Chapter 12Herding Cats: Aligning Spouses, Cofounders, Investors, and Employees

In my case, and perhaps to you as well, the most important person to align with before deciding to explore an exit was my wife. Charis was very supportive throughout the years ever since the founding of Polarr and leading up to the M&A. When I made the decision to sell, we also had a one year old and also a baby on the way. While we never explicitly discussed the company's future and exit plan together, when I did tell her that I was going to explore selling the company, I could feel a sigh of relief from her that there was finally going to be some potential predictability and perhaps a sense of normalcy after years of hard work. Aside from getting support from her on selling the company, she also made it explicitly clear that she had no expectations for any potential payout from the exit. I don't know how normal this is from other marriages, but because Charis also worked and consistently made much more money than I did working in big tech, her stoicism and the stability of her income also freed me from additional pressure to land the company.

Some of the loneliest times that I ever felt was also during the M&A, when nothing was working, and I was on the brink of throwing the towel and walking away from it all. I also realized that there were days when I became completely insufferable where the tiniest inconvenience or annoyance would trigger me to have a complete meltdown. Unfortunately, that’s what M&A did to me, it was impossible not to be emotional about it when the stakes were so high and margins of error were infinitesimally small. Charis was my bedrock throughout that entire time. For things that I couldn’t talk to my cofounder, my board or my team about, I talked to Charis. She acted as a sounding board and a damper to my raw emotions. It would’ve been a whole lot harder to have gone through this process alone.

For cofounder Borui, he actually planned on marrying his longtime girlfriend in 2024 and starting a family, but unfortunately broke up in the same year, and that was three years into our M&A journey. I don’t know how much of a toll M&A had on their relationship, but I know for sure that he too had gone through similar episodes of intense emotional rollercoaster from the M&A. One minute we expected the deal to close, the other minute we were informed that they were no longer interested, and the majority of the time was spent waiting for a response or preparing for an all-important make-or-break meeting with the potential buyer. And Borui was a lot less emotional compared to me and did a much better job compartmentalizing different areas of his life to different sections of his brain. He rarely let work get to him and lost his cool, but still, M&A was a whole different beast compared to running a company.

So perhaps a few words of caution with respect to alignment with your significant other when going through an M&A is this: be transparent of what you are going through but also try to be a bit more patient and stop taking yourself so seriously. Be quick to listen and slow to judge, and take a deep breath first before reacting.

If you think marriage is complicated, try sharing a company with someone through an M&A. Every founder relationship has buried friction: equity splits, differing risk tolerances, family priorities, compensation histories. Those differences rarely matter when things are going well. But when you're staring at a term sheet—or worse, when no term sheet arrives—they can erupt.

For Polarr, the tension was structural. Borui and I are both founders, but because I joined a few months later, there was an uneven equity split. This might not be an issue when the exit terms are favorable and the spoils are plenty, but would become contentious when the deal is small or when it doesn’t even clear the preference stack. In our case, Borui owned nearly 5 times as much as my equity in the company, so say there was a $600K proceeds for the founders, it would have meant that Borui would walk away with $500K while I only got $100K. To add insult to injury, the majority of his shares were given on day one while mine were options. So his windfall would have little tax implications while I had to pay ordinary income tax to every single dollar. To me, this did not feel fair especially given the amount of effort both of us put in in building the company but also preparing the company for an exit. There was also this other dynamic in place where because Borui had more ownership and also he did not have a family and liquidation pressure, he was more incentivized to keep building the company with the remaining cash if no buyer was found, and I would be faced with the decision of either breaking the bank to exercise my vested options, or potentially walk away from it all with nothing.

The two of us had a series of uncomfortable conversations regarding this dilemma, and they were probably the toughest but the most important conversations we ever had for expectation setting and alignment. Now the thing to understand is, for most M&As, especially if the acquiring company intends on keeping the team around, the deal needs buy-ins from all the cofounders who are still working at the company and have significant ownerships. Hence, for us, the mutual agreement was that we would come up with a scheme that was fair that both of us would feel comfortable accepting. Here are some practical guidelines for us and hopefully it would also be helpful to you.

