The Challenges of Sell-Side M&A

21:57So we brought him on more as just help for me. around keeping up with people and like what to do. But it wasn't with a transaction in mind. We didn't have a timeline to sell. We were just like, hey, things are working. We're having fun. The business is growing. This is great. We're like executing. We're like 60 people. Like this is fun. Only a few months after we brought a mic, we got an inbound for someone being like, hey, I actually want to buy you now. And then I had to be like, actually, we're doing better than you thought we were doing. And so we're actually going to be more expensive than you thought.

22:23And they're like, ah, this is true. Mike was very helpful with what to do in that conversation and then going to Dropbox. And then we didn't run a process. So we just had two parties that were interested. We just talked between the two. I think in retrospect, I'd probably open it up and run more of a process. But at the time, the thought was like, do we have time to do that? Or do we just get this to the finish line with one of these two parties? But having a banker for me was very helpful because as a founder and as the CEO, if you haven't been through this before, because this was different.

22:50This is a much bigger ticket size than the previous one I had. Yeah, there's a lot you can learn from someone who does this for a living. That was very helpful. But I think my situation is a little bit different than the, we're going to sell our company. So we're going to hire a banker to set the thing up for sale, to run a process, to put together the material. So we were not that situation. Did Dropbox reach out first? No, the other company reached out first. The company reached out, got a bid. What prompted you to reach out to Dropbox? I went to the board and I said, hey, we got an offer. I don't think we want to take it, but it's like a pretty good offer.

23:20And asking them and they were like, actually, seems pretty good. If you can get a little bit better, maybe check. Maybe now's a good time to sell. And I was like, oh, that's not the response I thought. So I went to my co-founders and hey, we got this offer. Very flattering to get a real offer, especially it's from a company that you like. And for me, I was like, oh, wow, this is real. So I was like, oh, it's not quite there. But I went and checked with Dropbox and just said, hey, I'm not sure if we're going to sell, but I got this offer and it's close enough that I'm taking it seriously. And so they went internally and came back and they said, actually, we would also like to make you an offer.

23:50And I was like, oh, I was not expecting that. What was it at Dropbox? Is that like a corp dev lead or is that somebody, a product lead or? No, it was an exec there who was not there any longer, but someone also had known. This is a relationship thing. If I didn't have a relationship there, I would not have been able to go to them and casually say, I got this other offer. Are you guys like interested or I'm just curious? And so they're able to go ask internally. And I think this is the part where having a relationship and being a known quantity makes it much easier. Not like a random company. It's more like, hey, this company we've looked at for a while might be on the market, but they're not sure.

24:23Are we interested? And they were like, yes, we are. And so then they came back with another offer and they moved very fast. So that was very surprising for me. You ultimately got the deal done at, what'd you say, 11X ARR? It was 11X ARR. Yeah, it could have raised at a significantly higher multiple than that, like a 300 billion, so maybe 20X ARR, which in 2021, as the year progressed, that was the peak craziness year. So it could have raised at a way higher valuation than that. But you get a pretty big discount as a private company is what I learned for someone to pay all cash and acquire you.

24:56Sometimes you get a premium, but sometimes you get a discount. And so valuations are all over the place. So 11X ARR was more like a, this is a reasonable price to pay for a well-performing asset. And it's at the time was the public company multiple that you would get. So you know, right? One hundred fifty or something. The price that Dropbox paid was one hundred and sixty five million. And they paid all cash, though. Now it's nothing. There is a hold back. So there can be an earn out sometimes. We didn't have an earn out. There's a hold back, which is a compliment that the founders, if the acquiring company wants to keep you as the founders, they'll try to incent you to stay in some way, which means they like you a lot.

25:30And so that's generally viewed as a compliment. So there's the hold back, but it wasn't tied to any performance numbers. Was that like 5 % or something? No, in our case, it was higher. I don't know if I can share the hold back number specifically. There was a significant hold back just for time, not for performance. But as it turned out, they were super happy with the performance. So if we had an earn out, like we would have absolutely checked all those boxes. That's interesting. So it was entire performance. It was just basically a hold back and then pretty significant percentage. What was the timeframe that you're on the hook for?

