The Wise Exit

Andy Pai - Episode 56 | CASHING OUT M&A PODCAST

00;00;00;06 - 00;00;12;06
Andy Pai
As I was leaving to go back to the States, he sat me down and he showed me a blank check and he said, Someday you're going to need a number in this check and just let me know when that is, because you're going to build a great company.

00;00;13;24 - 00;00;38;09
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today, my guest is Andy Pai, co-founder of Finbox, a financial data platform that covers over 100,000 stocks on 130 plus exchanges around the world.

00;00;38;25 - 00;01;02;24
Todd Sullivan
And he started Finbox in 2015 and bootstrapped it all the way to an exit to Investing.com, a leader in financial data and a top 200 website globally. In today's conversation, Andy takes us behind the scenes of his entrepreneurial journey from leaving his job as an investment banker and moving to San Francisco with a dream of building a company to then building a suite of products and eventually getting acquired.

00;01;03;11 - 00;01;17;29
Todd Sullivan
Andy believes that intense focus is the secret to building a great company and full transparency with advisors and acquirers upfront saves time and creates better alignment to get your deal done. I hope you enjoyed my conversation with Andy Pai.

00;01;22;27 - 00;01;44;17
Todd Sullivan
Andy, thank you so much for joining me today. I'm really excited to chat with you. I think our fellow founders are going to get a ton out of your experience. What I think is really interesting is you started out as an investment banker and then jumped into the world of tech entrepreneurship, and that's a little bit of the reverse of my career.

00;01;44;17 - 00;02;08;16
Todd Sullivan
So I'm really interested in that jump. But also, I know you had multiple opportunities. I think you call them off ramps, right, to sell a business and are particularly proud of the idea that you held out to a certain point. I think our founders, I got to be very interested in that. The decisions that you were making along the way, when was the right time and who the right partner with to sell to is.

00;02;08;25 - 00;02;19;03
Todd Sullivan
So I'm really interested in getting to know all of it. And just so you know, right, we had Mark Cuban booked for this spot, and when I knew I could get you on, I bumped him immediately. So thank you for being here.

00;02;19;22 - 00;02;41;28
Andy Pai
Oh, well, thanks. Thanks, Todd, for having me on. Yeah, happy to share. So I was the co-founder of company Finbox, where financial data platform that helps investors understand the stories of publicly traded companies. About two and a half years ago, we were acquired by Investing.com and Investing.com on this, like this top 200 website in the world and sort of one of the premium brands in our space.

00;02;41;29 - 00;02;47;07
Andy Pai
So it was interesting journey to grow Finbox and then now work with investing on really scaling it up.

00;02;47;18 - 00;02;56;17
Todd Sullivan
Oh yeah, I know this is going to be a great story. Can you start out with like your days as an investment banker and the decision to say, All right, I'm going to Silicon Valley?

00;02;57;24 - 00;03;17;01
Andy Pai
Sure. So is it okay if we take a few steps back and, yeah, some place my story will make a lot more sense. So, yeah. So I was born in India and I was orphaned at around ten years old and I was adopted by my aunt and uncle, which is how I ended up in the U.S. But in India, my dad worked for a company called Galaxy Surfactants.

00;03;17;01 - 00;03;40;22
Andy Pai
It was kind of like a startup at the time. And anyway, fast forward ten years later, I'm in college, I'm interning and I have a summer break. And so I email the founder of Galaxy and I say, Hey, I see that you're considering going public. Would you mind if I intern with you for the winter? And so, you know, he emails me right back and he says, Hey, I would love to.

00;03;40;22 - 00;04;02;04
Andy Pai
And you know what? You can stay with me. And so that's what I did. So we flew out there and I stayed with him. And what was really interesting and awesome about this experience was every day to and from work, we had a car ride. And what that was for me was basically a masterclass in entrepreneurship so I could ask him all kinds of questions about how did you get the idea?

00;04;02;10 - 00;04;29;23
Andy Pai
How did you settle disagreements between founders as you got along? And so that was this like amazing, amazing entrepreneurship 101. And what I really remember from that is as I was leaving to go back to the States, he sat me down and he showed me a blank check and he said, Someday you're going to need a number in this check and just let me know when that is, because you're going to build a great company.

00;04;30;17 - 00;04;47;24
Andy Pai
And just thinking back on that moment, I feel like having someone like him believe that I could build a company and do something like that just just meant the world. And so I don't think I can really discuss my startup journey without, you know, first kind of surfacing that prophecy.

00;04;48;04 - 00;05;05;24
Todd Sullivan
That is so cool. Well, first you had kind of the nerve and the willingness, right, to reach out and say, Hey, you're going to go through this. Can I be along for the ride? And then him like extending that, right? The ability to stay with you and mentor you over that period of time, did that ultimately get sold that business?

00;05;06;15 - 00;05;35;29
Andy Pai
So they're a publicly traded company. Yeah. Yeah. So they trade on the Indian Stock Exchange and. Yeah, so yeah, just, just incredibly humble, amazing people. Yeah. And anyway, so so when I went back to school, what I heard was one of the fastest ways you can make money is, is to do investment banking. And so having kind of this vision of, okay, I eventually want to start my own business, how can I generate some capital in the meantime to help me jumpstart this process is how I ended up in investment banking.

