famous Facebook example, Instagram. You only need one Instagram to wipe out every other bad M &A decision from the past. For us, we've been more of a bounded model. We've been very particular about the types of deals that we do. We're swinging for singles and doubles in general on CorpDev rather than trying to hit home runs. That being said, where this opportunistic side of M &A is, and why I'm a believer in it, if we have a home run idea, we're just going to go do it. The problem is it's hard to come up with home run ideas.

37:12And if somebody else has a home run idea and we can see it, and more importantly, that we think if we can bring it under the Carta umbrella and make an idea that's a strong double or triple and make it a home run, then we should absolutely go after it. And that's our unbounded thesis. But these are stuff that really would be out of scope of what you've already defined as a strategy. That would be unbounded, but it still looks good. It still fits the realm of your ecosystem. And you could see some synergies there. Yeah. A lot of this stuff, most people may not see as unbounded. And part of the job of the acquirer is to see these things that other people may not see as unbounded, but you can see how it becomes unbounded.

37:51That's what I want to dig into because I've done a lot of these conversations. You talk to a corporate person, there is a discipline around being bounded to the strategy and then using that to proactively find the right targets. That's your good corporate development practice. what you're saying doesn't counter it, but it says, hey, there is unbounded things and you do rationalize it, but it sort of adjusts the risk accordingly. And you still, it's not way out of bounds. It is like maybe a little further from the core, but not too far out. And it's going in a totally different segment. There's still some synergies there.

38:25Does that sound right? Yeah. So I would say, again, in sort of like this bounded, unbounded PE versus venture portfolio, there's also, to your point, And Kisan, there's, here's our strategy. Here's the missing pieces of the puzzle. Go find the pieces of the puzzle and put them in. We're missing a product to do this. Go find a product that does that. We're missing infrastructure to do this. Go find that. And so there's a very clear thesis around it. And that's a disciplined, process-driven approach. Then there's this other version where I'll talk to Davis and I'll say, go find me your craziest ideas out there.

38:59Just no limits. Just the craziest things that you think are interesting. Let's go talk to some of these founders and see what they're working on. Arguably, 19 of the 20 conversations go nowhere. But you might get that one in 20 that, oh, there's something I hadn't thought of here. And I would say we learn a ton about founders, markets, all of these things by doing these conversations. There was one company that I'm very interested in, never occurred to us that we would ever go into the space. But we did this, bring me your craziest ideas. I met this company and I'm enamored with it. And it's incredible.

39:36But I never would have thought of it myself. It never would have been in the roadmap. When you do that, now all of a sudden you're rationalizing why you should do this deal. Would you consider your strategy changing then at that point to include doing this deal? Yeah. I think the strategy evolves. It's not enough to say, well, I love this company. We should buy it. Then we'd just be investors. What happens is when you see something that you hadn't seen before and you're like, wow, if we had this asset and we combined it with Carta, here's like the seven things we've unlocked that it never occurred to me we could have unlocked.

40:09And then suddenly you're like, oh, what's wrong with the strategy that I hadn't thought of that a priori? You back into what's missing in the strategy that it didn't cover this thing that now that I can tangibly see it unlocks this set of opportunities that we didn't have before. And then you refine your strategy off of that because a good strategy, If the intuition is, hey, the tactics of putting these two companies together is incredibly powerful, but the strategy doesn't fit, that must be something's wrong with the strategy. And then you refine the strategy. Do you have an example of one of these unbounded deals you've done?

40:40We have not successfully done an unbounded deal. The example that I'm thinking of, unfortunately, I can't share, but I'll share a deal that we did that we thought had potential to be unbounded. It didn't work. We bought actually a couple of former employees of Carta left and went through IC and did a tax tool. And their thesis was a great one, which was TurboTax. TurboTax is a great product, very hard to compete with. Nobody should try to take on TurboTax. That being said, if you are an employee that gets equity compensation, you can't really use TurboTax. So there's this underserved population of employees that need to all go to CPAs because they have tech stock and they can't use TurboTax.

41:20And they said, we're going to build TurboTax, but for employees of tech companies. So it's TurboTax with equity. Great thesis. They built a good product and started getting some users. It's a great team, great founders, they're Carter employees, they're used to be. And it was one of these where we paid a premium to bring them back to Carter with their product. And our thesis was, if this works, We have about a million and a half employees on Carta with stock now. We could just cross sell them TurboTax for equity. And so that was like an example of an unbounded thesis. Low chance of working. We're not consumer people competing in taxes.

