Chapter 34Staying in the Race
If running a startup is like a rollercoaster where the highs are really high and the lows are really low, running the M&A middle game is a rollercoaster ride on steroids. There will be days when you feel like you are crushing it with the buyer agreeing with you on all the due diligence meetings and they singing praises that this is a match made in heaven, while the following weeks when you get no email replies and no returned calls where all hope feels lost.
I’ve been there, I know exactly how it feels. When we were engaging with an Australian company for a potential M&A, every meeting felt great, and to say that our team killed the due diligence meetings would be an understatement. The acquiring company’s leaders as well as their technical experts were all thoroughly impressed by our customer-centricity, level of technical prowess, and our ability to execute. Nevertheless, for some reason, the replies were always weeks apart after every interaction. It has gotten so bad at one point where I personally could not fall asleep for more than ten minutes at night and would check my phone for emails because of the time zone difference. Food had no taste during that time. And when I was spending time with family, I would not be present, as my mind would be wandering elsewhere, overthinking and overanalyzing on what is the potential holdup. There were days I wanted to just show up at their headquarters, and confront our point person on what the hold up is. I would be happy for a couple days when he finally replied to our email with some superficial excuse that they are working hard on the deal, or they just needed one more sign-off before sending over the term sheet, but that day never came.
Now thinking back, I don't know how I even made it through that period, but the following were some techniques that helped me to get through those dark moments.
1. Figure out a routine
Working out in the mornings and reading at night were my refuge that got me through the middle game. Given that the due diligence phase before the term sheet is very much a function of the progress made by the buyer, there were days when I felt that I accomplished absolutely nothing because there were no replies from the buyer after a promised update. Instead, I set a goal for myself to always complete a 10K run or a 100 lap pool swim in the mornings, and read a chapter of a book in the evenings. As trite as it may sound, these tiny milestones helped me psychologically as baseline accomplishments when otherwise no progress feels to be made.
2. Still allocate time each day to work on company products and technology
We started companies as founders because we wanted to work on interesting user problems, and work on interesting products and technology that serve these users. Being in an M&A does not mean that we can't still work on them. In fact, it is absolutely critical to still spend time building because the M&A game can become all consuming and it's easy to get burned out by the lack of control and progress. This was the mistake that I made initially, as I expected the M&A to complete within a quarter, and after half year of working on M&A decks and preparing for due diligence with nothing to show for, it led to massive shock to my identity and I was confronted with the reality that the company must remain independent in order to survive the winter of deal making. Instead, I should have still spent a good chunk of every day building products and technology, which was what I ended up doing after realizing that a deal was not imminent. This actually helped significantly to reorient myself and got some of the joy back in running the company after all.
3. Lean on your cofounders
Oftentimes, the only person who knows and appreciates what you are going through is your cofounder during the M&A. You cannot talk to the employees about any of this, and your family members would be living saints if they can tolerate you giving updates on the ups and downs of an M&A for more than a week. So it is best to lean on your cofounders and talk regularly about how you are dealing with the stress of the M&A and other creative paths to slog along in the process. It's moments like this where you need your cofounders. During our M&A phase, my cofounder Borui and I talked everyday, sometimes for hours, and sometimes for a few minutes, but at a minimum, we checked in and saw how each other was doing, and analyzed the latest situation. We are emotional beings, all of us are, and having partners that support each other during this difficult time is invaluable. There were numerous times when I was very close in sending out an email to a straggling buyer that I would for certain regret later when Borui talked me down. And there were also instances when Borui was losing his mind and second guessing on whether our eventual buyer was actually interested in doing the deal and wanted to confront the acquiring CEO and I had talked him down.
4. Find your support group
M&As are unique in that the experiences rarely transfer from one to another, so I actually did not find it helpful when talking to other founders who sold their company as their lessons did not apply to my case. Plus, these conversations are typically highly confidential, so for me, I did not divulge that I was going through a process even to the closest friends. This is where it was helpful for me to have bankers and advisors on my team, folks who have actually done these in the past. I feel that the main value added from our bankers was actually their therapy sessions as opposed to them helping us negotiating the deals and finding the buyers. If it weren't for our bankers, I would have likely accepted the worst deal on the table early in the process. So be sure to find that support group or advisor for you.
5. Know that failure is an option
This is probably the most difficult thing to accept as a founder, that the years of hard work and sacrifices may in fact not result in any financial return. Nevertheless, take solace in the fact that you learned so much in this process, and you will come out stronger on the other side. What I found helpful was that if I spent any time running calculations on what the payout should be in order to match the compensation I would have gotten had I worked in big tech, I became bitter and self-destructive. Instead, when I took on the perspective that look, the worst possible option is not finding a buyer or even winding down, it is not as scary as it sounds. There are plenty of opportunities out there for the next company or work in other tech companies. There is no shame in swinging for the fences and striking out. At least I took my shot and did everything I could.