00;05;35;29 - 00;05;57;12
Andy Pai
So I got a job, saved almost every penny I could with the idea that I was going to use this someday to start a business. And so then about two or three years, you know, I'm listening to podcasts just like this with founders telling their stories about how they got started and how it all came about. And a lot of those founders have this common theme of being in San Francisco.

00;05;57;13 - 00;06;14;17
Andy Pai
So I was like, okay, I need to be there. Whatever it takes. And so after maybe three years and collecting some bonuses, I said, okay, I'm going to quit cold, call some of my best friends from high school and say, Hey, can we get a house together and just start building stuff? And I don't know what it's going to be.

00;06;14;17 - 00;06;31;26
Andy Pai
But the thing I learned from my mentor Galaxy was the idea is not as important as the team that you do it with. And so and so the way that we structured the whole thing, there was like a four year cliff, right? So we said, Hey, we're all going to quit our jobs. But if you leave this company before four years, you get nothing.

00;06;32;15 - 00;06;50;09
Andy Pai
So there's no about stakes. That's a commitment as much to each other as it is to any single idea. And honestly, that was that set the table the right way for what we were able to do, because it did take longer than any of us imagined to take more sacrifice and many of us maybe even had hoped. I better wouldn't take.

00;06;50;13 - 00;06;51;13
Andy Pai
And so, yeah.

00;06;51;21 - 00;06;58;18
Todd Sullivan
What a great story. So were these friends of yours and eventual co-founders? Were they already in San Francisco?

00;06;58;27 - 00;07;16;03
Andy Pai
Yeah. So they were they were working as engineers out in San Francisco. And but yeah, it was a matter of, you know, saying, hey, I'm fully committed to this. You know, I'm willing. I have I have a little bit of a nest egg set up like I can get a started, but let's, let's, let's figure this out. Like, I think we're totally capable.

00;07;16;04 - 00;07;17;11
Andy Pai
And they agreed.

00;07;17;11 - 00;07;37;17
Todd Sullivan
So that's great. So, all right, so you guys, you're you're in this house and you're just all star working. You've got really some great experience in the financial markets, right, from an investment banker standpoint, probably using enormous software tools. And now you've got really talented developers, right, as co-founders. Where does it where do you start?

00;07;38;10 - 00;07;57;25
Andy Pai
Yeah, this is the funny part where we actually had no interest in building financial software, at least as a team. And so I didn't know anything about software building technology companies, any of it, right? Like, I just knew that this was interesting and I wanted to learn more. And so I was just coding in a way, on the side on like blog.

00;07;58;11 - 00;08;21;25
Andy Pai
And since I really liked analyzing companies and understanding I'm just on the side, I was writing blog posts on Seeking Alpha, and I had a hard time explaining certain concepts about growth and margin. And so I said, okay, let's let's maybe if I build some interactive widgets and they could play with the numbers, maybe I could convey these concepts better, you know?

00;08;21;25 - 00;08;44;19
Andy Pai
And so just as an exercise in learning to code, I started diving into being able to solve that problem bit more. And then we were working on a bunch of other ideas. We, we built a, you know, marketplace for open source tasks. Like we're, we're just hacking on different ideas. But it's just so turned out that this little side project was really starting to catch some traction.

00;08;44;19 - 00;09;05;01
Andy Pai
And so other bloggers on these websites were like, Hey, can I have these widgets? So our first product really was just a way for them to create their own widgets. But we also learned that this is a great marketing and distribution channel. And so we kept getting users signing up for our product that didn't even exist yet. It was just a landing page saying like, This is what a product could be.

00;09;05;07 - 00;09;17;08
Andy Pai
Mm hmm. And then I would just get on the phone with them and then do kind of a normal customer development exercise where it's like, okay, what are your pain points? What are some solutions that you use today, etc..

00;09;17;24 - 00;09;26;02
Todd Sullivan
So, Andy, I know you have a good story around like how do you talk to customers? How do you get customer feedback? Maybe you could tell us about that.

00;09;26;21 - 00;09;53;26
Andy Pai
Yeah, definitely. So, failure is a tremendous mentor and motivator and so we've built all these tools and projects that really ended up not going anywhere. And one of the reasons for that is we hadn't really talked to users before build in. And so with Finbox, even though I was customer number one, we made it a point to have 50 customer interviews before writing a single line of code for the main product.

00;09;54;16 - 00;10;16;02
Andy Pai
And so what I would do is just get on calls and have three columns. And so one, the first column was what I think the problem is. And the second column was how I think they solved this problem today. And then if the first two columns made any sense to the customer that I was talking to, a potential customer that I was talking to, then I would say, Here's how I'm thinking about solving it.

00;10;16;02 - 00;10;43;18
Andy Pai
Would you be interested? And here's like a credit card form. If you're interested, sign up like preorder. And that was a great signal for us because a lot of times in these interviews, people are just trying to be nice. They want to be they want to be helpful and they have no actual purchase intent. But if someone is willing to preorder your product and pay for something that doesn't even exist like that problem or need is probably is quite real.

