213. How NOT to sell your company

What happens when an acquirer asks to buy a start-up? 

The journey between the offer letter and money in the bank is long, arduous, and can sometimes lead to less money in the bank than the founders expected.

In this episode, you'll hear from serial entrepreneur Sam Oliver, about the hard lessons he learned when selling his last company.

If you're a founder, a corporate innovator, or a start-up investor, this episode is for you.

Timestamps:

00:01:25 - Misconceptions Surrounding Startup Exits

00:02:58 - Creation and Growth of Property Technology Limited

00:04:35 - Challenges of Product-Market Fit

00:07:29 - Importance of Aligning Product with Revenue Generation for Customers

00:08:30 - Adversity Faced During the COVID-19 Pandemic

00:11:11 - Unexpected Boom in the Property Market Post-COVID

00:14:31 - Complex Nature of the Sale Process

00:17:26 - Challenges Encountered During the Earnout Period

00:22:32 - Importance of Thorough Contract Review and Negotiation

00:27:10 - Advice for Founders and Innovators on Approaching Potential Exits

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Transcript - 

Speaker 0  00:00:00

It then came to the final month and all of a sudden, that process that we'd run 12, 11 times, mm-hmm. <affirmative>. And it's always been perfect, disappeared. Mm-Hmm. <affirmative>. What was very interesting to me was the other side instantly started to do everything as slow as possible without reaching contract.

Speaker 2  00:00:21

Welcome to the Tech podcast. I'm your host, tech entrepreneur, executive coach at Chicago Booth, MBA Sophia uba. My aim here is to help you have a great career in the digital age, in a time when even your coffee shop has an app. You simply have to speak tag. On this podcast, I share core technology concepts, help you relate them to business outcomes, and most importantly, share practical advice on what you can do to become a digital leader today. If you want to have a great career in the digital age, this podcast is for you. Hello, smart people. How are you today? I'm really excited about today's episode because it's literally nothing like what you would've heard before on this show or probably on any other show. Today, we are going to hear about what happens when a startup gets sold. And this is a warning story because most of the time when somebody sells a company, you know, they go and they announce it and it's all glorious.

Speaker 2  00:01:25

But what we don't know is what actually happens before they get the cash and how much cash do they actually get? And from what you will see today, the inside of an exit is extremely messy. And if you don't pay attention, then you can lose a lot of money for really stupid reasons like this. Vander will tell you how he literally lost about $700,000 because he didn't capitalize two words. I kid you not. So if you're a founder, a corporate innovator, or an investor, or if you ever want to sell a company or advise a person selling a company, then you have to listen to this episode till the end. We all want to believe that the universe is a friendly place, but sometimes it isn't. And it gets less friendly when millions of dollars all pounds are at stake. So I hope you learn from this episode before you need to know this stuff. Hello, Sam Oliver and welcome to the Techon Techies podcast. I'm so happy to have you here.

Speaker 0  00:02:31

Hi there, Sophia. Thank you so much for having me.

Speaker 2  00:02:33

So you are a repeat founder sound. So how many companies have we founded?

Speaker 0  00:02:38

I have founded four companies.

Speaker 2  00:02:40

Amazing. So you just can't get enough. And so from what I understand, you had a very interesting exit story from your last company, and I would love the audience to hear about it and to learn from it. But first of all, what was the company that you were running? And then tell us about the exit story.

Speaker 0  00:02:58

So I was running a company called Property Technology Limited, and we developed a marketing software called Lead Pro, and it was specifically for estate agents in the uk. And over the period of running that company, we grew it to a 37% market share of UK estate agents.

Speaker 2  00:03:17

Oh wow. Okay. That's pretty impressive. So when you were doing so well and you created this yourself, or did you have a co-founder involved?

Speaker 0  00:03:27

So I originally started the business with a co-founder. Mm-Hmm. <affirmative>. And we started running an appointment viewing software for letting agents Mm-Hmm. <affirmative>. So we really thought about what is the problem that most people face when they inquire to view a property on, right? Mm-Hmm. Zoopla. They just wanna to find a time to view the property. Mm-Hmm. <affirmative>. So let's build a software that makes it easy to just book that viewing online with the

estate agent. And mm-Hmm. <affirmative>, we built this amazing piece of software and no <laugh>, no estate agents wanted to use it. Oh no. They wanted to. Yeah. They wanted to keep control of the viewing booking process. Mm-Hmm.