25:59It was three years working there, which again means they liked us a lot and they wanted us to stick around and help, which is generally a good sign. If they're like, hey, we love your company, but we want you to leave immediately, then that's a bit of a diss, depending on how you look at it. So it was a compliment that they wanted us to stick around. What would you say has to go right to have a good exit? One of the things I'm proud of with Noxend is that we built a good business. And so when you look at how we acquired customers, it was 100 % inbound. It was 95 % self-serve. There was no big revenue concentration.

26:29So$1 ,000 ACV. And that go-to-market matched well with Dropboxes. So they understood how we acquired customers. And that looked similar to their business, which is one of the reasons they were comfortable acquiring the company. But I'm proud that it was a great business. So if we didn't sell, we would have been fine. It would have been great. They think there's an argument that we left money on the table. But with these things, it's hard to know what timeframe to look at. So maybe with a long enough timeframe, who knows? But to answer your question, what goes well to sell is like building a great company, a good product, a good business, because then you've got real customers, you've got real cash flow.

27:02There's always a market for that. Whether it's an acquire where there's a lot of synergy, or it's just a private equity player, or you just run a profitable company. That's the thing that is the most certain for getting a good exit is having a great business where you have a lot of optionality. And we had optionality for Docsend. When you're looking at things that are more like tech or team, or we have high growth, but it's really unprofitable, suddenly you start to be in situations where you need an exit. Or if you don't raise money, you run into a wall and you run out of business. And those are scary places to be.

27:32And those are situations where it's harder to line things up. And it's hard to know what you should do. Good business. Some of the competition was good too, because that sort of helped create to potential acquirers. Oh, for sure. Yeah. If you're selling your company, having multiple bidders gives you some sense for what's the market rate for your company, which I think is pretty important. What about the market itself? I'm personally curious about this because we build a product for managing mergers and acquisitions, but I feel like we're in the slowest moving market. And I'm always curious if it's the market overall growth is a big factor in the attractiveness as well.

28:04Sure. When public company stock is up, they have that as a currency they can use to go buy other companies and it's more attractive. for them because they can. M &A has slowed down a lot since the markets have come down. But you do see transactions still happening, just fewer of them. And my point about optionality, if you have a profitable company or it's just doing well, yeah, transactions still happen because there's more of a floor. Free cash flow is always in favor. And the swings in valuations of profitable companies vary less than the swings in valuations for companies that are unprofitable, the high growth, but we're not sure where they're going to be in five years.

28:39Yeah, you're right. They do swing a lot more in different ways. What were the big unknowns of selling a business? Oh, there were a lot of them. For us, as we thought about selling, we weren't sure how it was going to go on the other side. There's a lot of trust on both ends for, is one plus one going to equal three? And what's that going to look like? I would have, in retrospect, spent more time on the post-acquisition integration plan and fleshing that out more and figuring out what that looks like because you spend a lot of time getting to the finish line. which is the close of transaction. But then you realize that's just the starting line for what you need to do afterwards.

29:15So in terms of unknowns, there weren't that many. I felt really confident that Dropbox was getting what they were paying for. Like our business was going really well. We spent a lot of time leveling employees and figuring out how we were going to integrate people. We spent some time on what the synergy was going to be and what the plan there was. And so I would have spent more time on that ahead of time. Going into it, yeah, what were the unknowns? One unknown that I was happy with was we didn't have to worry about Dropbox's stock. One, it was an all cash. And so that I thought was fine. They weren't a private company.