00;10;43;23 - 00;10;55;17
Andy Pai
Right. And if you found one, there's a high likelihood that there's ten of those and there's a sound and you can easily have 100,000 and so on and so that was that was really our focus.

00;10;56;04 - 00;11;12;07
Todd Sullivan
That's great. All right. So you've got kind of the customer approval. You've got your launch a product and it starts to grow. At what point are you totally committed to this kind of suite of products and at what point do you know that this is this company is going to be successful?

00;11;13;21 - 00;11;40;26
Andy Pai
Sure. So it took a really long time. So so we I think what we had done is we identified problem solution fit, but we didn't necessarily know how to get this to users at scale. Like, there were a lot of open questions about how do you go into a highly competitive space? And like even though your product is differentiated, how can you convey that to the user in a strong enough way?

00;11;41;07 - 00;12;04;22
Andy Pai
And so that was the that was the next challenge. And it sort of turned out that to solve that, we had to we had to learn a lot of other things, whether that's search engine optimization, whether it's content marketing, a whole bunch of pillars of growth that we had to build. And after figuring all those things out, we also realized that the product itself needed a fair amount of work.

00;12;04;24 - 00;12;27;21
Andy Pai
And so about four and a half years, then we had to make this hard decision of saying, okay, we have something that's working for profitable, but we're really not going to be able to get to the next level unless we rebuild this whole thing. And we have to partner with the right people. We have to hire some people to help us solve some of the deficiencies in our own technical understanding.

00;12;27;21 - 00;12;48;25
Andy Pai
And so that's what we did. We doubled down, you know, four and a half years in and and said, okay, let's let's do this the right way. And I can tell you, like, the difference between releasing that product. It was almost like overnight where we could just start seeing for the first time real compounding like yeah, without an effortless compounding.

00;12;48;25 - 00;12;52;08
Andy Pai
Whereas you know, month over month we were just saying revenue stock up.

00;12;52;16 - 00;12;52;25
Todd Sullivan
Yeah.

00;12;53;05 - 00;12;55;26
Andy Pai
Yeah. So that that was, that was maybe like one of the early signals of.

00;12;56;07 - 00;13;11;16
Todd Sullivan
Of That's awesome. Was it, was it, was there one feature or one technique or the user interface was a one thing that really jumped out at you is like, Wow, we got that. We finally got that right. And that made all the difference.

00;13;12;20 - 00;13;32;00
Andy Pai
Yeah, So we're a data product and we knew that the data to be really high quality, so we just needed a really good partner. Yeah. And we were able to strike a deal with S&P to be able to do that. And then our challenge then was to take this really high quality data feed and make it so that it made sense to retail investors, right?

00;13;32;02 - 00;13;55;05
Andy Pai
And so that's where we had the past five years of learning on how to do that, like what pain points actually matter to the retail investor versus an enterprise, you know, hedge fund manager or something like that was really where we were the combined that that those two things like really high quality inputs with really good understanding of customer pain points equals rapid growth.

00;13;55;05 - 00;13;55;16
Andy Pai
I guess.

00;13;55;23 - 00;14;16;00
Todd Sullivan
That's great. What I thought was interesting in our other conversation was that you called it like an off ramp, right? You knew that you had a talented team, you guys were really capable and that you could potentially sell the business because it was doing some revenue multiple times along the way, right? You had a felt like you had that safety net if things weren't going to work out.

00;14;16;09 - 00;14;24;27
Todd Sullivan
Can you talk about, you know, the understanding of that, what inbound offers look like at that time and the decision to just keep going?

00;14;25;27 - 00;14;48;06
Andy Pai
Sure. So we we we were hackers in San Francisco. So there was always this like enthusiasm about like where this could all go around what we were up to. We had gone through something called Y Combinator. It's an incubator where, you know, the likes of Airbnb and Stripe and some the big companies have come out of some we had some credibility that like we were just just jokers, I guess.

00;14;48;06 - 00;15;23;04
Andy Pai
But and so there was interest in, you know, using us as, as a way to speed up development on existing projects or with competitors or whatever. And so there were always offers like that for acqui hires or combining with a free product or whatever. But there was never really like we really believed at the end of the day that if we were just one feature away, like I think maybe this is this like this unwarranted optimism that entrepreneurship just has to has to rely on succeed.

00;15;23;04 - 00;15;38;00
Andy Pai
We're just oh, we're just we're just one week away or we're just two weeks away from like, figuring this out. And that was like five years. But but, you know, as though the whole journey, we were like, hey, we have the right team. Like, we can figure this out. Other people have done this thing and figure it out.

00;15;38;00 - 00;15;46;06
Andy Pai
Let's do it. We have customers. We always had customers. It was just we couldn't figure out how to get this to like, really scale. Yeah, and that was always a challenge.

