Negotiating a Successful Exit
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Ep. #790 - Negotiating a Successful Exit

In the 50th episode of the “How to Start a Tech Company” series, Matt DeCoursey and Matt Watson talk about negotiating a successful exit. Join the Matts and hear from their experience on how they go about negotiating successful company buyouts.

Catch the next episode of the “How to Start a Tech Company” series for more insights about the tech startup journey.

Covered In This Episode

How can you best set up a successful exit? Matt and Matt share what you need to prepare for in this Startup Hustle episode.

Get Started with Full Scale

They share their insights on how they’ve negotiated prior exits and things to look out for along the way.

Listen to the rest of the “How to Start a Tech Company” series here.

Startup Hustle: A Podcast about Growth and Innovation

Highlights

  • What is a successful exit (1:48)
  • The anatomy of negotiating an exit (3:02)
  • Watson’s successful VinSolution exit (07:04)
  • The importance of having the right people and help (14:24)
  • To begin with the end result in mind (16:59)
  • Setting deadlines (23:06)
  • Negotiating an exit is a pressure-packed situation (26:41)
  • Leveraging (28:22)
  • Negotiations favor the prepared (29:33)
  • Negotiations are a whole lot of hurry up and wait (31:14)
  • Negotiations are always a two-way street (37:25)
  • Push back (40:02)
  • Negotiating a deal is hard (42:38)
  • Wrapping up (43:49)

Key Quotes

It’s so different when you’re dealing with stuff like this sell in a company that you want to have the right people that have been through this before. So when the buyer sends you an offer, and it’s you know, for participating stock versus participating preferred equity, that you know, what the hell the differences because it’s a huge difference instead of just saying, yes, there’s so you know, so many little details in that stuff, when you’re when you’re negotiating a deal, that you want expert lawyers and accountants and investment bankers.

Matt Watson

The Art of War and it’s very brief book and it has some principles and you know, a lot of them are things like you know, it only engage in battle when you’re in a position of power or like not, you don’t want to be on the load right now. That’s when it’s time to bail and go and go somewhere else because you’re fighting an uphill battle. So but one thing is, you know, like negotiations favor the prepared. Yeah. And so be prepared and have your financials and other info.

Matt DeCoursey

You got to push back, right? So they know to stop pushing you. If you don’t ever push back, they’re just gonna keep pushing you to that.

Matt Watson

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Rough Transcript

Following is an auto-generated text transcript of this episode. Apologies for any errors!

Matt DeCoursey 0:01
And we’re back for another episode of Startup Hustle, Matt DeCoursey here with Matt Watson. Hi, Matt.

Matt Watson 0:06
Dude, I’m so excited to be done with this series. It’s time to negotiate an exit.

Matt DeCoursey 0:12
Amen. Amen. Part 50. Part 52 months late, kind of maybe. But I feel like the quality we didn’t rack up a lot of technical debt on this one did way

Matt Watson 0:24
for a tech company over a 12-month schedule, being two months behind. I think we’re ahead

Matt DeCoursey 0:31
is a win, right? We’re ahead. So, well, fortunately, we took our own advice, and we assumed that things would take twice as long, so I’m looking at it more as being 10 months ahead.

Matt Watson 0:41
Yeah, we’re ten months about that.

Matt DeCoursey 0:44
I know, and way under budget, that’s for damn sure. Way under budget now, by the way, Matt, speaking of a budget, says this episode of Startup Hustle is sponsored by Gusto. And, you know, they have modern solutions for modern HR problems, whether it’s talent management, payroll, or onboarding tools. Gusto HR platform has it all for you to be smarter than your competitors. And try a three-month free subscription. Just go down to the shownotes gusto.com forward slash Startup Hustle, gusto.com forward slash Startup Hustle. It’s so much easier to just click the link but yeah, so you know, thank you, Gusto, for helping us stay ahead of budget. Now, cool platforms. I was listening to last week’s episode, on my way to the office today. I’m out, and you’re really excited about anything that helps with HR problems, man.

Matt Watson 1:40
Absolutely. Yeah, I had to deal with more of that bullshit this week.

Matt DeCoursey 1:48
Yeah. The ghosts, yeah. All right. So here we are part 50 of 52. And our 50 part series about how to start a tech company. Yep. Now in the prior weeks, we’ve talked about reasons X was acquisitions fall apart, preparing for your exit, what is an acquisition, raising capital, and a whole lot of other things. Now, when it comes in, you know, obviously last week, we’re talking about why things fail. Negotiating a successful exit is exactly that, not failing. Now, one thing to keep in mind, you know, when it comes to like, negotiate of exit strategies, it’s defined as pay and benefits you can receive when you want to sell your equity in the company. So these things are historic, I’m not going to pretend to have any firsthand experience with this. I know you do. But I mean, overall, when it comes to negotiations, it’s tough on both sides, and the processes emotional, we’ve talked a little bit about that, and it requires care, empathy, and patience. And, you know, the more info you collected during due diligence, in other cases, it’s going to really help but like, I mean, when you think about negotiating and exit, you’re, you’re the master?

Matt Watson 3:02
Well, and when you think about it, it’s a lot more complicated than it seems, because you’re really negotiating a bunch of different things, right? You’re not just negotiating a price for what you’re going to sell the company for. You’re also negotiating, how this impacts all of your employees, right? How does it impact all of the shareholders? How does it impact your customers? How does it impact your product and what you’ve built, right? You know, who you sell the company to, and the state at which your company is in. And the reason you’re trying to an exit, you know, can dramatically change a lot of these different factors, you and I both know somebody who recently tried to sell their business, and didn’t end up doing it. And they were just like, desperately hoping to get enough money back to pay back the investors. And not even all the investors, I think we’re gonna get paid back. But ultimately, for them, I think the deal fell apart, because they didn’t like the jobs that they were gonna get at the new company that was part of the deal. Like, they weren’t even going to get any money in the deal, because it was sort of a, I don’t want to call it a fire sale, but it was just kind of more of an exit to kind of get out from underneath all of it. But ultimately, they just decided not to do it, because they didn’t like the jobs that they were going to get and what their salary was going to be at the new company. Like a lot of this is really can be really complicated. There are a lot of factors and it depends on the type of company you have and the situation you’re in.