29:48I would have been very nervous if they were a private company. It was an all stock transaction because that big unknown would have been like, what is actually the exit value of our business, depending on the value of the stock of the acquirer. So in our case, it was pretty buttoned up, pretty straightforward. In the range of acquisitions, this had probably as few unknowns as you can get on both sides. So yeah, they just paid cash. I was going to say if they did stock, if there was like a lockout period or anything like that. No. And when it's a public company using cash or stock, it just depends on if they're holding it back.

30:17So if it's a hold back in stock and you're going to get more of your stock in two or three years, there's a question of what that stock is going to be worth in two or three years versus that cash you get in two or three years is just going to be what it is. So it can be good or bad, it being cash or stock, depending on your faith in what's going to happen with the stock. Dropbox had and has a lot of cash on hand. So for them, they wanted to use cash. That was more straightforward. So some of this just becomes an accounting question. And if they give you cash, you can always buy their stock. If it's a public company, they give you stock, you can sell it and just have the cash.

30:49So it's a little bit of a, not as big of an issue when it's a public company. Where are other unknowns? Like how aggressively are we going to grow this? What are the milestones? How independent is this? How integrated is this? What's that post-sale integration plan look like? What's the cadence of executive team meetings? But a lot of that kind of has to be unknown because you just have to go figure it out once you're on the same team working together. Yeah, a lot of the stuff that you described are really around post-acquisition. Yeah, there weren't that many unknowns in the deal itself. The deal itself is very straightforward because it was easy for them to audit all of DocSense's revenue.

31:22You'll usually have kind of a holdback where it's an escrow account or any dings against you. One unknown could be, hey, our IP, is it what you think it is? and there's protections for the buyer that if things aren't as represented, they can actually take some money out of the consideration for the company. So as a small example, we knew that we hadn't paid some of the state income tax that we were supposed to. And like startups are often dealing with this and you're like, oh, we'll get to it later. But we knew this was a problem and we actually had already started the work to go pay it. And so we flagged that for them.

31:53And then when we did the math later, there was some relatively small amount of money that we then paid off as state income tax. And that came out of the consideration for the company. So that was like a small unknown, but not a significant one. But yeah, when the deal closed, the paperwork was very straightforward in terms of what they were paying for, what we were offering and like what all the terms were. So we were quite buttoned up in that regard. And I felt pretty good about that. Yeah. Something like the big areas you mentioned were post-close integration planning, the milestones, understanding the synergies to go to market.

32:22I'm curious if you were to necessarily revisit this particular experience, but go through this again. And what would be maybe questions or things that you would ask to really learn more that would have prepared you better for all the post-close activities? Slowing down the process to spend more time together, look at what that would be nice. But I don't know if that's realistically something that can happen with how these things seem to work. But certainly spending more time with the people on the team and looking at what are you going to do together? How is this going to play out? Figuring out who has organizational alignment.

32:53Because with bigger organizations, there's just different incentives. there's always a concern as the smaller entity being acquired that your priorities are not going to be the company's priorities. Or even if the top of the company wants something that lower down the organization, they're going to bother to make time to pay attention to things. I think those are some important details that you can iron out ahead of time to get comfortable with because post-close, it can be harder to prioritize some of that stuff. For me, I would have just spent a little bit more time on some of those details and getting those lined up and getting people to agree.

33:24But often don't want to bring in too many people under the tent is what it's called ahead of an acquisition closing because then you're spending a lot of time on both sides and what if the deal doesn't close then suddenly this looks bad it's like weird it's awkward and so i want to minimize who's involved with it until it closes so there are definitely pressures on being able to do some of this stuff ahead of time i'm curious most people i interview on this podcast are on the buy side and right the biggest fallouts i always hear was we didn't plan integration well enough and then and the execution went awry or the cultural mismatch.

33:56Those are the two most common things and why deals go sideways. That's what I was curious for. In your perspective, what are some of the lessons I could learn to help buyers make sure there's better alignment and that goes smoother? I would probably figure out what my role would be more specifically. One thing I heard talking to other founders is that often it's not clear what the CEO is supposed to do with post-close. And I'm happy with the work I did. A lot of it's a utility player or the chief cheering officer or chief exuberance officer for just making sure everything comes together. But yeah, I'd probably do that for me as just my own role and define that in a little bit more detail ahead of time.