00;15;46;18 - 00;15;59;21
Todd Sullivan
I think that's great, right? I think a lot of founders, they have that feeling. I'm one week away, I'm one month away. I'm going to hold out for another four months. And if this doesn't happen, then maybe I'll change my mind in the four months goes by and you're like, I'm going to give it another three months or age.

00;15;59;25 - 00;16;21;16
Todd Sullivan
You kind of keep going. In your case, it really, really paid off, right? Because you got the product market fit, you got the scale. It sounds like exponential scale. And I think you also had the luxury of being profitable, right? You guys didn't have venture backing, right? You were self-funded. And so you're probably really conscious about how you spend dollars and buying yourselves time with profitability.

00;16;21;16 - 00;16;44;16
Todd Sullivan
I think that's an enormous lesson for founders. And so you bought yourself that time and saw like a potential high ROI in the future and you kept going. So, oh yeah. So the product starts to really take off. When do the most serious acquisition conversations start? Are they all inbound or do you start doing your own outreach or hiring a banker to do outreach?

00;16;44;27 - 00;17;02;14
Andy Pai
No, no. So yeah, I got it. I got a message from Invest Things I think head of growth or something or maybe had a product at the time and said, Hey, we really like what you're up to. Would you be interested in a call like we may be interested in partnering with you in some way? So that's how the conversation started.

00;17;02;14 - 00;17;24;27
Andy Pai
And then sort of, I think after a couple of calls, the CEO ended up hopping on one of our discussions about how we could potentially work together and said, Hey, listen, I think the day we would like to buy you and would you be open to that? And so then that's it sort of snowballed from there. We we discussed terms and, you know, I'm happy to kind of go through how that all evolved.

00;17;25;27 - 00;17;46;02
Todd Sullivan
Yeah. You know, what I think is interesting, right? Is the original conversation sounds like it starts out at more of a product level that they see, Oh, here's a growth opportunity. Somebody else's built an audience in a solution. Maybe this fits well within our portfolio or maybe this can be that we can leverage our existing audience, right. For to really grow this product.

00;17;46;16 - 00;18;20;13
Todd Sullivan
And then, you know, they're having internal discussions and the CEO gets on the phone, right? That's a great signal that, okay, this is going to turn into a more serious conversation beyond exploration would be my guest. I know you talked a lot about alignment and I think that's probably one of the big lessons, your takeaways. But can you talk about how you develop that relationship as you're being courted for an acquisition and how important that relationship is and was for getting, you know, this deal done?

00;18;21;18 - 00;18;48;24
Andy Pai
Sure. So one of the ways I try to think about this is like whether this is a vendor's employees, really any business relationship is like, I'm not trying to extract the maximum amount of value that I possibly can out of any any of these relationships. I was just actually trying to be helpful to to start like where I was like, Hey, I think if we join forces on one, two and three, this would not only help our business, but it would help help your business as well.

00;18;48;24 - 00;19;07;20
Andy Pai
Like they had tried to build a subscriptions product before and ours was just better, right? And they had the scale because they had the free audience and they had built over a number of years. They were started almost ten years before we did. So they had all of the SEO, all of the benefit of having a massive, massive audience.

00;19;07;20 - 00;19;29;10
Andy Pai
And we just had a product that they felt could really connect with their audience. So the business case was simple to understand, even to like a two or three year old, right? Like we just we like. It wasn't complicated as to why this could work. And so then it came down to the specifics of the transaction and making it work for not only what their goals were, but what were our goals were as well.

00;19;29;22 - 00;19;50;02
Andy Pai
And one of our key goals was to be able to test, to scale, right? So we felt like, okay, we finally have the product, spent years and years, you know, hacking your way to figure this out. But to get the kind of distribution that they have is the number one. Number two player in the space is going to take maybe another decade.

00;19;50;02 - 00;19;57;01
Andy Pai
And so if we can take this shortcut to having ten times the amount of impact overnight, that's very, very appealing. Sure.

00;19;57;06 - 00;20;16;04
Todd Sullivan
So so were part of the the things that you had to get through the structure of the deal? PRICE Obviously, that's going to be an important component of this. And maybe potentially how did you have that negotiation and given that they were going to bring enormous scale to your solution?

00;20;17;03 - 00;20;49;02
Andy Pai
Yeah. So one of the parts of the transaction that was also interesting to them was like they would get us as part of the deal, right? So a pretty small team. And so we would be able to bring this expertise and subscription insight and having a SaaS product in market to their company. And so they said, okay, if you are able to help us build this expertise in-house after the acquisition, then we reward you for not only what you’re worth today, but also what this will become in a matter of two or three years.

00;20;49;13 - 00;21;18;07
Andy Pai
And so that made the deal more appealing as well, right? Because not only could we capture value that we'd already built from building base business, but also some of the upside from having this really get to scale effectively overnight. Right? So working out those mechanics can be kind of complicated. And it's a matter of like it's really a question of how much are you willing to defer gratification and how much do you need like upfront for this?

00;21;18;16 - 00;21;36;14
Andy Pai
Like make sense? And from our perspective, and this is where like having a really good co-founder alignment on values, I think really matters is like I plan to be in this game for the next 50 years if, if, if, if I'm able. And so it wasn't so interesting to me to capture like the maximum amount of value I could day one.