<affirmative>. And after about a year and a half of running that, we were in a pretty tough spot. Um, co-founder left the business and then we pivoted Mm-Hmm. <affirmative>. And we pivoted based on feedback from one of our pilot customers who Mm-Hmm. <affirmative>. They were kind of like, the appointment viewing stuff's not that interesting. However, if you could just do this, this, this, and this. Mm-Hmm. <affirmative>, that'd be really useful. Mm-Hmm. <affirmative>. So we went on to add the features that they wanted. Mm-Hmm. <affirmative>. And we did that again and again listening to their feedback until we found product market fit.

Speaker 2  00:04:35

Amazing. So this is kind of, there are so many interesting examples in there because I think one of them is that even if I have no idea what's going on, um, <laugh>, there are so many interesting things in there because one of the points I think we wanna point out is that even if you make something useful for the users, if the users are not paying, but it's the customers that are paying if they don't want, it doesn't matter what the users think money talks. Right. So I think that's kind of lesson one, lesson two for all the founders that are listening and all the people who in corporate innovation. I think there's another lesson here is that usually the first idea, usually the first MVP that you get to market with is often not the one that you end up with or it's not to the target market. So then it's a question of, okay, can you survive to learn to make the thing? So what was the thing that finally got you to the finish line?

Speaker 0  00:05:33

So we previously had built this really big piece of viewing and application software that could allow you to schedule a viewing, apply for a property, do your reference checks, and do your financial checks, your credit checks. And it was this huge piece of software and we spent a lot of time and money building it. And eventually we, we zoomed in to just 5% of the functionality, which was this prequalification piece. So what we were doing was every single email that came in from right move zoopla to an estate agent to request a view a property, we would reply back to that person, we would send them a branded reply. So it would be as Knight Frank, as Winkworth, as Belvoir emailing and texting them back, asking them a bunch of questions to pre-qualify if they were a good fit for the property. And that was where we really started to add value.

Speaker 0  00:06:29

So a small part of the value was it just helped separate the wheat from the chaff and find out who were the progressable applicants who really wanted to view or apply for the property. But where we really started to make money was when we asked those people, oh, you would like to view this property for sale, but do you have a house you need to sell? Mm-Hmm.

<affirmative>? Or are you buying this property to let, or do you need mortgage advice or do you need insurance? And that was where we started to become instead of like a painkiller efficiency tool. Mm-Hmm. <affirmative>, we started to become, sorry, instead of a a vitamin efficiency tool, we became a real painkiller tool. Mm-Hmm. <affirmative> where we are actually helping generate new business leads. Mm-Hmm. <affirmative>. And that was really, really valuable for the customers. Mm-Hmm. <affirmative>. And once we kind of understood that and we understood how to pitch that, it would be a pa a case of turn on this software and we'll help you win more business. Mm-Hmm. And that's when sales started to really tick up. Mm-Hmm.

Speaker 2  00:07:29

<affirmative>. Mm-Hmm. Interesting. 'cause I think there's another lesson in here, which is basically the closer you are to helping your customer make money, the easier it is going to be to build a business. So for example, let's even just take a training company if you are. Well, 'cause I run that, obviously I, that's what I know about. So if you are training a cost center, like say, I dunno, HR or accounting, they just get smaller training budgets because they're a cost center. But if you are training the profit center, say the salespeople or the people who are, you know, doing the job that brings in the money, say the lawyers, then actually they're the training budgets and just the budgets to keep those people happy and keep them productive and coming back to work. It's kind of all for them. So again, for all the founders, I think if you want to build something, the closer you are to the origination of cash, the better. And so you build this amazing company, obviously had this rocky journey like every founder. And then what happens,

Speaker 0  00:08:30

I'd have to just before I go into the next part, I would so echo your point there that it blows my mind that you can go to a

company and say, Hey, we can help you save 300,000 pounds a year and it's only gonna cost you 12,000 pounds. And they're like, ah, we're already spending the money. We don't really care. Whereas if you go in and say, oh, we can make you 48,000 pounds a year of new business and it's only gonna cost you 12,000 pounds, they're like, oh great. I look really good in my sales meetings, it's gonna help me hit my revenue targets. So it's definitely much easier to sell a product that adds revenue rather Mm-Hmm. <affirmative> than creates efficiency. And to ask your next question, I think the next point in the story to not glamorize the startup journey too much is Covid coming along.