34:32But generally my concerns are what you mentioned, the same as the concerns on the buy side, which is nice probably to hear because my incentives were aligned with Dropboxes. We want this to be a successful acquisition. We want it to be good for customers, for employees. We want one plus one equals three. So as long as everyone's aligned on those things, that's great. I think, and as Dropbox has said, they're very pleased with the acquisition. It went well for them and they got a lot of value out of it. So I would definitely put this one in the win camp in terms of like acquisitions that went well and the acquirer is very happy with it.

35:01There's always things we could have done better, but I think on the whole, it was a good acquisition for them. Let's talk about the big challenges or just common challenges that you encounter in selling a business. I know one of the things you started mentioning was people under the tent, like who are the right people to get involved and how many and things like that. How'd you figure that out? Yeah, that one's so messy because one of the things I did not want to do was have anyone interviewing our engineers. Absolutely not. No way. That sounds like a train wreck. So it was just a few people. It was like my co-founders, obviously our board, not our larger investor pool, just our board.

35:36Our investor pool wasn't that big. We'd only raised$15 million. So it's just a few people on the investing side who prefer to make sure that they would be supportive of this. HR, I had HR, I had chief of strategy. So it was just a few people on our side that were doing the diligence requests. But for our business, the diligence requests were pretty easy in the sense that, yeah, we just pulling customer lists and revenue amounts and we're built on top of Stripe. And so it was pretty straightforward to pull a lot of things that they were asking for. On their end, we had an executive sponsor. We ended up switching to a different executive sponsor.

36:05And then they brought in a few other executives and then obviously their corporate ed team and their finance team. For me, it felt like their side under the tent was so many people. But for them, given how many people they have, it wasn't that many people. But yeah, it was logistically difficult for me to have to run around and do all of this diligence and kind of answer all their questions and go through this very non-trivial amount of work to get the deal done without me telling other people at Docsend what was going on and also still doing my day job. It is a lot of work to go through one of these processes.

36:37You don't want to engage in it lightly because it is a lot of work. I hear that often that people don't expect how much work actually goes into diligence. and then that's distracting. Oh, 100%. Yeah. And if you're in a situation where you really need to keep your eye on the ball for running your business and you take your eye off the ball and performance starts to degrade, then you can end up in a really bad spot by distracting yourself. And if the deal doesn't go through, then you got to go back to running your business and you're worse off than where you started. Hypothetically, if you had to schedule time for yourself to work on diligence, given a timeline of deal, how would you have done that?

37:07Would it be a certain amount of hours a week? And would that fluctuate throughout the deal? I'm trying to wrap my head around how much time you actually spend intelligence. It's just all of your time at a certain point in the deal cycle. So I think, again, depending on the stage of the company, for Docsend, we're like 65 people, I think, at the time of acquisition. And we had a few VPs. And so I just went to them and said, I'm working on a thing. I don't want to give you all the details of it, but I need you to do more and I'm going to be absent. So having leaders in place where you can delegate to them and then be MIA for a little while is really helpful to be able to make time and go through everything.

37:41But in our case, diligence is only a couple of weeks. This didn't drag out for a really long time. That's good. That worked out really well. It sounds like you had a good team of leaders to help support that as well. Yeah, totally. That was something I was very thankful for being able to delegate and have other people run things for a little while. There's also a high correlation between being buttoned up internally on your own metrics where we were always like a very data-driven company. You kind of have to be, especially if you're a consumer or for Docs and being a product led company where at the time we had 15 ,000 customers, 15 million in ARR.