00;21;36;14 - 00;21;51;25
Andy Pai
Like, I actually really wanted to be able to take this product that we'd been working on to scale and see what that looks like as well. So we were happy to negotiate, deferring some of this and delivering value first before trying to capture it all for ourselves.

00;21;52;11 - 00;22;11;23
Todd Sullivan
Did you have any advisors around you that were helping you think through that structure? Because it's admirable, right? A lot of founders want to have their product out in the world in the biggest way and impacting other people's lives. And you probably have a price that makes a lot of sense for you to cede control to somebody else.

00;22;12;05 - 00;22;28;24
Todd Sullivan
And if you're going to ride that upside, you got to make sure that there is total alignment, like their goals align with yours and that you're being paid on that kind of that alignment as it grows. And like you said, this is complicated. So did you have any advice along the way? Any advisors, mentors or professionals?

00;22;29;15 - 00;22;47;07
Andy Pai
Yeah. So we had been working with so one of my friends was a VC and he's also a lawyer. So anytime we needed like contracts or anything like that, I would always just run them by him. And so he had seen the company evolve, even though he hadn't invested himself like he just as a friend. He'd seen the company evolve and kind of knew the story of the company.

00;22;47;07 - 00;23;10;01
Andy Pai
So when it came time to actually sell the business, he was like an obvious choice for us because not only had we built a rapport for, you know, five plus years at that point, and also he understood the business side of this maybe even better than we did. Yeah. And as he did work for one of the top law firms, even before becoming a VC, so he'd kind of seen it from all angles.

00;23;10;04 - 00;23;39;12
Andy Pai
Sure. And so he he was obviously tremendously valuable in a healthy is kind of think through this, but with any of these, you know, ultimately there is some trust that you're going to have to give to receive. And so we had conversations at length with the CEO and like we felt really comfortable that they were good people. They were you know, they were actually just trying to build a subscription business, just like we we wanted to.

00;23;39;12 - 00;23;50;03
Andy Pai
And, you know, over I think the the start to end those maybe eight months, right? So we were able to build good amount of confidence before signing on the dotted line that this was worthwhile.

00;23;50;15 - 00;23;58;21
Todd Sullivan
At that point. Had Investing.com had other acquisitions that they had made, like other founders you could talk to or were there or no longer there.

00;23;59;01 - 00;24;22;19
Andy Pai
They weren't too, too acquisitive at the time, so they were actually in the process of getting acquired themselves while while this was happening. And so post we have been more acquisitive because now we have the backing of a PE (private equity) firm as well. Yeah, but yeah, at the time there wasn't really what was really useful is some of the top executives at that company were entrepreneurial themselves.

00;24;22;19 - 00;24;37;25
Andy Pai
So the CEO and by saying you sold this last business thing for like $350 million and etc.. So they were, you know, we felt comfortable that these were just like, you know, no name entities like they had accomplished quite a lot even before before joining investing.

00;24;38;01 - 00;25;11;11
Todd Sullivan
Andy, I think that's a really interesting point because most of the acquirers that we deal with for founders, they are professional corporate people. They're in corporate development or they are, you know, hired guns at the seat in the C-suite. And we come across very few that were previous entrepreneurs. And I think that that is something to really think more about that, you know, you can that person sees themselves in you and maybe there is a kinship there that you can get on the same page, you can trust each other.

00;25;11;17 - 00;25;29;20
Todd Sullivan
I think your comment about you, there is an element of trust here because you can ink as many things in in a contract as possible. But you know, things happen, markets change, visions change, and and it's not always in the control of the person that you're talking to. So you got to be able to trust that they have your best interests at heart.

00;25;30;00 - 00;25;46;25
Todd Sullivan
And I think the best way to do that is when your interest aligns with theirs. I'm interested. So did you know that they were being acquired or at least taking on a private equity partner while you were talking? And did that drive timeline or anything strange about that your transaction?

00;25;47;17 - 00;26;05;19
Andy Pai
I think one of the best things that both parties did here, we were like brutally honest about, you know, I think one of the key takeaways for me was it wasn't so important to me that the deal closed. I just needed to know one way or the other to move on because we were we were growing like I had no issues.

00;26;05;19 - 00;26;29;13
Andy Pai
Like if I wanted to raise money, I could have easily raised money like it was. It was more important to not waste time and energy on something that wasn't going to work. So we I tried to upfront as much of the deal risk in like the first two conversations as maybe even is advisable to stop that. But I think that's where it's really important to assess the situation, like what is honestly the thing that you need from this.

00;26;30;07 - 00;26;48;25
Andy Pai
If it's not in a work you want to find that out, you know, a month in without the hundreds of thousand dollars going to lawyers and all that stuff. And then now you're in and then it's it's a whole disaster right? So I think having those conversations really early on, like, hey, what's your situation? This is my situation.

00;26;48;25 - 00;26;58;19
Andy Pai
These are this are the good, this is the bad, the ugly, you know, and having all of that in, I guess the IOI (indication of interest) stage or that adventure stage was tremendously useful.