Matt DeCoursey 4:28
Well, I’m in certain parts of it, you know, when the tide rises in one of those areas that may lower and another one may bring all the boats up, like and this is like, you know, kind of like I’m picturing like a marionette and that someone’s pulling the strings and you know, it’s kind of and the real these things really are fluid and in motion and then I don’t think you can really predict some of this I think much like we’ve referred to and so many things on this podcast, like 80% of it is probably the same because there’s just certain things that need to occur and do and then but it’s the 20% that is variable that really creates the true variations. And, you know, we were talking last week about why things fail. And do we and we only scratched the surface. And one thing, one thing I was I really found interesting. And, you know, I don’t want to digress back to Episode 49, because I want to talk about this other one. But you hear every day you hear all your news feed is loaded with a successful funding rounds and successful exits. And no one ever talks about the reasons they you don’t hear about failures, nor are they publicized. And that’s why I think and this this episode is akin to that because there really isn’t a ton of stuff out there. You okay, this is not the headline on TechCrunch. Today, founders successfully negotiate an exit.

Matt Watson 5:49
Nope. No, it’s not.

Matt DeCoursey 5:50
It’s like Matt and Matt Corp gets acquired by Globo Corp in $1 trillion. All cash deal. You liked what I did there?

Matt Watson 6:02
I like that. I’ll take it.

Matt DeCoursey 6:04
Yeah, I don’t need a lot of negotiation past that. There’s any job that I probably take for those terms. But yeah, but the thing is, is like it’s the first time these things fail more than they don’t, and you don’t hear about it. And then often people don’t want to talk about well, like we, we mentioned an example company. And you know, I know who you’re talking about. And in some of those cases, there wasn’t a big lever for the sellers to pull. Because there’s a middling company, and there’s not so we don’t have an emergency the buyer? Well, and that’s because cuz you don’t have an auction with one with one better. And so, you know, when it comes to negotiating? Well, let me ask you a question. Man, I Okay, I’ve known you for a long time, I’ve recorded hundreds of podcasts with you, I was the best man and your wedding, we are in a company together, which, by the way, FullScale.io, if you need help finding developers never asked you this. Who negotiated the did the actual negotiation for the VinSolutions exit. And then yes, I can also say the same thing for Stackelberg.

Matt Watson 7:04
So on the VinSolutions side, we had hired an investment banker, which was called a Presidio out of San Francisco. And they were the ones that kind of helped represent us, and were on our side and helped, you know, put together all our financials and forecasts and models and all, you know, all this kind of stuff that you need. So they were the ones that kind of ran the process, they, you know, they knew a lot of the big VC and private equity groups, and they had done several deals in the automotive industry. So they were the ones that were kind of helping negotiate and run the process. And if you’re going to run a really big process, and you’re going to sell the company for a lot of money, those kinds of people are really valuable. I mean, ultimately, I think they definitely helped us. I mean, we might have paid them like a million dollars or a couple million dollars on bullshit, though. I mean, they got a lot of money.

Matt DeCoursey 7:51
Yeah, but that was like one, one to one and a half percent total transaction. Yeah. So the question is, is what as what well, what’s the what’s if, if, you know, what’s the what’s a couple of the things that you learned from them that you absolutely probably wouldn’t have considered done or known without them?

Matt Watson 8:10
Well, a lot of what they helped with was just preparing all the financial models and stuff, you know, trying to figure out, you know, analyzing our books and our history and trying to figure out how do we tell the story and forecast growth and, you know, margins, and you know, all that kind of stuff. And, and some businesses are more on top of that, like, they know their stuff really well. And back that strap shape. And actually, that time, I don’t know how well we did or didn’t that was so long ago. But that was their job was to come in and try and help figure out how do we package this thing up? How do we make it look good? How do we make it sound good? How do we present the numbers in the way that people are gonna want to see them? And I think there’s also a certain amount of credibility you get from working with a well established investment banker like them. And you know, they had sold several other automotive companies to some of the big strategic acquirers. So pretend like you want to sell a social media company, right? Like if you could deal with somebody who had, you know, firsthand experience working with the likes of Facebook and Twitter and Google and stuff like that, like, that would be great. And they can probably open doors that you by yourself couldn’t open, right? And get their attention, say, Oh, we got this really hot company and whatever, and they would take it more seriously. So investment makers, I think can be really helpful. To that point. And to and to what you said earlier, like, you usually want some sort of auction app and right, you want multiple buyers. And when they ran a big long process for us, we actually think about like a March Madness bracket, right? We had like the first round of people, like we just sent them a packet, and they had to show some sort of interest and only if they showed some sort of interest, did they even get to move to the next round and like actually talk to us, right? So there was actually like some several, like, two or three rounds of that. And then we would go back to them meet them and then they’d have to, you know, improve their offer and and it got down to Uh, you know, three or four people in the end, that we would go see and wine and dine and whatever. So it was it was a several wave process and the offers just got better, you know, every week, every month as we went through those, but that process took, it took probably six months. And then once we got to the final, you know, buyer than the process took, you know, two or three months or whatever to finalize the deal. But yeah, it was a lot of dog and pony show and but the investment banker I think helped us a lot. At the end of the day, they they helped make, you know, put, you know, show us in the best light, and they have some connections to help open some doors, they have relationships with different VCs and stuff and help get us in front of the right people I think was the biggest value that they brought.