Regarding the existing unequal split of the equity portion, we agreed that it was not something that would be worth fighting over, especially given that it would require additional board approvals and lawyers drafting up new vesting schedules. Furthermore, even though we did have a large option pool, our vested shares still dwarfed the pool, and it would not be prudent to issue additional shares to dilute existing shareholders just so that we could settle the scores on the equity portion. We aligned that in the case that if the closing considerations did in fact clear the preference stack, then we would follow the existing waterfall structure, and Borui would get four times of my proceeds. However, as there typically there were two parts when it comes to proceeds for a M&A, considerations, which was cash or stocks paid upfront, and also retention, which was cash and stocks paid after the acquisition, my ask was that my retention amount needed to make up some of the difference in the closing considerations. Of course, this would still require approval from the acquiring company, but at least we had alignment that an outcome with this type of structure was something that we would both be comfortable signing and committing to sticking together until the end when a buyer was found.

Now the easy part was done, the more difficult discussion surrounded what would happen when the considerations did not clear the preference stack, meaning the common shares gott wiped out and Borui and I received nothing from our equity portion. In such a case, a buyer would still put together an attractive retention package for the team, but how would that get divided, and should equity still be a consideration in such a case? There were a number of heated debates Borui and I had for this particular scenario, where my argument was that retention was a function of how important an individual is to the acquiring company, and not a function of the cap table, which would be underwater and meaningless when preference stack is not cleared. Borui’s argument was that the cap table still is reflective of the importance of the individuals’ values to the acquiring company, albeit only as a proxy. And in these debates, I was grateful that Borui eventually made concessions and agreed with me that retention allocation was a function the importance of the individual to the acquiring company, and for that, because both of us would play equally critical roles in the integration post M&A, and we should get equal amount in the case we were bought but not clearing the preference stack. While the final allocation was slightly different to what we initially agreed upon when we finally sold in 2025 (I made some concessions to the initial proceeds as I was getting paid more than Borui since our Series A in 2019 because I had a growing family, Borui took a higher signing bonus based on the total salary differences we had over those years), past alignment conversations served as the cornerstones on how the proceeds should be divided. So when we finally got down to the numbers, the discussion was smooth and neither of us saw any surprises from where we each stood. I was thankful that we had those heated debates before and during the M&A process as it aligned us to both wanting to get a deal done in anticipation that if a deal did happen, it would have been one that both of us were content with.

The thing to avoid here would be to not let each other know how we felt about how the considerations and retention should be allocated. Or worse yet, when the deal is ready to be signed, surprise each other with demands that could potentially jeopardize the deal. Now, these typically are not issues when a deal of gargantuan returns is on the table and everyone walks away as a millionaire, but the fact of the matter is, majority of acquisition deals do not generate crazy returns, if at all, and it is important to set the appropriate expectations for those cases with your confounders.

Most of the time a startup board is made up of the cofounders and major investors, and later on when the company grows bigger, independent directors as well. The board has a fiduciary duty to all of the shareholders of the company, which is the highest level of care and loyalty in the best interest of the company. Typically in early stage startups, the founder/CEO reports to the board and the board has the power to fire the CEO.

For Polarr, the board members were Borui, myself, Heidi Roizen of Threshold Ventures, Mar Hershenson of Pear VC and Bangaly Kaba who was independent. Now in the case of an incoming acquisition inquiry or a potential offer, it’s the duty of the CEO to report it to the board and solicit input before acting further. The CEO doesn’t have to follow the board’s directives, especially if the board members do not have certain rights or hold majority of the company stocks. However, it is still paramount to inform the board of any such developments and keep them in the loop.