Speaker 0  00:09:16

So we pivoted and we, we actually ran a Google design sprint to really try and find out where we could add value. We found this 5% of the original product. It resonated really well with the market. We learned how to package it up and sell it. And we then started to get traction and the company was then growing nicely. We got to profitability. We'd sort of taken on a very small round of angel funding and 150,000 pounds. And we then used that to get to like 44,000 pounds a month in revenue, profitable business, and nice growth trajectory of picking up new customers. And then Covid came and the market completely closed and all of our customers just stopped paying Mm-Hmm. <affirmative> like they did for pretty much every service. So that was super difficult where being a startup, we didn't have huge cash reserves, we were still paying staff, we pulled down staff hours.

Speaker 0  00:10:14

This was before furlough scheme came out. I was able to remortgage a house to put money into the business. Investors lent money to the company to keep the lights on. We lost a couple of really talented staff because they could get full-time hours elsewhere. And that was really, really tough. And we almost lost one of our key customers to a competitor in the space. So it was exceptionally tough. During that period, fate, the pendulum of fate swung the other way. And thankfully for us, we were very fortunate to be in one of the markets that boomed. So the property market after Covid, uh, everyone wanted to move house and the property market had its busiest time ever. And that meant that all of our clients, the estate agents had a huge amount of budget put into marketing and growth. And as a result, our sales ticked right back up.

Speaker 0  00:11:11

During that period, we had a couple of competing offers from one, from a competitor in our space and one from one of our customers who was a distributor. They bought our technology and then they resold it for a premium to their customer base. And, um, they were, they saw us as a very strategic acquisition because they knew how good the technology was and they really wanted to own it. It was super interesting time for a couple of reasons. One was that customer is owned by private equity and they were doing something called a rollup where they were buying multiple different companies to put them together to structure them for a sale. Mm-Hmm. <affirmative>. So the plan for the private equity guys being buy these companies at two to five times EBITDA and then put together a growth story in a business that's scaling that can sell for 15, 20 times EBITDA and, and make their multiple.

Speaker 0  00:12:09

The other thing that was once again, favorable market conditions for us was interest rates had been low for a very long time. Mm-Hmm. <affirmative>. So there was a lot of cash out there and money was very cheap. And a lot of big companies to boost growth were looking at acquiring. So we were kind of caught in this perfect storm and I managed to go and speak to the actual private equity guys at the hedge fund that owned the company to talk about selling the business to them. And at the time I was 31 years old, the business was doing the best it had ever done. And I didn't really necessarily want to sell the company. I was enjoying growing. Mm-Hmm. <affirmative>, we were at 14 staff, we were doing really well. But at the same time, I had remembered the difficult time of Mm-Hmm. <affirmative> borrowing money, leveraging my own assets.

Speaker 0  00:13:00

Mm-Hmm. <affirmative> to keep the business alive, almost going bust. And I also knew that if we didn't exit the business, then it might be another five years Mm-Hmm. <affirmative> before we could exit. So it felt like a good time to explore it. But the strategy that I took was sort of saying, look, I don't wanna sell. I'm really excited about the business for this reason, this reason, this reason. Thank you very much for the offer, but no thanks. And what came back from the hedge fund guys were, well what would you sell it at? What's your number? Mm-Hmm. <affirmative>. So I had thought about what would be my sale price and we discussed it and they said, okay, let us come back and see if we can structure a deal that we get there. Mm-Hmm. <affirmative>. And what they came back with was saying, we don't think your business is worth that much

money. Mm-Hmm. <affirmative>, we would pay this much for your business. Mm-Hmm. <affirmative>. However, if you can prove the growth trajectory that you think it's worth, we can structure an earn out where Mm-Hmm. <affirmative>, you can get what you want if you hit these targets and deliver. Mm-Hmm. <affirmative>. So I ended up doing, in 2021 October we sold the business Mm-Hmm. Five years after launching it. And it was split into initial cash consideration and then an earnout that depended on the growth of the company in the next 12 months.