38:12With that many customers, you need to be data oriented and understand programmatically how you're performing. And that means having good hygiene around data collection and being able to look at your own numbers. So if you can do that well internally, then it's much easier to do when you have to do an external request for information. So it wasn't as hard for us as it might have been for another company to turn around and give all the answers that we were being asked for. The people are intent. I look at pre-LOI versus post-LOI. It sounds like pre-LOI, you didn't have a lot of people at all involved.

38:42But then post-LOI, did you get the whole leadership team involved? No, we still didn't get the leadership team involved post-LOI. Although I'm not remembering specifically what timing we had in there, but we didn't tell anyone really until it was closed. And for me, that was just making sure it's certain. I, at the time, was very confident in our business. So if the deal didn't go through, then I was ambivalent about that. It wasn't that if this deal doesn't go through, I'm going to be crushed because this was my one hope. I was like, no, we're running a great company. If this doesn't go through, it'll be fine.

39:17I'm not even sure that this is the optimal thing for us. I think it's a very reasonable thing for us to do. Take this offer and I think it makes sense and it'll be a good acquisition for them and it's like a good exit for us. That gave me a really good position post-LOI. I think at one point, Dropbox was asking for what I consider to be too much information. And I think I said something to the effect of we're not going to do that for you. This is sufficient. And if you want to not do the deal over this, then that's okay. I basically at one point just said no, because I think there is a point where you're asking for too much and you don't need it.

39:46It's not material. It's not actually going to give you new information. It's not going to answer the questions you want to answer. And so the diligence was very fast for that reason, because they were 11X AR at the time for a profitable company growing at the rate that we were growing at relative to the market and other startups that you're looking at. That was a great price that they were getting. We're not going to bend over backwards and do all of this request for you. You've got all of our data. That should be enough. It was very fast from LOI to close. And then when we announced it, there was a press release.

40:12We told the team like we had a plan that day. And so there was a whole bunch of announcement and celebrating and everything. But at that point, everything was closed up and done and finalized. Any other challenges? It's hard to know. You're running a company. It's going well. You got HR challenges. You're working on your next version of the product. You're working on messaging, positioning. You're working on marketing. There's like your roadmap, your OKRs, your quarterly cadence, you're hiring all these engineers and people to your company. So there's like a lot of stuff going on at your business.

40:39And then you have these other considerations that come in. And so if you're deciding to sell it, in our case, as it happened, it suddenly everything just becomes a lot. So it's not like anything individually might be super complicated, but in total, it's a little overwhelming, I would say. And then also with a decision this big, you're like, I don't know what the right answer is. And so you can ask around for advice, but the advice you get really varies a lot depending on people's experience and the situations. A lot of it's just hard to know. One of the challenges in this is just keeping all the balls in the air, like not dropping anything, coordinating, keeping everything aligned and getting everything done is just a lot.

41:17Part of me was like just very gratified to get to the end to be like, OK, I can take a breath now. We've gotten through this. Do you have any blowups? I always hear about the post-close. hey, this engineer wasn't happy or never wanted to go work for Dropbox? You know, anything like that? You had some churn or any kind of big challenges post? We didn't have any churn on the engineering side, which was great. Dropbox has a fantastic engineering culture. And we leveled the people without calling out fault or saying anything was wrong. We had our CMO leave shortly after the acquisition, which was okay.

41:49And everyone should act in their own best interest. That meant for me, though, that I jumped in and ran the marketing function for Docsend as we were figuring out the integration. So I was kind of our acting CMO. That ended up being fine. I like marketing. There were a couple of people that turned over on the marketing team and there's a lot to figure out there. So yeah, it did feel post-close like there were a lot of new challenges that happened. But it wasn't like everyone exodus, like everyone left over it. That was a lot of the work that we did, like leveling people and making sure that for each individual employee, it was good.

42:18And I think that's something that people underestimate is that you're not negotiating the sale of your company. You're also negotiating per employee. But you're going through your list of employees and saying, what are we leveling them to? How much are they getting paid? What is their job function and title? DocSend is still a product and a standalone thing that you buy and pay for and has a dedicated team at Dropbox. But in the leveling, there was a negotiation per employee. And because of the time we spent there, we kept everyone, which was great. And so luckily, we didn't have any blowups like what you're talking about, where the whole team storms out or something happens.