Matt DeCoursey 10:44
That was 100 and $50 million transaction and then you look and I can see why that was a key of that. Now. If you go even bigger you talk like true, like Wall Street. Yeah. Mergers and Acquisitions stuff. In those cases, those deals require like That’s why like Arthur Andersen Yeah, like he’s like, there’s like the, I think there’s like four of them or something. And we’re some of those things like those deals will can’t and won’t even happen, or pass even regulatory approval without that kind of involvement. Now your company was working for you, there could also be an intermediary.

Matt Watson 11:19
Yeah, and the other thing to consider there is there’s a lot of cya that goes on, right, a lot of cover your ass kind of stuff. And, you know, from the seller, from my perspective, the investment banker is trying to ensure that we’re legit, and all of that and go through everything and do that do their due diligence, so that when they go to the VCs, and these VCs only want to deal with, you know, top tier things that don’t have a lot of hair on them and a lot of problems because they’ve got all these big institutional investors and all that, right. Especially when you’re talking about big deals, you got big money, and it cya all the way up and down. These people only want quality deals that don’t have weird problems and hairy things. And so yeah, definitely, when you’re talking about the upper echelon of stuff, you’re dealing with people that are trying to see ya all the way up and down. And we dealt with that with stack fire, right? Like, we’re selling to private equity, but the private equity has LPs, limited partnership investors. And, you know, the, the private equity has to cover their own, but from their investors, it’s like, you get the layers of that, right. And the bigger the deal, the more people involved in the more layers, the more money and everybody wants to see why.

Matt DeCoursey 12:28
Well, and for the stack by one, I have limited involvement in that and just basically the relationship that Full Scale had with that. But those are very sophisticated people on the buying side of things. Yeah, they were, I mean, yeah, I mean, this. And here’s the thing is, if you want to play in the big leagues, you need to come with a big league roster. And yeah, you know, part of like these big transactions is, you know, like, you’re talking hundreds of millions of dollars. And that’s where I personally, you know, would recommend you got to find experts. And, Matt, you know, here we are, you know, it’s gonna be roughly the 800th episode of this show for years. Amazing. I can’t believe that 150,000 downloads a month right now, by the way, thank you, for all of you listening, like seriously, thank you, like, you have anything in the world you can do. And you choosing to pay attention to what we do. It is noticeable and it is appreciated. But yeah, as we’ve kind of continued to talk to people and you know, like this has been it Startup Hustle has been a master’s degree in entrepreneurship on many levels for me, but I think one of the big takeaways that I’ve gotten over time and maybe I’ve just matured a little as well as just really appreciating the expertise that certain companies software or service providers offer. Yeah. Cuz like the thing is, is well, okay, I’ll give you some perspective, we have three different attorneys, not one firm we have three different because they are good at three different things or Well, one of them’s just a third of the price of doing some of the things that the other ones aren’t so we have one attorney that is like literally like the startup guy, you know, and like answers questions that and the thing is is okay, now that is hundreds of dollars an hour I’m not gonna put him on the pedestal for that but but the thing is, is when people complain about that shit, they’re like, Oh, it’s so expensive, you’re not paying for that hour you’re paying for all the hours that they took to learn all that stuff in the one hour that you’re getting the information

Matt Watson 14:24
into so avoid mistakes right like in I just had to cover your ass and I just had this happen real world I’m remodeling my bathroom. And the general contractor for whatever reason, had the guy who’s an electrician doing some plumbing work for me and he screwed up some plumbing part which cost $500 To replace the part because he soldered something wrong and now we got to hire a plumber to come in probably at three times the rate he was hiring his handyman and so yeah, how much it cost way more money to fix the first dudes screw up right?

Matt DeCoursey 14:57
So but when you do that if you need a bricklayer if you need a walls made out of bricks, you call a bricklayer. Yeah, not a plumber.

Matt Watson 15:02
And it’s so different when you’re dealing with stuff like this sell in a company that you want to have the right people that have been through this before. So when the buyer sends you an offer, and it’s you know, for participating stock versus participating preferred equity, that you know, what the hell the differences because it’s a huge difference instead of just saying, yes, there’s so you know, so many little details in that stuff, when you’re when you’re negotiating a deal, that you want expert lawyers and accountants and investment bankers, all that stuff, what

Matt DeCoursey 15:34
well, while you’ll hear me say, Google it, that doesn’t apply to this. Meaning, like, you know, and when you can get the info out there, but you really do and you know, now that we’re both advanced users in this space as far as like, we’re like prosumers, not professionals in that like legal and the negotiation. So don’t fool yourself into believing that you know it all. And honestly, now there are just so many. Oh my God, I don’t even have the patience to read the 50 page, document this sent over with some of these things. And then, you know, section 13.2 could have something in it that because you don’t know what you’re doing affected section 53.1 Blah, blah, blah. And he’s talking about that cya. These things trigger and waterfall and can really kind of well, kind of like I think about those old cartoons is, you know, is it wily coyote that always has things blowing up in his face? Or is it a different one? It is, is a wily Coyote? Yeah. Okay, because I’m more of a Tasmanian devil myself, kind of just, you know, always in motion and, you know, sometimes leaving a trail of dust.

Matt Watson 16:44
One thing’s for sure, when you start your company LegalZoom might be a great option when you sell it. No, it’s not not

Matt DeCoursey 16:52
not so much. Not so much Legal Zoom. Yep. Yeah,

Matt Watson 16:56
that’s the best way to sum it up, I think.