Speaker 2  00:14:14

Okay. Well so I am <laugh> I'm anticipating what's gonna happen next. But you know what, before we even get to the dramatic bit, why do we just say congratulations? 'cause this is really tough. And so you achieved something really difficult and then you got a bit of cash and then what happened going,

Speaker 0  00:14:31

Going from cradle, uh, to exit. Don't wanna say grave 'cause the company is still wrong. <laugh>. It's super hard and the statistics are hard and I'm very grateful. I feel like we were lucky. Mm-Hmm. <affirmative> lot definitely plays a role. But we also showed up, put in the work Mm-Hmm. <affirmative> and didn't give up. So one of my more seasoned investors had cautioned me on doing an earnout. He proposed two things. One thing was to add a clause to the share purchase agreement, which stated that every month we would calculate the company's growth as if it was the last month, and we would agree on the earnout amount. And by doing that 12 times before the final time, we would've got the process down. Mm-Hmm. <affirmative> it would be resolved and there would be no issues. The second thing that he recommended was putting the intellectual property in escrow until the earnout payment had been made.

Speaker 0  00:15:25

Mm-Hmm. <affirmative>. Now I didn't want to torpedo the deal and I felt the escrow ask was too high an ask. Mm-Hmm.

<affirmative>. So I never actually even asked for that. Mm-Hmm. <affirmative> retrospectively definitely should have asked for that. Mm-Hmm. <affirmative> because it would've retained power and leverage in the Mm-Hmm. <affirmative> negotiation and relationship. The other clause we did put in, and every month myself and the other, the acquirer's finance director sat down, calculated the earnout, recorded the video call running through it. Mm-Hmm. <affirmative> and got it agreed in writing. Mm-Hmm. <affirmative>. And the revenue growth was going fantastically. Mm-Hmm. <affirmative> it then came to the final month and all of a sudden that process that we'd run 12, 11 times Mm-Hmm. <affirmative> and had always been perfect, disappeared. What was very interesting to me was the other side instantly started to do everything as slow as possible without reaching contract. Mm-Hmm mm-Hmm. <affirmative>. So previously we would've agreed that earnout amount at the end of the month, within perhaps a week, sometimes less.

Speaker 0  00:16:28

Mm-Hmm. <affirmative>. Mm-Hmm. <affirmative> like the contract at the end gave a month to do that. Mm-Hmm.

<affirmative>. So they took the whole month Mm-Hmm. <affirmative>. And I was like, guys, why are we taking the whole month? Mm-Hmm. <affirmative> like, Mm-Hmm <affirmative>, we can do this quicker. What they came back with was almost half what we had agreed in writing for the previous month. Mm-Hmm. <affirmative>. So it was like this crazy low offer. Mm-Hmm. <affirmative>. Mm-Hmm. <affirmative>. And I was like, what? The actual <laugh>? I was like, what? So I couldn't believe that they had come with such a radically different calculation, especially because in the very final month of the earnout, we'd had our best month ever, a whole bunch of deals. Mm-Hmm. Finally closed. So we were meant to be even further ahead. Now, the process for reconciling this was essentially to try and have a meeting, um, both sides come together. Mm-Hmm. <affirmative>. And we had 30 days to Mm-Hmm. <affirmative>

Speaker 0  00:17:26

Reconcile. So we had a meeting and they basically said, okay, do you accept our offer? And I was like, no, of course I don't. Here's all the reasons why. Mm-Hmm. <affirmative>. And they were like, oh, well, we're very disappointed that you've not tried to accept the offer. And I was like, this is ridiculous. Mm-Hmm. <affirmative>. And at the time I hadn't realized that it was just a box ticking exercise Mm-Hmm. <affirmative> so that we could move on to the next part of the arbitration process on the last day that we could agree the earnout amount before it went to arbitration. I also got called by the group CEO who told me that my role was at risk of redundancy and they were gonna take me through the process of making me redundant, which I found was super interesting timing from a negotiation standpoint. So what happened then was we went into the arbitration process and this involved getting a chartered accountant that was registered with the Institute of Chartered

Accountants for England and Wales to act as an expert determinator to review the account and essentially say this is the, the right amount and whatever they said both parties had to agree to.