42:49DocSend continued to perform super well. And the acceleration curve we're on kept going. And it all went well. I had this question at the time of exit. Were there other possibilities that you're considering besides a pure exit play? If we weren't going to sell the company, what in my mind was the alternate path? And that's really important for your audience to consider because when they're talking to a company that's doing well, yeah, how do they think about that? Most times, corporate people get a company that's saying, hey, we're running a process. Here's the banker. And you think that they're desperate and their other option is to die, to go out of business type of thing.

43:23Relatively few companies sell from a position of strength, but those are often the companies that you want to purchase. Because DocSend was a stable business and doing well as a business, it's performed well. It's easier to capture synergy. It's easier to capture upside. Just keep the stable core asset there. It also gives you faith that they're solving something real as a business. So yeah, to answer your question, the other alternative for me, like we were profitable, we were growing, like we started off in like document analytics, but then really became more of a secure document sending product where it works great for an individual document.

43:53We got into data rooms. We're getting into e-signature. We had a roadmap ahead of us being profitable. We didn't need to raise more money, but it's always good to raise more money if you can to mark to market. So I probably would have raised another round of funding at a significantly higher valuation. We'd have deployed some of that, but we would have kept growing headcount at the rate we wanted to rather than at the rate we could have. And that's more of a personal preference where I think if you hire engineers too fast, no one really knows what they're working on. It becomes confusing and chaotic.

44:19And for us, the bets that we would have made would have been around data rooms and e-signature. It would have been one of those things where we just keep running a good business and we keep trying to accelerate the hockey stick. But when you're at$15 million in ARR, IPO is a long ways away. A lot of things have to go right to get to$100 million in ARR, growing 50 % year over year. That's a crazy high bar, especially with the IPO markets cooling off now and it being even harder to go out. That's a long road between 15 and 100. And you have to have a lot of things go well. So if we had said no, we would have been signing up for a long period of time, probably of continuing to build Docsend and just make it a great business.

44:58And we're in a fortunate position that we didn't need to raise more money. We're default live as a business. Yeah, you have to think forward and be like, hey, what's the likelihood that we get there? What's the likelihood that someone's going to compete with us? I didn't think that would happen, but you never know. Docsend still doesn't have a great alternative. And so it's interesting and gratifying to see that it has good staying power as a value proposition. But yeah, there are all these open existential questions for the business. Another challenge for us specifically, and with a lot of product-led growth companies, is that we weren't spending money to acquire more customers, which is great from a cash flow perspective, 100 % inbound, 95 % self-serve.

45:34It's a challenge in that it's hard to put money to work to grow faster. So you're kind of reliant on this combination of good content marketing, good SEO, the product spreading itself, making good product bets, getting into new areas. Can you find channels and partnerships to help you grow faster? That's a bit tricky to figure out how you do that more. If we had kept going it alone, I think it would have been fine. But that's why I say I think it was a very reasonable thing for us to take the offer from Dropbox. It's a very reasonable multiple. I think they announced it because they were proud that they didn't overpay, in their opinion, for a company.

46:06I think on my end, on our end, like our investors gave us, I think some good advice around if you're not sure and this is a good offer and you think it might take you a long time, maybe now is a good time to sell. But on the flip side, you might argue it from a different perspective. Hey, you're in a great position. Just keep going. Keep going. A few more years, you're in the hockey stick. You could get there and then you'd be huge. And that could have been true too. But for us, we've been at it for a while. And so we had a good business. There's good synergy there. There's a lot of overlap with Dropbox.