Matt DeCoursey 16:59
Okay, so a couple of things. Now, you know, one of the oldest outages for just accomplishment and success. And this is from the what is it? Like The Seven Habits of Highly Effective People, which, by the way, I’ve only read the list, not the book. But that’s, you know, I get it, maybe, maybe, I’m gonna write the shortened list of seven habits for semi Effective People. Yeah, perfect. Yeah, that’s my plan. But number one always stuck with me, which is, to begin with the end result in mind. Yeah. And that is, that is excellent advice for doing anything. So you know, the first part of our notes and our and our research have led to suggesting you need to keep your original objectives in mind. Now, what are they? Have you even established those so like, because I don’t think cell getting acquired is not an objective that is a result. So like, you mentioned, all these things, like list out what’s important to you, and maybe kind of rank them to you know, like, you have employee Vester personal, future all these considerations, and then you know what, like, it now that I think one thing I’ve learned about being an entrepreneur is you never get a truly ideal situation. And if you do, question it,

Matt Watson 18:21
you don’t and it’s weird things that go into this, right, so one of the companies we could have sold VinSolutions to I won’t name, but the guy who owned it was kind of considered to be like the Darth Vader of the industry. And we, we didn’t really want to sell the company to him. But he had made the best offer. Hopefully, somebody else made a better offer, but we didn’t really want to sell the company to him. And he had like some weird policies. Like, there was no smoking allowed on, on anywhere on the property around their offices. And I don’t know about you

Matt DeCoursey 18:53
bid, okay, I’m okay with that rule, by the way,

Matt Watson 18:56
which I’m okay with that too. But if you’ve ever seen car salespeople,

Matt DeCoursey 19:00
for a car deal, that’s maybe not the right approach. No,

Matt Watson 19:04
most people who sell cars smoke, you know, we’re just going to call the stereotype, right? And it VinSolutions we hired a lot of those people. And if you drove by or building at any time, there would have been like 20 or 30 people smoking a chimney. And so that would not work very great for our employees. You know, just now, maybe we’re in a different time and not smoking at at office complexes is more common than it was then. But, you know, it was just little things like that, that you know, from a culture perspective, like, you know, no, nobody wants to work for this dude. So,

Matt DeCoursey 19:36
so a couple a couple things, Matt first, I think Darth Vader is just misunderstood. That’s true on the Darth Vader fans, like I mean, he really showed his human side when he took the helmet off right before Luke threw him to his death or however that happened I don’t know I think the Mandela effect change Star Wars because apparently it’s not I am your father Luke, or I don’t know. Look it up. Another thing you talk about like the funny stigma this is many of you may or may not know, I worked in the music industry for a while and an unnamed company. We had to make cuts we had to. And we were having like a this big company, we had like the top 10 people in the room, I was happy to even be there. And we were going through how we could do that. And remember, these are musicians and everyone that works with star someone said we should give drug tests. And the CEO said, We don’t want to lose the whole fucking company. I just thought the car dealers man. Yeah, yeah. Yeah. And it was, you know, it’s really funny. It was it. It was true. Yeah. Yeah. So I thought that was fun. Okay, so let

Matt Watson 20:40
me drug test. That makes sense.

Matt DeCoursey 20:43
Yeah. Right. So maybe not the best approach. Now, you know, being structured is important. And that’s what I want to talk about next. But I also want to bring up that managing your team can be as easy as 123 with Gusto, no more late nights for processing payroll, or dealing with business tax filings, no more painful spreadsheets for attendance, tracking, say hello to your new smart HR platform, go to gusto.com forward slash Startup Hustle, get three free months subscription when you sign up gusto.com forward slash Startup Hustle, look, this is the stuff you have better things to do at your business than all the stuff that Gusto does for you. This is that simple. So and you talk about that structure. And that’s what we’re going to talk about next. So Gusto maps out all that stuff for you and make sure it happens. The next part of a successful exit is doing exactly that. Let’s map out the negotiation process. No, Matt, we mess this up, and 2020. So we thought at Full Scale, we had never really been truly serious about bringing in investors. But we found one that we thought would be decent. The pandemic hit right around the time we were going to cash potentially cashed a check, we tabled it, and we came back and visited. Now as that process went on, and on and on, I finally got to the point where I had to basically demand hey, I need an offer, I need evaluation, I need a term sheet, I need something because you are sucking up a lot of our time. Without it. And I made this mistake, we didn’t map out this negotiation process. Now. We don’t we’d have to almost do a whole another episode just to define that. And honestly, I’m not even qualified to truly do that. You mentioned some of the things but you need to make sure you understand what the game plan is, you know, and where you’re gonna go now. And this wasn’t an acquisition I was referring to as an investment, but like you experienced it too. Like we, I mean, we felt an organizational drag from all the things that we were needing to do providing whatever, and then you kind of get the point you’re like, So what exactly are we talking about here? Because we’re not, I don’t even know if we’re going to be close. And by the way, when we did get a term sheet, it would the evaluation sucked. And it had a shitload of fees in it. And that resulted in me saying things that weren’t polite, avoid saying the need to say things that aren’t polite, by mapping out your process? Well, I mean, look, you gotta, I mean, it’s not always gonna be rigid, but have an idea of where it’s going.