41:59It's really hard, like low probability of working. But if it worked to be the TurboTax for all tech employees, pretty big market. You did the deal, but it didn't hit that chord? It didn't work. we couldn't figure out the product plus distribution. Tax is a very hard one because it's just an annual thing. And if you miss the window for that year, just sitting around building and hoping the next year goes better. So it's a very hard market to get into. The team was great. The product was great. There's a failure as us, as the acquirer, where we did not understand. We tried. It wasn't for lack of effort.

42:33We just did not understand how to do consumer go to market. We are a true B2B SaaS business. We sell the companies and to sell the consumers is a completely different motion. And it really informed us because now I wouldn't say we've eliminated consumer products from our M &A perspective, but we have highly deprioritized it. We have basically said, look, we are not consumer people. We are B2B. And so any consumer apps, we're not really interested in. We're just looking at B2B apps. When you invalidated the thesis here, what do you do then? that wind down the business, sell it? This is a great one for us.

43:10We ended up winding down the consumer version of the product, but then we were able to learn from that on the B2B side because of our relationships with our customers that we then turned it into a tax advisory as well as a QSBS tax product for the companies. Again, it's one of these things where the initial thesis didn't hold true, but we learned so much from the experience. Now, our QSBS tax product that we give to employees through the company, which has extreme product market fit, came after all the learnings with that team. And that now is our fastest growing product that we sell to startups is QSBS.

43:48Loss and no win. Yeah. What about capital allocation as a whole? And think about the organization. You're funding a lot of strong organic growth. The departments want their budget. And then you're talking through all these inorganic. Like, do you sort of plan like, hey, this year we're going to put 20 % towards doing some M &A activity? Or is it more ad hoc as these opportunities come up? You get capital on demand when you need it. And that's how you play off of it. How do you think through that? More importantly, how that evolved? Because even like our smaller company like us, you know, we're pretty stringent about it.

44:19But now you got 40 million revenue. So it must have evolved over time. We did a good job circa 2016 to 2022. We did two companies in London. We did a company in India. in one year in 2022 and did seven other acquisitions before that in the previous four years, five years. So we've been pretty active. I would say in the last two to three years, we have not been as active, in part digesting the acquisitions we did in 2021. But also, just it's been a difficult market to do deals. It's been super volatile. Valuations are all over the place. We are almost profitable. We'll be profitable this year or at the end of the year.

44:56We got about half a billion bucks on the balance sheet. So I would say one of the biggest criticisms of me as the CEO is I haven't been more active in M &A. We haven't deployed more capital in this. And so this is very much a focus for me over the next 18 months is how do you think about deploying that capital? Typically, when you think about capital allocation, if you're becoming profitable as we are, and you got 500 on the balance sheet, let's say we can use most of it. You can use almost 500 million on it. You'd like to see most of these deals get done somewhere in the 30 to 40 % cash, 60, 70 % stock range.

45:30It depends. Some will be 20%, some will be more. But if you think 30 % on average in cash, 30 to 40%, you have roughly a billion and a half dollars of buying power. We can go buy a billion and a half dollars worth of stuff. The question becomes then, if you have a billion and a half bucks of buying power, do you buy in one extreme,$1 ,500 million companies or two, three quarter billion dollar company, you know, one, a billion dollar and one half billion dollar company, which I would consider it not tuck-ins, but we would call transformative M &A. And so one of the things we think through is do we want transformative M &A or do we want smaller ticket sizes?

46:04And how do we build that portfolio? Which is a whole other exercise and a good opportunity to get a sequel of the conversation. There's got to be a lot that really factor in and think through. And that's probably is when you're digging back in your strategy and just starting to think about like roughly what it's going to take to execute on some of those potential moves. Do you start looking at your pipeline at that point and start saying, well, roughly, how would we start thinking about allocating or what are we looking to do this next year for deals and get a sense of how much we'd likely allocate?

46:32Yeah, 100%. So we have a list of companies and targets that we are interested in. Without core data, we have a sense of value. And so we can just map it out and see how much buying power do we have of these companies? Which ones could we buy? If we bought these three, does that preclude a fourth? And so part of the challenge is which companies are actionable, which companies do buy first. If you buy company A, does that mean you can no longer buy company B, but you don't want to... Company A might be actionable, but B isn't. You hold off on company A because you'd rather get company B if you can't do both.

47:06So there's just a lot of permutations on that pipeline that we have to work through. One of our most challenges, but also opportunities is in our market, which is really venture capital and private equity. It's very barbell. There's a lot of small companies in this space that carved out little niches. And then there's BlackRock and FIS and huge conglomerates. So for us, we actually have a pretty contained set of targets in there. For better or for worse, they don't tend to be very huge. They tend to be smaller. So I think we'll probably have a broader, diverse set of companies that we can go after.