We made the rookie mistake initially when a big pre-IPO company reached out with an acquisition inquiry where we forgot to immediately let the board members and advisors know of the engagement. This was a big no-no, and could be grounds for breach of fiduciary duties.

At the end of 2021 when Borui and I decided it was time to sell, we spoke to each board member individually before an upcoming board meeting and told everyone our rationale - there were a good number of inbound inquiries and we wanted an exit. Both Heidi and Mar were very supportive, but also gave us the lay of the land that it wasn’t going to be easy even though we thought we had actionable inbound interest. They did not explicitly say what their expectations were from the sale, as both of them were ex-entrepreneurs and perhaps both had the foresight that an exit would be difficult. Nevertheless, they signed off on the plan for us to bring on bankers and begin engaging in the M&A explorations.

Perhaps the best advice that I got from an advisor during this time was that an exit did not have to be the only option we explored in case the M&A market was cold. She suggested that given we had a very healthy cash flow, lots of cash in the bank balance, and a lean team, we could also look into buying out the preferred shares and continue operating the business or pivot into something else. In retrospect, this maneuver could have helped us in the M&A market, as a cleaner cap table and no investors in the mix could entice more potential buyers to give offers as less stakeholders would mean less friction for completing a deal.

Anyway, I was glad that we had a board that was involved every step of the way during our M&A process. While they weren’t involved in any of the reachouts or conversations with potential buyers, they did provide us with the right set of bankers and advisors who we leaned on heavily during this time.

Now I should mention there were two other ways the conversation could have turned out when we approached the board for their blessings for selling the company. In one extreme scenario, if the company was burning cash, had no traction, and very short runway left, the board would have responded by prescribing the founders to wind down the company gracefully to minimize litigation risks. Pursuing an M&A under such circumstances would be improbable, and at a very least, major restructuring or layoffs need to take place first to extend the runway. On the other extreme end, if the company was doing really well, making big strides and growing like crazy and the founders asked to explore the M&A market, the board naturally would question the rationale for selling and may instead opt to change the CEO and executive team instead. Unless the acquisition offer provides a return that is tens or hundreds of times higher than initial investment, the board likely would recommend continuing operating independently with or without you as the person running this business.

Nothing needs to be disclosed to investors who are outside of the board at this stage. Most of the time, small time investors would follow the lead investor and no action needs to be taken. In fact, preemptively informing preliminary M&A activities would most likely be a distraction as naturally these investors would want to understand the likely returns and the impact to their portfolio and tax situation in the coming year. The bottomline is, however, nobody knows what's gonna happen, especially at this stage. The right time to inform them is when a term sheet is actually signed, and only at that point let them know the terms and considerations and answer any questions they may have. Now unless it's a full stock purchase, which would require every shareholder's approval for the deal to be consummated, typically just the majority of the shareholders are needed to approve a deal. Your lawyers will recommend you to get approvals from all the shareholders, but the bottomline is you only need the majority, and make sure that the major shareholders are well-informed and kept in the loop and as long as they are onboard, a deal can be signed off.

Also do not purposefully withhold this information from our outside investors. If you have regular syncs with them, it's totally fine to let them know that you are exploring a sale and ask them for guidance and advice if you need it. Sometimes things work out serendipitously with these types of conversations. They may introduce you to the right bankers, or connect you with a potential interested party. Just avoid setting expectations on the actual sale terms.

Every situation is different, though the general message to the team should be to not disclose them of any pending M&A activities. This is because in most cases the deals do not close and it would cause irreversible damage to the trust and morale of the team. Furthermore, When you do start engaging with potential buyers, the company still needs to be operational and continue serving existing customers. Giving the team this additional information would be a huge distraction and cause unnecessary drama, and once you tell the team, they will ask the progress of the M&A at every interaction you have with them whether it's 1-1 or company all hands. More often than not, the information you have is also just a snapshot of what your banker or point person provides from the potential buyer, no one can really read the tea leaves except when it's a definitive agreement with terms and considerations spelled out.