Matt Watson 23:06
The key thing here is, you’ve got to date multiple buyers or multiple investors at the same time. The absolute worst thing you can do is think, Oh, we’re gonna sell the company to Google. Let’s talk to them. Let’s figure it out. And then like six weeks go by, and nothing happened. And then you’re like, Oh, we’re gonna sell to Microsoft. And then like, six weeks go by, and nothing happens, and then it’s the next person. And it’s for you know, what, like, weeks and months went by and you didn’t get shit done. Like, you’ve got to, I don’t know how to say it. You gotta sleep around town, man, you like all of them at the same time. You’ve got to potentially talk to every one of these buyers at the same time go through the process at the same time. You have to do them in parallel you cannot do one and then wait and then do the other one and wait because nothing may ever come of it. And don’t we ever going to get multiple buyers and kind of an auction going to is if you’re talking to multiple people at the same time. So that’s the key is you’ve you’ve got to get multiple people at the same time going you absolutely cannot wait on one of them to make a decision before talking to other people. Because it will just kill you, and it will just drag on well that’s

Matt DeCoursey 24:11
that’s unless a set deadlines which is part of what in that goes very well with that what I was majoring with the negotiation process, which by the way, I haven’t done this research at that point. But I did set a deadline. I was like, Look, I need to fucking know where we’re at on this. If I don’t know by Saturday, I’m just assuming we’re not doing it. You can come figure out the rest of it later. And here’s the thing is like, you know, like, Okay, I’m not always patient. I know that I try to be polite, but sometimes you got to you got to be heavy a little bit. You got to say like, Hey, you know, like, show up. Let’s go Are we doing this? Are we not?

Matt Watson 24:48
Everybody worked with that deadline? Yeah.

Matt DeCoursey 24:51
Right. Well, you also got to be you got to be careful with that too, because you don’t want to implode things and make yourself look like a total asshole. Now. At the same time Well, that, you know, honestly, there’s probably some buyers out there that would appreciate that quality. Well,

Matt Watson 25:04
they, they struggle with it on their own, and right imagine you work at some big VC and you’re like, well, then we meet every other Tuesday is our investment meeting. And for them, they’re frustrated, too. They’re like the first Tuesday of every quarter, they want to do a deal. They like they want to do it too. So in some degree, you are putting pressure on them, and a deadline on them forces them to go back and have a reason to put a deadline. On the jack wagons. It’s slow and shut down on their end, right? And it’s not that you want to like what is the jackwagon? I don’t know. But you don’t want to you don’t want to arbitrarily like piss everybody else else off in the process, right? But you do want to say things like, hey, when do you think you can get this done? And then whatever they say you forget hold their feet to the fire. And you remind them of you said you’d have this done by then. Right? And you follow up and you send reminders, and you keep asking, and you hold them hold their feet to the fire, right? You like

Matt DeCoursey 25:56
like a sales process? Yeah, yeah. It’d be a salesperson. Yes. Yeah. And by the way, as you know, as the I was selling someone the story earlier, I was a sales trainer 20 years ago, and follow up is key. And also sometimes you got to say no, like I actually made a Facebook post the other day and in the Startup Hustle chat. By the way, if you are on Facebook, find us Startup Hustle chat. We share added content, polls, surveys, videos, stuff you don’t get on here and also, occasionally a video of Matt Watson performing feats of athleticism. Yep. Did you see that on it? Did you see that on our Startup Hustle podcast on Instagram the other day? I got nostalgic. Yeah,

Matt Watson 26:38
I know, Instagram.

Matt DeCoursey 26:41
It’s I published it as a real amount. And I believe hundreds and hundreds of people have seen it. Maybe only two likes, but a lot of people saw it, which is different now. Now. Okay, so we talked about deadlines. And on the flip side of that, you got to be careful, you don’t don’t jump the gun either. Now there this that that’s to blanket of advice to be effective. So a couple of things is I’ve seen people get real antsy as not maybe as much prior to an acquisition, it’s more prior to funding. They kind of fuck it up because they get antsy. And, you know, I want to know, and you know, they just don’t handle the pressure very well. So first off, no, this is a pressure-packed situation. And your worst personality traits come out when you’re under stress and under pressure. So you got to catch yourself a little on that. Now at the same time, like we talked about not jumping the gun like this isn’t negotiation. So don’t race to the bottom with the minimum price that you might take. Now in the world, in the world of selling, it is pretty much the world’s worst secret that you can always lower your price. But trying to increase it is very difficult. Now you have the opposite side of that with VinSolutions. But that is not that is not normal in a lot of cases. And you know, you’re sorry, if you so I was looking once again, listen to the last week, and you’re saying at one point, you guys had an $80 million offer. If you had jumped the gun and taken it out, I would love to have 100-70 million bucks on the table, man.

Matt Watson 28:12
Yep. Yeah. And, you know, actually, the Auto Trader required it.

Matt DeCoursey 28:17
And by the way, that 80 million bucks is pretty easy check to cash for pretty much everyone to so it’s like

Matt Watson 28:22
well, and, ultimately, Autotrader acquired us, but they didn’t go through any of the process. So when we originally, you know, we’re going through this process and meeting with all the VCs, and we messaged all the different strategic investors, like Autotrader would have been one of them. But at the time, they were too busy with some of the requisition. And so we just kept the process kept going, we kept talking to all these other VCs and all these other people. And then when we got to the very, very, very end, we told Autotrader we’re like, Hey, by the way, sorry, you weren’t interested just to let you know we got a deal. And we are going to be selling the company to one of your big competitors. And you’re just thinking about that. And then they basically message back said, we thought about it? And the answer is no, you’re not going to. We will be there in two days. And we’re gonna talk about this. And that’s literally what happened like so we screwed around with all these other people and got to the last minute and kind of held leverage to them and saying, Hey, by the way, we’re gonna sell to your competitor. And they’re like, Nope, you’re not. And you just never know how these things are gonna go.

Matt DeCoursey 29:19
So as we continue to move through, this next one is very Sun Tzu’s Art of War. And, you know, I don’t know, have you ever read that?