46:32And so that's why I say it's hard to know with these things. So I wouldn't have been sad to go it alone and kept going on our own. We would have done that. It would have been fun and interesting. But we took the offer with Dropbox and that was a good deal too. Thanks for sharing that. It's one of the toughest things to really think through the whole business life cycle. And it's one of those irrevocable decisions too. So it makes it extremely difficult. It is hard to know what the right answer is. But the personal decision part for me is I think it's really fun to build software and to work on these things.

47:01Having done a couple of them now and having worked at Dropbox early, I like wearing my CEO fiduciary hat. What's the right thing to do? And what do you think is a reasonable outcome? And I think it was. And it's always hard to balance that with the caring a lot about what you work on, because you have to keep working on it. But knowing what the right thing to do is. It is fun for me, and I'll go build another one. And it was a great exit. And another thing to keep in mind too with this is how much money you raise is really important. And it's hard to know who makes money when you sell a company.

47:30Because if you've raised a ton and you sell, and depending on what the terms of your financing are, oftentimes the founders and employees don't walk away with much. So because we had been pretty capital efficient with our company, it was a great outcome for everyone involved. That gives a lot of us that have worked on docs and a lot of freedom to go work on whatever we find is interesting. And so there's an argument to be made as well. If you've worked on something for eight years, maybe it's a good time to go try on something new, try out something different, go explore new options and opportunities because life is more than just working on one particular startup forever.

47:59That's fine for some people. There are a lot of other ways to look at it as well. Do you think there's anything particular that you would really emphasize in negotiating to protect yourselves from getting overly diluted or is it more about just having the right lawyers to work with? Oh, for fundraising? Yeah. I feel like that's an important thing. I've seen some people do extremely well where they preserved a lot of their wealth, just the way they've negotiated the terms as they took on capital versus others that didn't do so good. And they, as you mentioned, didn't have much to show for it at the end of the day.

48:27Yeah. What I usually tell founders on this one is don't raise a down round if you can avoid it. Obviously, you want to avoid that, but that's where you get really diluted. It's less about the terms of an individual round, and it's more about how many rounds you raise. So if you raise a lot of rounds, you get incrementally diluted a lot. And then there's obvious things like if you can avoid it, don't do 2x liquidation preferences. That's where you run into a tough spot or participating preferred. So there are some terms that are coming back into style now that investors have more leverage, where those terms can really buy you as the founder later, depending on how your company goes.

49:02It's also an argument in favor of not raising at the highest valuation possible. If you're raising money from investors, there is something that's fair there for like, how much money are they making? How much money are you making? And there are situations that can feel unfair, but they can happen in both directions. For Docsend, our funding rounds were clean, straightforward, 1x liquidation preferences, but we beat the IRR of all the funds that invest in Docsend. and we were a good single or a double in BC land. We weren't a home run. We did well for our earliest investors, but for the later ones, we were okay.

49:33It's not what you aim for in venture, but it's still a good outcome for them. I'm proud that everyone made money on the deal, which is not always the case. What's advice you'd give to acquirers that are looking for a successful acquisition? Yeah, you want to acquire the companies that don't necessarily need you. So some of it's like being proactive and following people who are really thoughtful about the space that you're in and spaces that you're adjacent to. And then probably be relationship oriented, figure out what founders want and what they care about. Because there are a lot of great acquisitions that can happen when there's trust on both sides.

50:09And when as an acquirer, you can see someone perform over time and you get to know their business, it gives you more faith that what it is real. And if you can understand what their motivations are, There are some times where founders are like, they're either tired or they don't like it, or they don't get along with their investors, or they're coming up and around to funding, but man, would they rather exit? It's very hard for founders to feel like they can be open with CorpDev or an acquirer because they feel like they're negotiating from the get-go. And anything they give is going to come back to bite them later, which is sometimes true, but that is really a hindrance in terms of understanding is there real value to be created if an acquisition happens and like what a fair price might be and what that might look like.