Speaker 0  00:18:34

So I contacted all of the chartered accountants on their, their website. I asked 'em all for fee quotes, I explained the price. Mm-Hmm. <affirmative>. And I emailed about 120 accountants, and I got quotes back from about 37 accountants. Mm-Hmm.

<affirmative>. And the average quote was about 16,000 pounds to do the work. Mm-Hmm. <affirmative>. So I went back to the other side and I said, look, you pick any of these accountants, I don't care. Mm-Hmm. <affirmative>, let's get this ball rolling. Mm-Hmm. <affirmative>, let's get it done. They didn't propose a single accountant and they refused to select any of the accountants. Mm-Hmm. <affirmative>. So what happened was, if after another month we couldn't mutually agree, an accountant within the next stage of the arbitration process was for the Chartered Institute of Accountants for England and Wales to be assigned for them to then pick the accountant. Mm-Hmm. <affirmative>. So there's a couple of problems with this from the point of the seller.

Speaker 0  00:19:28

Mm-Hmm. The first problem is it costs 15,000 pounds to do this. Mm-Hmm. <affirmative>. So instantly we have to pay additional fees. Mm-Hmm. <affirmative>. The second problem is that took two months for them. Mm-Hmm. <affirmative> to find an accountant because they have to run a procurement process. The third problem is when the accountant is selected, there's no fee, quote or budget. Mm-Hmm. <affirmative>. So you're kind of a little bit at the mercy of what they end up charging you. Mm-Hmm. <affirmative>. So every month we had been taken up until the very last day of the contract before moving the arbitration process forward. Finally we have this expert determinator. Finally they start the work, they end up then taking two months longer than they said they were gonna take. Mm-Hmm. <affirmative>. So all of a sudden it's like, it's not far off a year. Mm-Hmm. <affirmative> that all of that money that is being due to be paid to myself and the other shareholders is still being held.

Speaker 0  00:20:19

Mm-Hmm. <affirmative> by the seller. Eventually the expert Terminator comes out with their ruling and we end up getting almost double the original offer. So, oh, in some ways great success, you know, so you got paid for your suffering, huh? We got paid for our suffering. The part that really hurt was we lost over half a million pounds, 550,000 pounds because we had this clause in the earnout called connected parties. Now the connected parties clause, it's designed to stop me going to my cousin and saying, Hey, start a new business. Mm-Hmm. <affirmative> become my customer. Pay me all this money for two months. Mm-Hmm. <affirmative>. Mm-Hmm. <affirmative>. And then I'll make a massive amount on the earn out. Mm-Hmm.

<affirmative>. And to stop you basically acting poorly. The other side used it to this most beautiful argument where one of our shareholders was employed by a massive estate agent, the biggest in the uk Mm-Hmm. <affirmative>

Speaker 0  00:21:16

Over 7,000 employees. Mm-Hmm. <affirmative>, they were not in the department related to the contract at all. And I even got the CEO of the company to provide a written statement saying they're not related. Mm-Hmm. <affirmative>, this is an arm length contract. We ran a procurement process, it was competitive. The expert Determinator Mm-Hmm. <affirmative> decided to play it super safe. And they said, well, because they're also a shareholder and they work at the customer, I'm judging them to be a connected party. Mm. So we lost that revenue. Mm-Hmm. <affirmative> over half a million pounds. Mm-Hmm. <affirmative> the bit that really wrinkles is connected party in tax law is actually a defined term. Mm-Hmm.

<affirmative>. And it means that the person has to have a controlling interest. Mm-Hmm. <affirmative> in the business. Mm-Hmm. <affirmative>. And our shareholder didn't have a controlling interest. Mm-Hmm. <affirmative>. So if our lawyers had capitalized the sea of connected party, it would then have been deemed a defined term under English and Wels law. Mm-Hmm. <affirmative>. And then it would've specifically meant that they were not a connected party, and we would've gotten the extra half a million pounds.

Speaker 2  00:22:21

So literally, capital lack of capital letters cost you half a million pounds, which in dollars, I know we've got a lot of Americans listening, probably about $700,000. That sucks.

Speaker 0  00:22:32

Yeah. It's, it's a learn.

Speaker 2  00:22:34

So, so now that you are looking at this, what are your, what are your thoughts? Well, like what are your reflections? Because obviously with hindsight we can, we can look at any situation and say, I should have done this, I should have done that. But also, to be honest, some things are just not predictable because if you did, you make the best decisions that you possibly could with the information that you had?