Matt Watson 29:29
No, but I’ve heard him talk about it in movies.

Matt DeCoursey 29:33
So Sun Tzu’s The Art of War is pretty much a staple in a lot of business schools, because Sun Tzu was, I can’t remember that from like the you know, like when samurais were around year 1000 kinds of stuff, but he wrote The Art of War and it’s very brief book and it has some principles and you know, a lot of them are things like you know, it only engage in battle when you’re in a position of power or like not, you don’t want to be on the load right now. That’s when it’s time to bail and go and go somewhere else because you’re fighting an uphill battle. So but one thing is, you know, like negotiations favor the prepared. Yeah. And so be prepared and have your financials and other info, and if you don’t feel like that’s a strong suit, you know, the next thing we’ve got on our last search week, we jumped the gun on a little bit, but bring in a third party. We talked about that earlier. But, you know, like that, like, Okay, are you good? Are you like, uh, are you an A plus negotiator? Because honestly, I’m not.

Matt Watson 30:30
I definitely don’t think I’m an A-plus negotiator.

Matt DeCoursey 30:33
Right? You know what I’m an A-minus one. But. And when we, when we sold stocks buy, we didn’t just insert a minus to a plus,

Matt Watson 30:41
on the sacrifice, sell. I didn’t use any kind of investment banker. So it was just me and the lawyer that did everything. I felt like I’d done it before. And I felt pretty comfortable with the process. And I didn’t really want to spend half a million dollars or whatever, we’re paying some investment banker that I didn’t feel like it was going to add a whole lot of value. Because we weren’t running a big process. We just had one suitor, right, like Netro. Talk to us, we made a million a month off; they made us an offer. And we negotiated the deal. We were earning some big process and all that kind of stuff. Now maybe we could assume

Matt DeCoursey 31:14
we can we give your Startup Hustle TV, and GoPro credit for being involved, too, because you did purge many demons from that. Yeah. And by the way, find that on our YouTube channel. We’ll get a link to it in the show notes as well. But we Matt recorded regular updates, to document the process, the acquisition, and you see, you see Matt, ah, you can literally like you, by the way, you look remarkably better now. Oh, well, thank you, then you did at the end of that. Because do you could see the strategy, and it just kind of going on. And then also like, you’re like me, you don’t like all that. Like, okay, you’re HR, you’re dealing with the ghosts of a company that you don’t own anymore? Well, you kind of do, because you kind of have some interest in that trio. But, you know, the HR stuff and dealing with that. And you know, the thing is, is when you’re already I want to go back to one thing you mentioned earlier, VinSolutions, six months to negotiate three months to close, like people really, really, really underestimate how long these things are going to take. And I mean, dude, you kind of had a baby in that timeframe.

Matt Watson 32:21
Yep, it goes on forever and ever and ever. And that all along the process is a lot of hurry up and wait. You know, like the, the private equity group would ask us for something, right? And I run around like crazy if like, oh, they want to know, you know, every customer we have and some stat or this number or whatever. And like I get all this data together and I give it to them and then like a week or two goes by, and they finally look at it. And then they ask you like more questions. It’s a lot of hurry up and waits. And in Utah you mentioned earlier, let’s let’s

Matt DeCoursey 32:52
talk about why though. Let’s talk about why because, well, first off, busy people but also multiple parties possibly involved, often legal, often accounting often, even like in stack advised case, there was technical audits and stuff like that. And sometimes those things just don’t happen quickly. And then also, if you have an attorney who is always available to do your work, the moment you call, it’s probably not a good attorney because why are they that available? So sometimes you just gotta wait for the cube. Hey, man, I have a question. I have a new acronym for our list that I had not heard of. Have you ever heard of Zopa? Zootopia? No, it feels like something you should yell and like, ah, anyway, yeah, do it again, that felt good Zopa zone of possible agreement. That’s apparently the comfort zone, in which both parties will be in a zone of possible agreement is arranged in negotiation in which two or more parties can find common ground. You mentioned I feel like I want to yell Zopa at the end of that,

Matt Watson 33:57
when you mentioned earlier, like you know, the patience required do all this and, and that’s the hardest part was for me, right? Like I was the person who was spearheading all of it. And I had like spreadsheets of all the requests that had to be done and who was doing them and all that. And all along every single day, all of my employees that are aware of the deal and that the time there was you know, half a dozen them or whatever the management team there. They want to know what’s going on. What’s the latest? What’s this? What’s that? My what, you know, my wife wants to know, like, everybody wants to know what’s going on. Nothing. Just putting in other spreadsheets, another day of spreadsheets, another day of documents, like

Matt DeCoursey 34:36
another day of waiting, it’s

Matt Watson 34:38
like a whole lot of hurry up and wait. And it’s beyond frustrating because, you know, they just they want this information. We put it together. They have some questions about accounting. How do you do your p&l? And what is income say this and what are these expenses? Why is this expense more than once last quarter and blah, blah, blah? It’s like all this bullshit. You put it together and send it to him and you just wait and they ask more questions. Put it together and wait, as it goes back and forth, back and forth, back and forth and just go is on forever.

Matt DeCoursey 35:02
Well, that’s why the final item on our list is to take a breather. Just dead, right? What? Yeah, y’all Zopa, a whole bunch. But you know, we’ve said it’s not this isn’t my quote Warren Buffett’s really well known for saying nine women don’t make a baby in a month. You can’t say certain things, just the process. You got to trust the process. Now, if the process exists, and you have the right advisors around you, and you’re prepared for it, that’s going to feel a lot easier. But look, if you get antsy, Alright, so first off, if you’re selling your company to an acquiring party, go ahead and just assume that they’re sophisticated and they know what they’re doing. And I’m telling you, people that know what’s up, they smell this stuff and feed off of it. Desperation, anxiety. Just like you know, kind of like you mentioned, like, you could have taken the ad million dollar offer which by the way, I’m sure there was someone somewhere in your life was going, Dude, you’re fucking crazy for not cashing that now.