50:50My advice for acquirers is to be proactive with the startups that you like and try to understand their motivations for what they want with their business. Because some startups just don't want to be acquired. Don't try. Other ones would really love to, but only in certain conditions. Figuring out what the founders want, I think it's really important. In addition to understanding is there good synergy with that asset? Building that relationship over time is something that can be very helpful for figuring out is there good timing on one side or both sides in figuring out can that acquisition really accelerate and accomplish for everyone involved their agendas.

51:21So as a cooperative leader, what would be my best pitch to get in the door, get the conversation going and start building that relationship with you as a founder? Information sharing. Hey, we want to trade notes with you. Also saying we're not competitive. I've got a lot of respect for what you're building. I don't think we're going to chase it down, but we love what you're doing and it's adjacent and maybe partnering with you would be great, but we'd love to just understand where you're coming from and trade some notes on it and talk to an exec. Would you be willing to make time for that? And bring in an exec to just share some notes on it.

51:49And what are you seeing? And why do you like that? But I think you have to de-escalate it because you don't want them to think you're just hitting them up for information so they can copy you, right? You're going to copy them. So making it feel open, trusting, and just trade notes. I think founders are generally pretty open to that because they want to learn. It feels really flattering to them, but they want to feel like it's safe in some way. And I think that could really give you a sense for how you're all thinking about it in trading notes and seeing if there's alignment there. Let's make the intro.

52:17We're in adjacent industries. There may be some potential opportunities to partner. Let's get together and compare notes. Something along those lines. And I think it helps to bring in an exec versus just like just a frontline BD person, at least for the first call. Especially if you're in corp dev and you're trying to get your execs to shop because you need an exec sponsor if you're going to do a deal. And especially when you're a corp dev and your goal is to acquire companies, you don't want to force it, but you certainly would love to have it happen if possible. you are trying to get your execs to like do a bit of company dating here around hey would you take a meeting with this founder to trade some notes and see if you can both learn something and see if there's alignment there and if there's a corp debt person you can create that connection and enable that to happen because that's what happened for me at dropbox i went to an exec and i just let them know what was going on and they went off internally and so as a corp debt person you would love to see that happen if you're able to create that connection between an exec and like a founder at a company that's adjacent to you and if down the line that turns into both sides being willing to do a deal and have you acquire them, then that would be fantastic for you as corporate dev.

53:14What's the craziest thing you've seen in M &A? Well, I haven't been in that many deals. I will say one thing that I wanted to share that's funny about with Dropbox, I was giving Drew a demo of Docsend and some of the stuff we had built in the last couple of years since he'd taken a look at it. And it just didn't work because of my internet connection. And so it was really funny. It was just awkwardly on a call and I felt like a salesperson and we made some comment around. Sometimes the demo guys just don't smile on you. But it was just funny that he's firing the company and I'm trying to demo the software for him and it's not working.

53:47Yeah, no one time, but it's not even a sale pitch. It's like, you've got 15 ,000 customers. This must work. It works all the time, every day. It's fantastic and it's not working right now. I have heard other crazy things happen where deals fall apart at the last minute or there's all sorts of things that trust breaks down or things are misrepresented or there's a lot of crazy stuff that happens from like a negative perspective. So I think a lot of times people being cagey, it's for good reason. But yeah, there are a lot of good stories from M &A land. To your point though, that you don't have a lot of founders on your podcast, it's because a lot of times people either legally can't talk about them or just don't want to talk about them.

54:25So there are just a lot of crazy stories that likely remain behind closed doors, both good and bad, crazy stories. It's right. It's getting there. The industry's warming up a little bit. We're trading notes and trying to learn lessons from each other. and I think people kind of know when to nominatize certain stories, but we're getting there. Yeah, that's great. Russ, this has been great. Thank you so much for taking the time to have this conversation. I learned a lot and you've helped me become a better M &A scientist. All right, thanks, Kisan. Thanks for having me on. Hey, those of you still with us, thank you for sticking through.

54:51Till next time, here's to the deal.

55:05Thank 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.

55:50Again, that's mascience.com. Here's to the deal.

56:03Views 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.