Speaker 0  00:23:00

I think the, the short answer is no. I think that I probably had a dangerous mixture of ego and naivety. So I ended up getting fired, made redundant from that business. And to me, this was a complete shock because during the earnout, we grew the company by four times. Mm-Hmm. <affirmative>. So it was like a record breaking year. We absolutely smashed it. I was like the top performer in the entire company. I was so shocked that they exited me from the business in particular. Like, I held a lot of really good relationships with the key customers. Mm-Hmm. <affirmative>. And I totally didn't see that coming. So I, I think I had valued the personal relationships Mm-Hmm. <affirmative> much more than the actual hard leverage. Mm-Hmm. So things like, if we had not done the a hundred date plan of integrating the companies until after the earn out, it would've been very difficult for them to exit me from the business.

Speaker 0  00:24:03

Mm-Hmm. <affirmative>, because they wouldn't have been Mm-Hmm. <affirmative> integrated. And they wouldn't have had control if I had been more realistic about treating their acquirer as if they were a complete stranger. Perhaps even an enemy, an adversary. Mm-Hmm. <affirmative> and making sure that everything was in writing, everything was super clear. Everything that was in writing about the exit, the company was on my personal email address. Mm-Hmm. <affirmative>. So newsflash to me, running my own company, I always kind of thought of it as, you know, I was the majority shareholder. I always thought of it as my company and extension of me. Mm-Hmm. <affirmative>, all of a sudden, six and a half years of emails are no, no longer belong to me. Mm-Hmm. <affirmative>, I can't access to them. Mm-Hmm. I also can't use them in court. Mm-Hmm. <affirmative>. Um, so some really simple learning lessons, like if it's to do with the sale of the business, that should all be on your personal email, not on your work email.

Speaker 0  00:24:57

Mm-Hmm. <affirmative>. Because you're gonna lose access to all of that. And Yeah, I think I read the contract in good faith. Mm-Hmm. <affirmative> thinking, ah, this clause is designed to protect them. I didn't read the contract thinking how could they screw me with every single clause, which is probably how a contract like that Mm-Hmm. <affirmative> should be read. Mm-Hmm. <affirmative>. So I think I, yeah, I would've retained the leverage I would never give going forwards as well. I would just never give up leverage without a reason. Always hold onto the leverage unless there's a very clear reason. And if there is a reason, make sure it's recorded and documented in writing that you own personally, so that you, you've got proof of what's going on.

Speaker 2  00:25:40

So basically retain your power, retain your power base, keep your evidence as much as possible.

Speaker 0 00:25:47 A hundred percent.

Speaker 2  00:25:48

Well, you're still young. It's a Machiavellian lesson to learn. Let's see what happens next. So when, you know, there are lots of investors and founders, and also people in corporate innovation departments, you know, who are working on things and they might end up selling them. And so what's your advice to them apart from, you know, like keep your power, look through the contract. But the reason why I'm saying I want to go a bit deeper here is, you know, people really want an exit. When people are starting a company, they want an exit either in the form of an IPO or you know, most likely a sale. Like, that's a really good outcome for a lot of people and investors. And so when you've got this thing that you really want and it's kind of then dangled in front of you, of course it's quite normal to then roll over and just let people tickle your belly, metaphorically speaking. Of course. So of, and then of course, no wonder you then stop thinking about your power

positions and you give things up because there's this thing that you have basically really wanted. And you know, you, you can kind of almost taste the money and you've already in, in your mind, like bought the new house and you know, spent it. So what would you say to either a shareholder who has coming close to that or you know, maybe you know, high level employee or a founder, like what do you say to them?

Speaker 0  00:27:10

So I split into a couple of thoughts here. One is about, and they ultimately come down to the same concept of optionality. So if you are selling a company or some IP or doing a deal, there is a reason the other side wants to buy it. Mm-Hmm.

<affirmative>. So maybe they want access to distribution, maybe they want access to technology and ip, maybe they want access to your team. There is some precipitate reason as to why they want to do this deal. Mm-Hmm. <affirmative>, uh, the motivation of like mm-Hmm. Why are they focusing on this as opposed to everything else? Mm-Hmm. The second thing is then gonna be how do they value the deal? And that's kind of got two components, likely not always, but I think most of the time it's gonna come down to money. Like mm-Hmm. What is your revenue? What is your revenue growth?