Matt Watson 36:02
Well, and here’s the deal. We talked about negotiating. Six successful edits, edited. I can’t talk today Zopa, a successful exit.

Matt DeCoursey 36:13
I don’t know why it felt like I wanted to say, so it has nothing to do with that.

Matt Watson 36:16
I just Yeah, I wanted to say like sex it or something I couldn’t say successful exit.

Matt DeCoursey 36:21
Do that on the next episode with our resident sex coach, Kristen Thomas. Yes, I believe now, on her fourth episode, we let her talk to Lauren this time,

Matt Watson 36:29
so that it feels like when you’re talking to the buyer, right? They keep asking for all this information. And it all that just sort of feels like this never-ending test of them trying to uncover something so that then they can renegotiate the deal, right? They’re like, Oh, well, we found this thing. And your margins aren’t as good as you said, they were gonna be or this partnership, or this, you know, this hairy thing from three years ago, and you don’t have this signed employment agreement or like, whatever, right? It kind of feels like at all times, like you said earlier, like it’s a constant, like, getting to know each other and test. And then, you know, feeling out like how sophisticated we are and how we have our shit together. And at any point, they can walk away, right? So it’s like a never-ending, kind of getting to know each other and then figuring out do we know what we’re doing or not, and then trying to uncover some sort of skeleton, so that the last minute they can come back and renegotiate the deal, because I promised they’re all trying to see

Matt DeCoursey 37:25
that’s a two-way street. It’s a two-way street, you got to remember that negotiations are a two-way thing, a couple of things. And you know what, as we make our approach pattern, to wrapping up and having a successful exit to the series, soon, which by the way, we’re going to do a series on NFT’s crypto blockchain and all of that. And I’m looking forward to that to hopefully that Hunter knows, I might take 52 weeks as well as much as that’s growing. You know what, Matt, once again, today’s episode of Startup Hustle is brought to you by Gusto. If you’re looking for an all-in-one HR platform, it’s time to check out Gusto. You have everything you need and just a few clicks of a button. You’ll even get three months free when all you got to do Matt gusto.com forward slash Startup Hustle gusto.com forward slash Startup Hustle, link in the show notes. There’s also a link in the show notes for Matt’s acquisition video. And now that we were we have to. All right, I mentioned I lied earlier, Matt. I said we had an accumulated any technical debt we have, we have to go back to 49 other episodes and add the length that you can now find in this one that links to all of the tech series, which is awesome. Just them. Yes. Yeah. And that by the way, you talk about preparation. Thank you, Jessica, for preparing that because and thank you for Gigabook for helping it with it and all of it but it’s

Matt Watson 38:49
a book you know, and like completing writing the book.

Matt DeCoursey 38:53
People, well, having read through written three map people asked, What’s the greatest thing about writing a book finishing? Yes. That’s it because dude, I’m talking when you actually write a book like you go you so also yesterday, I was thinking I was like, God, is it time for me to write another book? And then literally, they’re their little this little guy? This look? No, this little guy appeared on my shoulders. What are you thinking about you stop them right now? Fucking crazy. You’ll hate you. I hate the topic halfway through. And that’s true. Now, what unless you find a good third party like Patrick Price, you’ve talked to Patrick before my editor is a sharp guy. Yeah. And, you know, once again, so kind of going back to the conclusion here, much like Patrick, find people that are going to make your life easier during this process. Also, in not secret fact of the world. It’s pretty known that most negotiations involve both parties leaving a little unhappy. Yeah. So if you think you’re getting that pitch, that’s like, not even a pitch if you think you’re stepping up to the home plate and there’s just a ball on a tee sitting there waiting for you. You’re wrong. don’t want to be that way,

Matt Watson 40:02
you got to push back, right? So they know to stop pushing you. If you don’t ever push back, they’re just gonna keep pushing you to that.

Matt DeCoursey 40:07
Well, that was my point earlier. And it’s like, you know, and so by the way, people suck at that. And, you know, my wife gets really mad at me when I push back on a lot of stuff. And sometimes I just look over at her. And I’m like, You’re welcome. Because you do have to push back on stuff. And the thing is, is back to that. Look, this is one thing I want to point out is like, These people aren’t your friends. You can be friends and have a beer after you sign papers and do wire transfers. That is, you’re on many levels. You’re your adversary, because it’s their job to get the best deal for them. It’s your job to get the best deal for you. Now, look, I don’t hate my competitors. I don’t hate that adversary or and so when you’re negotiating, this is part of the process moving forward. Another thing I want to point out is, is this is a sales process. So lean on simple sales, six follow-up handling objections. And if it is Okay, interested buyers always have objections. If they don’t, they’re not really that interested. Because it’s just part of the process to question things have more, you just have more questions, and you want to know more stuff. Don’t let that part frustrate you and make you think that it’s falling apart. That’s actually progress. Like when it when someone is buying something if they don’t honestly do if they don’t have objections, they’re not probably a real buyer. So objections are the things that essentially just require clarification. That’s it, it’s your job to clarify it. And then one other thing, and I’ll hand the mic over to you, Matt is like, you talked about the hiring the company that was telling the story the right way, and all that, you know, I commonly refer to this as fact sheet. There are infinite numbers of ways to present facts. And that means some of them have to be way better than others. So spend some time on it, you know, spend some time on it, I’ve spent, have a fun announcement soon. But I just, you know, did a lot of facts, shaping and storytelling, with a software founder that’s getting ready to raise capital. So you know, in some of that was make the message clear, make it simple, make it understandable. And then you also have to understand that people buy things, with them in mind, what’s in it for me? Yeah. And that’s, and that’s an important thing. People don’t buy features, they buy the benefits, and it’s, you know, you’re selling because you want to do something for you, but people buy because they want to see benefit from it, and you can’t make it about you. It needs to be about the buyer in that case.