00;26;59;05 - 00;27;28;16
Todd Sullivan
And I think that's awesome advice. And what I would do is in our world where we're building M&A teams for founders, it really is about you open the kimono, you share everything about your business with your M&A team. You cannot hide anything because the buyer is going to find it. And so if we can address that problem and have answers for any red flags and be very transparent with the buyer, people don't waste time.

00;27;28;16 - 00;27;57;06
Todd Sullivan
Right. And so the more honest that you can be and and it's tough as a founder, hey, we're constantly selling, we're selling a future. We believe in everything. And we don't want to think that our baby is ugly. But coming out of the gates, particularly with your team, really helps save a lot of time. And I think you were had the wisdom to do that with an acquirer, Hey, if this is going to fall apart, I want it to fall apart now, not six months from now, and where you wasted time and likely your business didn't grow at the same rate that it could.

00;27;57;13 - 00;27;59;25
Todd Sullivan
So awesome advice. Just awesome advice.

00;28;00;12 - 00;28;23;03
Andy Pai
Thank you. I think another piece of this was also throughout the process. We always kept this plan B like until the money hit the bank account. This was always plan B for us. Plan A was grow an incredible business and that's the the surest way to achieve success. And so that's always remained the focus. Like, okay, we got to keep hitting numbers, we got to keep growing.

00;28;23;04 - 00;28;25;02
Andy Pai
We keep delivering value for our customers.

00;28;25;08 - 00;28;45;09
Todd Sullivan
You know, what you're doing by having that mindset is although you're not introducing competition like a competitive bid or another company that is going to drive the right timeline and purchase price for you if you have in the back of your mind like, Hey, we are good, we can just keep going. That comes across in the conversations, right?

00;28;45;09 - 00;29;06;23
Todd Sullivan
So that is essentially introducing your best alternative to this negotiated deal, right? That is the competition. So it's great to have. Can I ask the question around secrecy within your organization? You weren't that big of a team. So was. But was everybody in the loop that you're going to sell this business or did you try not to like, distract how to do you know what?

00;29;07;03 - 00;29;29;27
Andy Pai
I didn't I tried not to distract. Like I said, it was it was plan B, right. And so it wasn't really so it became inevitable or sort of an important to be aware, like there wasn't really a reason to to get into this, mostly because I didn't want to raise hopes in some way of like this is like financial payout.

00;29;29;28 - 00;29;46;28
Andy Pai
Yeah, because we, you know, again, I'm kind of founder alignment. Like we were happy to reward employees and things like that with with equity but I didn't want that to then like disappoint if it didn't happen. Yeah. And then so that was that was actually it wasn't so much that I was worried about the negative case or something like this.

00;29;46;28 - 00;29;53;10
Andy Pai
It was just I, I didn't want to set any expectations that I couldn't deliver on until I was really confident that it was it was going to happen.

00;29;53;19 - 00;30;10;17
Todd Sullivan
That's great. I I'm not sure I put a ton of thought into that. But as the CEO, right, you're managing the expectations of the people. And as soon as you say this is happening, they're either thinking, am I going to lose my job or they're counting the dollars that may end up in their pocket. And if you disappoint, what does it do to morale?

00;30;10;17 - 00;30;14;23
Todd Sullivan
I think that's a that's a really good point. It's just another another reason.

00;30;14;23 - 00;30;30;10
Andy Pai
If anything, it was going to improve their their circumstances. And in in terms of the scale that we would be operating at, the type of impact that it would have, everyone had job security, everything they wanted. The team was a great team. So there's that. There wasn't any of those concerns. Otherwise, maybe I would have been more thoughtful about it.

00;30;30;10 - 00;30;52;10
Todd Sullivan
But nobody I think every employee is going to naturally think, Oh my gosh, right. If Andy isn't the CEO, what is this really look like for me? And but I think more to the point, your advice of kind of managing the expectation that what if it doesn't happen? Is the morale there as the drives still there, they may feel like a rug was pulled out from under them.

00;30;52;22 - 00;31;09;14
Todd Sullivan
I think it's just really wise as a CEO to be able to manage it beyond just like the general secrecy that's often required in M&A transactions. All right. So so you structured the right deal. You guys are getting cash upfront and earn out based on performance, is that right. Yeah.

00;31;09;19 - 00;31;20;05
Andy Pai
Yeah. So we both felt that there was a huge, huge growth opportunity ahead of us. And so it was how can we first deliver on that value? And then if we are able to capture some of it ourselves.

00;31;20;28 - 00;31;23;07
Todd Sullivan
And so far has that worked out pretty well?

00;31;23;23 - 00;31;35;06
Andy Pai
Yeah, Yeah, I think I, I can't get specific numbers. It's up to you held company but yeah, I think we've been been quite fortunate and hopefully we'll continue to be fortunate so.

00;31;35;06 - 00;32;09;09
Todd Sullivan
So yeah I don't want to get into specifics but the structure is important right, that you really believed in the future. You wanted to be rewarded for the future. You created this alignment to enable getting paid well for a successful future. Were there any mistakes that you made, like in looking back, I know you're there, right? So it's hard to kind of criticize the situation, but if you're just evaluating your yourself, your ability, your partner, how you guys thought about the whole M&A process, what advice would you have around the structure that you built?