The mistake that we made when starting the M&A process was that we told this to the entire team. This wasn’t done frivolously, as there were mainly two considerations we had. Firstly, we were in the midst of a failed pivot towards building a social product that saw very little traction that was also extremely costly to develop. It was clear that this strategy was not working. We needed to do another layoff in the middle of 2021 when we just did one early 2020, and the logical thing at the moment was to go back to double down on the products that were generating meaningful revenue for us, and look for a buyer. We felt at the time it was unfair to the team to announce the layoffs and pivot without providing the necessary context, and there was also a fear of mass attrition coupled with loss of confidence would result in the company’s demise. Secondly, because we did have a number of inbound interests from companies at the time that would require Borui and I to be unavailable for extended periods of time for meetings and preparations, we wanted to be transparent to the team on why we would not be reachable during work hours.

One other thing that we put into place was a retention bonus that we allocated from our existing cash balance to be paid out at a future date to keep key employees for the M&A. Because we did have a large cash balance, we earmarked a total of $377,000 to be paid out to our employees on May 31, 2023 or the date when the company was sold, whichever came earlier. This coupled with the news that we would be exploring the M&A market as well as another workforce reduction was communicated to the team in April of 2022, which got the team refocused on working on our core products, and we saw no turnover for nearly two years.

Now looking back, the retention piece was not without its own issues. Due to the fact that we did not sell the company by May 2023 (we were way too optimistic), we saw voluntary turnovers in 2023 after the bonus was paid out. Furthermore, when we did due diligence with various potential buyers, the topic of this one time payout was heavily scrutinized and reduced our negotiation leverage as the buyers knew that we intended to sell the business, so all of the initial offers were mediocre as a result. In retrospect, the right thing would probably be to just communicate to the team that we had to reorient the company back to products that made money and left out the part about M&A. Alternatively, we should have thought much harder regarding the contingencies when the company is not sold when the retention payout deadline is reached. This would have drastically reduced the pressure we faced during the M&A process, and put the company in a much better position.

However the benefits that we enjoyed from being fully transparent with the team was that there was a clear sense of ownership and operational excellence from the team. Even though Borui and I were practically unreachable for the majority of the working hours, the team operated independently on the product and engineering goals, and did not need any input from us.

Finally, we had ex-cofounders who held meaningful shares as well as past employees who exercised their shares when they left the company. In the lens of an M&A, there is no input needed from this group unless it's a full stock purchase deal, of which every shareholder even if they held one share needs to approve the sale. But very rarely, that is the case. And no communications need to be made to this group of shareholders until when a deal is about to be closed. Even at that point, a shareholder vote only requires a majority depending on the company bylaw, and most likely these votes would not matter at all. The thing to watch out for is to make sure the discovery as well as engagement with potential buyers are fully documented, as there could be disgruntled ex-employees or ex-cofounders who litigate on the grounds that they did not receive the rightful returns from their shares either they felt the company was sold for too cheaply, or simply because they did not leave on good terms. Thankfully, this did not happen to us, but I have heard numerous stories from other founder friends whose ex-cofounders or ex-employees block M&A deals because of either legitimate concerns or frivolous reasons just to spite them. If you are in the unfortunate situation where you foresee potential blowbacks from ex-employees, the best is to onboard a reputable law firm early during the M&A process so that everything is documented and operated in the bounds of law.

Now one thing to call out is that you may never reach perfect alignment across all the stakeholders during an M&A, and perhaps, when a deal is consummated, there are folks mentioned in this chapter that you may never want to talk to interact with again. The learning here is that we are all humans first. We have our own needs, wants and insecurities. The best way to avoid these ugly fights is to treat each other with respect and empathy, and try to help others out even if it means going out of your way. People rarely remember exactly how much money they gained or lost from a liquidation event, but they will always remember how you treated them.