Speaker 0  00:27:55

What is your ebitda mm-Hmm. Are you growing really, really quickly? Are you highly profitable? And then the third part is going to be what multiple are they giving you based on your financials? Like mm-Hmm. <affirmative>, is it, are they gonna give you a three times revenue? Are they gonna give you a five times ebitda, 50 times ebitda? And there's a whole bunch of different levers Mm-Hmm. <affirmative> as to why they might pay you more. And there's a whole bunch of different acquirers that would value the different, the business. Mm-Hmm. <affirmative> very differently. So understanding those levers and metrics are really important to you as the vendor. Mm-Hmm. <affirmative>. Because it reminds you that you have optionality. Mm-Hmm. <affirmative>, first of all, if you are profitable, you can just say no to the deal at any time. Mm-Hmm.

<affirmative> and continue to run the business. And actually when you end up with a lump sum of cash and you have to invest it, it becomes quite apparent that very few things are gonna give us good a return.

Speaker 0  00:28:47

Mm-Hmm. <affirmative> as your own business where you have your own equity. Mm. Like mm-Hmm. <affirmative>, it's hard to beat the return of a fast growing business. There will always be other exit opportunities. Mm-Hmm. <affirmative>. And I think it is much better to have zero ambiguity on the legals and retain all your power and walk away from a deal than Mm-Hmm. <affirmative> urgently rushed to it and then it's a failure. For example, we had another offer to sell the business and it seemed like a really good offer. Mm-Hmm. <affirmative>, apart from there was this mixture of cash and equity. Mm-Hmm. <affirmative>. And when it came down to reviewing the equity and inquiring business, what they had done was they had valued us at three times revenue. Mm-Hmm. <affirmative>. And they had valued themselves at 120 times revenue. What? So that they could pay us significantly in equity at a tiny proportion. Mm-Hmm. <affirmative>. And it was like, so guys, if you wanna value us at 120 times revenue, we'll do the deal.

Speaker 0  00:29:43

Or if you wanna value yourselves at three times revenue, yeah, we'll do the deal. But <laugh>, otherwise it's a no go. So sometimes you just have to retain the power that it's the age old law. Mm-Hmm. Of negotiations. If you have more power, you can choose to walk away. And I think that's absolutely key. Mm-Hmm. <affirmative>. So if you can make sure you've built your business in a way that it is profitable, you're not running outta money, you're not worried about competition, you'd be happy to keep running it for another three to five years. Or if you've created a competitive playing field where multiple companies are bidding to buy you and you can dictate terms as opposed to have them dictated to you, that's gonna facilitate a happier exit.

Speaker 2  00:30:21

Well, it's like dating, isn't it? So when you're not desperate, then everybody wants you <laugh>. So how are you using these lessons now? Because you started another company now?

Speaker 0  00:30:32

Yeah. So I was in two minds about starting another company because I know how hard it is and I know that it's a seven to 10 year commitment. So it's, um, really signing up for something

Speaker 2  00:30:44

Longer than the average marriage, isn't it? Oh, I think that's a terrifying thought from what I hear. <laugh>

Speaker 0  00:30:49

Terrifying. <laugh>. Very possibly. I think probably three things tempted me back into running another company. One was I really wanted to take these lessons and reapply them. Mm-Hmm. <affirmative> and keep my skills sharp and move forwards with learning. That's a big driver for me. The second was I built up some really good assets. And by that I specifically mean networks and connections. So in the last company, I have the phone numbers of some of the CEOs of the largest companies in the uk and I know them and Mm-Hmm. <affirmative>, I've put a lot of time and energy into building relationships with them. And that gives you a really good competitive advantage if you're launching a new product. Mm-Hmm. <affirmative>. And I was like, I've got this advantage, I should utilize it. Mm-Hmm. <affirmative>. Mm-Hmm. <affirmative>. Um, it's gonna make my life a lot easier in the second, second time round of selling. And then the third big thing that really pushed me was just getting blown away by how good conversational AI had become. Mm-Hmm. <affirmative> and thinking about everything that we'd done in the automation and prequalification world. Mm-Hmm. <affirmative>, we are pre-qualifying over 10 million people a year using really boring like questionnaires. Mm-Hmm. <affirmative>. Mm-Hmm. <affirmative>. And then looking at how much better we could deliver. Mm-Hmm. <affirmative> a similar service using conversational ai. Mm-Hmm.