00;32;10;13 - 00;32;40;23
Andy Pai
Sure. So I think maybe one piece like we structured these as like cliff earn outs, I think in hindsight it would have made sense like as we hit percentages of those milestones to get sort of continuous cash flow, I suppose. Right. So right now it's just very much like specific numbers, but if we reach a percentage of that, like yeah, we've created tons of value, but we don't capture that until we get at these cliffs.

00;32;40;23 - 00;32;47;00
Andy Pai
And so I think if in hindsight, like I would have maybe changed that a bit, but honestly it's it's not.

00;32;47;17 - 00;33;11;07
Todd Sullivan
Well, that's a it's an interesting I appreciate you bringing it up. Right. So but let me ask so when when you talk about a cliff, you either hit a number at a certain period of time to get paid or you don't, versus getting some percentage along the way. So is it a cash flow issue or is it more like a risk issue that, hey, if we don't get this exact number, if we fall $1 short, we get nothing?

00;33;11;16 - 00;33;12;13
Todd Sullivan
Is that the fear?

00;33;13;08 - 00;33;36;16
Andy Pai
Yeah, it's it's I guess a lot of really fear, but it's mostly in terms of just like managing your own personal finances on some level or like cash flows, like it's just easier to, to, to think about it in terms of like, okay, if we're building and growing, the company is benefiting like, but we're not necessarily capturing all of that value or even some of that value.

00;33;36;16 - 00;33;45;14
Andy Pai
Like that can just be a bit odd. But it's, it's not, it's not like the end of the world. I think, you know, we're growing fast enough that eventually.

00;33;46;00 - 00;34;04;29
Todd Sullivan
Yeah, it'll it'll end up it'll end up in your pocket. Hey, this is awesome. I really appreciate doing this. Most of the founders that we talked to have moved on right beyond this particular one, this exit. So. But. But I have the impression that you also have another company. Did you start another company? Do you and what are you doing right now?

00;34;04;29 - 00;34;06;20
Todd Sullivan
Are you still working on Finbox.

00;34;07;11 - 00;34;27;00
Andy Pai
Yeah. So we're working with investing on their subscriptions businesses. And so I live in Puerto Rico now and there's the tax advantages and things like that to being here. And so just some of the way that we've structured the transaction as it is to be tax tax beneficial. Sure. So as a separate entity.

00;34;27;09 - 00;34;47;19
Todd Sullivan
I think that's that's an important point to bring up is that there's a lot of planning to maximize your personal outcome. Right. And tax is an enormous portion of this. So, you know, we've sold businesses in California that probably wish they had moved out of California because of the bite that that California is going to take in an M&A transaction.

00;34;48;03 - 00;35;05;06
Todd Sullivan
We have founders that move to Florida. Right. And and that isn't something that you can do overnight. Right. You at that takes a fair bit of planning if you're trying to optimize for tax. So it's something that founders should think about. You know, may not be feasible, but it's not something you do at the goal line on these deals.

00;35;06;01 - 00;35;26;23
Andy Pai
Yeah, I think I agree and disagree. I think the main thing is making sure the business is great and like taxes like it very much a side considerations like I wouldn't ever I think in the list of priorities on making something successful like taxes, like number ten I've always seen people try to over optimize. I'm like, oh, like I just raise $20 million.

00;35;26;23 - 00;35;44;09
Andy Pai
Like I should figure out the best way to increase the amount of interest I can make from this. And like when you think about it backwards, it's like if that's what you investors wanted you to do and spend time thinking about, they could have done that themselves, right? Yeah. Like it was the reason they gave you money. And so I really, really believe in like focus.

00;35;44;09 - 00;35;58;17
Andy Pai
And I think the maybe the thing that I'll give you the highest our higher has given me the highest priorities being really customer focused. Yep. And if you can solve pain points like those are, those are the things that 5-10X you know any any return on effort.

00;35;59;00 - 00;36;22;29
Todd Sullivan
What I think is interesting is we spend a lot of time educating founders on stop thinking about fees and minor costs and I don't think taxes not a minor cost in these transactions that we're doing. But I liked your comment, like, I'm not trying to maximize every dollar. You're looking out kind of the outcome holistically. What does it mean for your life?

00;36;22;29 - 00;36;48;05
Todd Sullivan
What does it mean for your product and your customers and the new customers that you get to work with and potentially like the new organization that you're with? Right. And so I really appreciate that ability to look bigger picture about your career. I think you said like you want to do this for the next 50 years. And I love that comment because there's a mentality of I'm going to be an entrepreneur to step up to the plate and try to hit a grand slam and retire.

00;36;48;20 - 00;37;09;03
Todd Sullivan
And that that is just what we read about on TechCrunch, right? It what what the reality is, is this is a career path and people love doing this right. That that passion of trying to figure out something someone else has it or, you know, going from 0 to 1 and then scale, right? All of those things are super exciting to us as, as entrepreneurs.