47:41It's helpful to get context on how you just consider a capital allocation. and it's something I'm trying to get a better understanding of. You know, just to switch things up a little bit, the execution of all this stuff. Like this has been great. We talked through strategy. How do you price a deal? Now we agree on it. But along with that, you have a team. You got a head of corp dev, a corp dev team that's helping you. Can you give me a sense? I feel like a lot of our audience are in corporate development. That relationship, working with the CEO, what's the magic there to really make it successful?

48:09I would say I'm incredibly lucky. My CFO did a mini at Salesforce. My chief strategy officer did M &A at Salesforce. Our head of corp, Dev, is fantastic. You might be talking to him soon. I have a very experienced team. I'm the novice here in my team. The division of roles is pretty simple for us. My job is to convince the founder that they shouldn't make their company actionable. That is my job is that first step of how do we unite these visions together. The entire diligence process, the evaluation of the company, the data, the pricing, all All that stuff is done by the team. And I even tell the founders, I'll say, I'm not even, I'll tell them I'm not qualified to negotiate price.

48:49Like, I don't even know how this stuff is done. You should talk to the finance and corp dev. Inevitably, it will eventually come to me for the final ask of how to get the deal over the line. But as much as you can, you want it to be dispassionate conversation with the corp dev team. And so that I can just spend time building relationships with the founders. It's a little bit like salary negotiations. It's just, you're trying to convince this person to give their baby, their life's effort to your company and work together for another five to maybe 10 years. You also don't want to hurt that relationship because you're nickel and diming them over comps.

49:20You try to separate those conversations. And my team's very good at talking to the financials. And then by the time it gets to me in terms of closing the deal, hopefully it really becomes that the team has done all the diligence work. They've done all the negotiations. And now this comes down to the final ask. You set the founder up to say to me, hey, I really want to come to Carta. Here's my last ask that the team can't do. And you get this done. And then it's on me to decide if we can do that for the founder or not. And that's the best setup where I'm now the hero. I get to start the relationship off by helping the founder make their dream come true of having a successful exit.

49:54Okay. So you're very much focused on relationship, getting things over the finish line, having that relationship with the build a team for them to tee that up. Team executes. They ultimately work with all the moving parts in the company, plan out how this thing's going to get integrated and the employee experience for them transitioning. I guess your expectation, and maybe I just want to hear it in your words, if it's like, here's a corp dev that I'm working with and what I expect from them. Your CFO is involved. What do you expect from him? Is there any other stakeholders? Is the integration lead coming to you?

50:22Or how do you make sure that transition is going to go well? Right now, though, this may change as we're growing. Corp dev does the deal as well as the integration. So they can't just do a deal and hand it off. They're responsible for making it work. They have a whole checklist, like a whole process. So even before the deal, our CPO, our CTO, our chief revenue officer will meet the team. We'll expose a lot of service area of Carta, not just for us to understand them, but also for them to understand us. Because one of the biggest questions for the founders and the employees of the acquired company is, what's my job when I come there?

50:55What do I do? And so you spend a lot of time talking about, oh, your sales team will work for this, for Jeff. Your product team will work for Shale. Your engineering team will work for Will. So why don't you meet them? Make sure you're comfortable with them. So we surround them with all the executives. So we have a whole process. The corporate team will run through that entire process. And it's also just part of our board diligence. When we go to the board and we present the deal, we have to tell them, this is all the things we did. This is what our CTO said, our technical diligence, our product diligence, our HR diligence, all of the things.

51:24This is a big company. We have to cover our bases as well. And then once it's consummated, the same team starts doing the integration plan. And they'll go and we'll do offer letters. We'll do all the project management around that. You start embedding the employees and slowly move the company into Carta. You just want to be in the know. Sounds like a lot of those key elements across the departments, you at least want to know what are the big risk factors and have a good view. That's right. So if anybody asks you questions, you can answer them. One of the things to keep in mind when you are coordinating all these conversations is it's important to segment.

51:57So what will typically happen when you bring a new deal to an exec team is everybody will talk about what could go wrong. So for us at the strategy level, we think about how great this is going to be. But if you're a VP of engineering or CTO or VP of sales, all you think about is, am I going to lose my job over this? Am I going to get all these new people that I don't like or don't do what they're told or aren't very good? And I'm going to lose my job. There's only risk. And so what happens is these conversations turn into what could go wrong instead of what could go right. And it's really important when you facilitate these conversations that you orient the exact team, particularly if the CEO is not the sponsor of the deal, you pass that sponsorship to somebody else, that people are allowed to have the what could go wrong conversation.