<affirmative>. I was like, oh, I want to be involved in rolling this technology out.

Speaker 2  00:32:08

So what, what does your, what does your company do now? What's it called?

Speaker 0  00:32:12

The company is called Open Fi. Mm-Hmm. <affirmative>, which was originally short for open financial intelligence. Mm-Hmm. <affirmative>. And in the last business we were selling to estate agents. Mm-Hmm. <affirmative>. And I'm actually still in a non-compete. It was a three year noncompete. Mm-Hmm. <affirmative>. So I can't sell to estate agents for a little bit longer, but what we did do is we integrated with the four largest mortgage brokers in the uk Mm-Hmm. <affirmative>. So we understand their systems and their people quite well. Mm-Hmm. <affirmative>, what we looked at doing and we've started to build is we're automating the SDR or sales development representative role. Mm-Hmm. <affirmative>. So the key here is inbound traffic from a website or outbound to historic customers. Mm-Hmm. <affirmative>, be it a farmer or a hunter role, being able to continually reach out to the customer. Mm-Hmm. <affirmative> be as amazing being able to follow up, being able to answer any single question they have. So part of what we do is we read the company's entire website, all their onboarding documents so that the AI can answer anything. Mm-Hmm. <affirmative>. And then most importantly, pre-qualifying that person. So making sure if we are booking them in for an appointment with a mortgage advisor, that person's time is really valuable. Mm-Hmm. <affirmative>, we only want to book them in if they're actually progressable and they've actually scored enough points to go in the diary. So we're fully automating website traffic for mortgage brokers. Mm-Hmm. <affirmative> right through to booked appointments in CRM.

Speaker 2  00:33:30

So interesting. 'cause I literally had a called today with a client and we were discussing an idea kind of that she has and she already runs a business. She wanted to add a technological aspect to it. And essentially kind of the way we were discussing, like what would be the first MVP was first we talked about, okay, well imagine this without any fancy technology, no ai. Like, okay, you're allowed to send the emails and you can have a basic Squarespace website, but like, that's it. And then work backwards from that. And it seems, and you know, once we did that, once you created an idea of what it would look like without scale, then it was pretty easy to figure out, okay, create this MVP, which is not scalable, test these assumptions and then scaling is like, it's quite obvious what you would do next.

Speaker 2  00:34:19

And it seems like your first company was kind of the do things that don't scale, which you still managed to scale. And then kind of adding AI to that. But also, Sam, thank you so much for sharing your story and for sharing this dramatic story and the lessons learned. Because I think we don't hear much about the reality of exits. And often people say they've had an exit and I know people who've had exits and they basically got paid like a six month salary. And then I also know people who've had exits, you know, in the millions upon millions of dollars. So, and they're, they're both exits and for obvious reasons, people don't want to talk about it. So it's really interesting to hear about the ins and outs of what actually happens because

when people get into them, I think also when you're an operator, and also if you are not an investor who's very used to making these deals, you don't know what you are doing.

Speaker 2  00:35:14

And you are dealing with a counterparty who is very used to making these kinds of deals. And so they know their rights and they know the law inside out and you don't, and I think this is kind of this asymmetry of information. It's the same with making venture capital deals. So venture capitalists are very transactional. They're very used to negotiating terms. Um, so for example, if you do want to raise money from venture capitalists, I would just recommend taking a course I did mine at business school. You don't have to do it to business school, just do it online. Just so you understand what goes into a term sheet so you can negotiate it properly. Because you know when you're going to people who are negotiating professionally and you are negotiating for the first time, who's most likely to win, and you know, they've got enough money, I don't want them to win. Well, so where can people find you, Sam, if they want to find out more about open Fi?

Speaker 0  00:36:04

Yeah, so you can come to open fi.tech or you can find me on LinkedIn, Sam Oliver.

Speaker 2 00:36:10 Awesome. Thank you so much.

Speaker 0 00:36:12 Thank you Sophia. Up.