00;37;09;11 - 00;37;28;18
Todd Sullivan
And so I like to think of entrepreneurship as a career path, which you, you know, you obviously do too. And I think that's why, you know, you come to say, hey, you don't have to optimize every last dollar. And frankly, why you created an amazing outcome. So I mean, I really I really appreciate this. I feel like you've already given just a ton of awesome advice.

00;37;29;00 - 00;37;40;27
Todd Sullivan
Is there anything else that you would want to tell our fellow founders? Like when you're going into an M&A transaction, you're a value editing it mistakes or things that you did really well that they should know about.

00;37;42;28 - 00;37;53;24
Andy Pai
So my when I when I first received like our LOI, I called one of my brother's friends Matt Matros. He's a he's a founder of Protein Bar.

00;37;54;16 - 00;37;57;24
Todd Sullivan
Matt is a very good friend. Oh, really? He's awesome.

00;37;57;24 - 00;37;59;17
Andy Pai
Yeah, yeah, yeah. So, So we.

00;37;59;17 - 00;38;00;27
Todd Sullivan
Went to business school together.

00;38;01;04 - 00;38;09;02
Andy Pai
Oh, you did? So you went to business school with my brother, Mayur Valanju. So anyway. Yeah. Yes, yes.

00;38;09;08 - 00;38;19;18
Todd Sullivan
Yeah. Mayur. Absolutely is awesome. Oh, yeah. I didn't. I didn't hear you said I was, like, reading your lips. Small world.

00;38;19;29 - 00;38;45;29
Andy Pai
Yeah. That's so funny. Yeah, because I was adopted and so he has And so I consider my brother like because it was his is his parents and so anyway that, that's, that's, that's incredible. Yeah. You know but anyway so he put me in touch with Matt and I get on a call with Matt and like, hey I got this offer and he's just kind of like, thinks about it and he's like, Just call me when it's done.

00;38;46;19 - 00;39;06;04
Andy Pai
And Andrew wasn't really interested in the specifics or anything, and he's like, The point is like, think just where you are in your journey. The doors that this will open for you are far more important and interesting than what you're going to make from walking through the store. And so I think just just get it done and that and so that's what I did.

00;39;06;04 - 00;39;12;06
Andy Pai
So when the deal closes, I give him a call. So a deal is done, you know.

00;39;12;27 - 00;39;32;18
Todd Sullivan
That's great. Like, yeah, Matt, Matt's a genius, right? He did Protein Bar, then he did Limitless, and now he's working with us, trying to help us. He's is such an expert in that kind of consumables, food and beverage space that having someone like Matt, you know, in your ear, advise and growing a business and how to exit it.

00;39;32;18 - 00;39;55;25
Todd Sullivan
He's had amazing exits. That is hilarious that he was the one and I love the advice frankly it it's a journey right And doors that open. I have built and sold for businesses and I can I, I can testify to the number of doors that open to you once you've kind of put a few wins on the board every time the next business is more fun, it's more successful.

00;39;55;25 - 00;40;07;20
Todd Sullivan
You're doing it for the right reasons. You're doing it with the right people. Absolutely. I love that advice and I think it's hilarious that it came from Matt because we're you know, we work we work so closely.

00;40;08;04 - 00;40;14;29
Andy Pai
Yeah, that's awesome. Yeah. I mean, I was 31 at the time when I called him. I had so it was just like he was he was like, get, just get it done, man.

00;40;15;14 - 00;40;37;20
Todd Sullivan
And I'm going to I'm definitely going to text Mayur after this. This is what a smooth what a small world. Well, listen, I really appreciate your time. The story is is awesome right from beginning to end. Congratulations on getting this this deal done. It sounds like an amazing deal and that you guys did it on your own and found the right partner to do that transaction with.

00;40;38;02 - 00;40;55;00
Todd Sullivan
I like to ask one last question because you've had so many influences, I think, throughout your life. Is there one person that you would like to thank that helped you get here personally, professionally? Anything that was really meaningful to you and your career so far?

00;40;56;05 - 00;41;18;20
Andy Pai
Oh well, that's yeah, it's hard to pick just one I mean, family's been been incredibly supportive throughout this whole thing, as you can see from where being brought up in this call. But yeah, I think it's hard to not give the credit to my wife. I mean, we we met when I was 20 years old. We you know, she's seen it all through the banking years, the FInbox years.

00;41;18;20 - 00;41;27;12
Andy Pai
And, you know, we now have a three month old at home. And so, yeah, congrats think I think she takes the cake on that.

00;41;27;21 - 00;41;34;28
Todd Sullivan
That's great. That's great. Andy, thank you so much for the time. Really, really appreciate it. Great advice. Great story and congratulations.

00;41;35;22 - 00;41;36;14
Andy Pai
Thanks so much, Todd.

00;41;38;12 - 00;42;00;17
Todd Sullivan
Thanks again for listening to the Cashing Out podcast. For more founder exit stories, please subscribe to the Cashing Out podcast on Apple iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember ex it was dot com and the Cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.