Matt Watson 42:38
Well, in conclusion, for me, I think negotiating a deal is hard. And there are always a lot of factors involved. You know, for example, when you’re selling the company, is it? Is it cash as an equity, is it? You know, what is your employment position going to be in the new company? There are a lot of different factors that go into it. And the best advice I have is, is to get some help and get help negotiating and understanding what kind of market rate is, what is normal. Right? You know, our lawyer did private equity acquisition deals every week. That’s what he did. So, you know, having somebody like that, that’s helping you navigate through this and understanding what’s market rate, what are market terms, right? is really, really important. And leaning on those people to help guide you through the process, every deal is going to be a little different. The best advice I have is to avoid earnouts and performance-based bonuses at all costs. Even really want to avoid equity at all costs, right? I mean, you really want cash deals. That is the only thing that’s 100% certain. You know, when you’re taking equity in some other company, you have no idea what it will be worth later can be worth absolutely nothing later how liquid? Yeah, and liquidity in it.

Matt DeCoursey 43:49
I mean, if you’re getting acquired by a publicly traded company, and they’re gonna give you stock that you can sell at the next red light that you stop out via the Robin Hood app. That’s one thing. Yeah. If it’s in non-liquid things, then, I mean, that’s the biggest frustration that I think that our peers mean other software and just general entrepreneurs is, you know, it’s so funny, because, okay, what’s your company worth? And, you know, most people think it’s worth way more than it is okay, but how difficult would it be for you to pull $1 out of that, and, you know, that’s, and that’s, you know, a lot of acquisitions are occurring for because you want liquidity and you want to have money in there now, you know, like, overall, I mean, Matt, you brought some really great insight and, you know, once again, you know, Matt’s done this twice, and then on top of that, that my input and my experience comes from being involved with you and then just a shitload of other people that I’ve run adjacent to and you know, everyone really does kind of say the same thing it took longer than they thought it was more stressful that felt like they were there was a lot of scrutinies. There was usually one point when they were pretty positive the deal was going to fail.

Matt Watson 44:58
Yeah, up. See ya. If you don’t get to that point,

Matt DeCoursey 45:03
a coin toss moment may always happen. That’s the same. That’s the same moment every entrepreneur has in their business. And we’ve all if you haven’t had it in your business, then you’re you just haven’t made it there. That’s the moment where you’re like, Okay, I’m gonna wake up and I’m gonna flip a coin. If it’s heads, I’ll keep doing this. If it fails, I’m gonna go do something else. Now. One thing now is I actually have a two-headed quarter, but I do flip the coin anyway. So I actually did that with Jill with our ticket company that we ended up making millions from later, but I said that I was like, I’m gonna flip a coin because we were just stuck. And, and she was like, Yeah, but if its tails, are you really going to quit? And I was like, No, and I flipped it. And it was heads anyway, so I didn’t have to make that decision. But yeah, that happens. And you know, the thing is, it’s not dead till it’s dead, and it’s dead when one of the parties says, fuck off. I’m not doing this, you know?

Matt Watson 45:52
Yeah. Well, those are the word buys to buy you out of Full Scale and paying you and Girl Scout cookies.

Matt DeCoursey 45:57
Okay, first off, I’m the one that has 2000 boxes, Girl Scout cookies in my house. Don’t ask her there are no supply chain problems. Out the DeCoursey household with our boxes of books. You know what? And by the way, I’m gonna put a link in the show notes. So you can buy Girl Scout cookies from my dog? Please do if I see you by him. I’ll mention your name and your business on the podcasts about Delancey. She’s a good salesperson. Did you see her social media video that she made me make for her?

Matt Watson 46:31
Yeah, I also saw the stacks and stacks and stacks of noodles. You look like you have a lifetime supply of those things, man,

Matt DeCoursey 46:37
you know, and you know, the hardest part is none of those are mine. So like if last night at about 1130 at night, I was looking for a snack and I’m trying to not be found anyway. And I literally like couldn’t find anything I want just some sugar, and I know I can’t touch the Girl Scout cookie. Well, I can but can’t eat the product you try you buy you try you buy on that one. So well. I’m out two more weeks of this man. And I was we’re coming up on, we’re coming up on the end. And you know, we’re going to you know what, I’m going to keep those topics a secret because I want it to be a thrilling conclusion. Once again, there’s a link in the show notes for Matt’s acquisition video and also the link to go straight to what these episodes are. We’re just doing that too for those of you that are interested in the actual series, we’re going to be providing more lengths and more stuff like that little more structure because, dude, 800 It’s 800 episodes, man. So lots of sort through we get, but I think we’re going to keep doing this, right?

Matt Watson 47:38
Yeah, well, I’m excited for our new series on NFTs and blockchain stuff so

Matt DeCoursey 47:42
Well, and that’s gonna be fun we have, so if you’re still listening, we’re going to do some fun stuff with that it’s not going to just be it’s not going to be just listening. And there’s going to be a little bit of people trying to figure out how stuff works is probably among the list. Oh my god. Yeah, yeah. But look for the first episode, which will be titled WTF isn’t NFT is I think that’s really the real question everybody has. Now I’m gonna go try to sell stuff at for Full Scale and FullScale.io.