52:41We also have to have the what could go right. People have to see how this could work if it works. It's interesting to drive that as a balance because you're right, people tend to bring up the problems. There's obviously the solutions to those problems, but then the big picture things of what we really want to achieve here. Yeah, they have to see the vision of why we're doing it. Otherwise, for the average executive or senior leader, as a CEO, you just added more work for them. They're like, I already have a full-time job and now I got to integrate a bunch of people I don't know. So the thing to figure out is how to make sure that people understand what we're trying to do in our bot in.

53:14I know we don't have time to do a deep dive into it, but I at least want to get your initial thoughts about international expansion. Just because something I'm really fascinated about, there's a whole aspect of the timing around it. Do you use M &A as a tool for that? I just want to hear just maybe some general thoughts of your experience and what that's been like. In general, M &A, again, to bifurcate things, it's something you know how to do, but you're using M &A to accelerate. Or it's something you don't know how to do. So you're using M &A to learn how to do it. For us in international, a lot of companies will do it organically and they'll just put boots on the ground and sort of figure it out.

53:50We did that in Singapore. If you know how to do it, you might as well do it organically. it tends to be cheaper and you get to control it and less risky. So you go organically and we did that in Singapore. In Europe, what we realized is there were already people there doing exactly the same thing that we wanted to do. So we didn't have first mover advantage. And two, it's just hard to do this stuff in Europe. We learned it's hard to do in Singapore, but it's even harder to do in Europe because it's just Europe. It's just the regulations, the culture, the slowness of everything. We decided we bought two companies, CapDesk, which was the top cap table company in Europe.

54:25And then Bobon, which was like angel list, but for Europe. And that gave us 150 people on the ground there and allowed us to get going. Both have been great acquisitions for us. Our challenge in international markets is how do you continue to support? And we're opening an office in Luxembourg. We're opening an office in Abu Dhabi. But how do you continue to support these international efforts when most of the focus is here in the US. 95 % of our employees are still in the US. 90 % of our employees, 95 % of our revenue. And so one of the big challenges is we have strong MDs in both regions, but how do you make them feel like they're not forgotten children and they're integrated into the rest of the company?

55:03And that's the real challenge that we've seen in international. Is it like a right time to start expanding international? Most companies do it too soon because it's incredibly expensive, but even more than the cost, the return on exec time is very low at the beginning. It takes time to build into these regions. I used to go to Singapore, Europe, Middle East, everywhere. This April, May, between two months, I was home 12 days out of 60. So you're just on the road constantly. And you're like, is this the best use of my time when 95 % of our revenue is in California, New York? Shouldn't I be there?

55:39The return on time is, especially for the CEOs, the CEO is really the only person that can do this, open international offices effectively. I don't know if this is the only threshold, but I would say one of the important thresholds before you go international is that you feel like the US business can run pretty well on its own. Because once you start working on international, if you're going to make that successful, you're not going to be home very much. What's the craziest thing you've seen in M &A? What's funny to me is there would be a lot more M &A happening today if we could cross the bid ask spread.

56:11And the problem is that a lot of founders still don't understand valuations. You will talk to founders that run$500 million EV companies, valued companies, and just don't understand the basics of how to value it in multiples. I keep telling investors and venture VCs, you can do whatever you want. But you complain that there's no liquidity in the market. You can't get liquidity. But then you tell all your founders that they could be Mark Zuckerberg. And so they won't sell because we give them a fair price and they go, I'm worth a trillion dollars. And it's like, we can't get deals done because founders have completely misset expectations of what their companies are worth, driven by the investors that should know better, but they don't.

56:54And it's crazy to me that investors aren't talking to founders about being more rational. I guess the only thing I've seen like 20 years in this sector is just valuation hype. And I feel like there's one aspect of just information is more accessible, but then it's just like very hyped. Like it's the big valuations that get broadcasted and hyped up, but the reasonable ones don't get talked about at all. So now, listen, everybody's kind of valuation fever, basically, and their expectations 20x on this market. Yeah. Should be a little more reasonable. 100%. This has been a great conversation. I want to thank you for taking the time with me.

57:24I hope I may become a better M &A scientist. No, super. Thanks, Kisan. Love doing it with you. Those of you that listened this far in the interview, I want to thank you. fellow M &A scientists. Love to hear feedback. Anything about this interview, I always welcome the criticism so I can get better at doing this. Feel free to reach out to me on LinkedIn. Until next time, here's to the deal.

57:54Thank 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.

58:39Again, that's mascience.com. Here's to the deal.

58:53views 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