M&A Advice from Time's Top 100 Most Influential | Jay Adelson

Jay Adelson is a serial entrepreneur, having built companies such as Equinix, Digg, Revision3, SimpleGeo, Opsmatic and Scorbit. Jay currently serves as Chairman and Co-founder at Scorbit, a connected gaming company, as well as Co-founder and General Partner of Center Electric, LLC, a venture firm he Co-founded in 2014.

Cashing Out Podcast | Episode 9 | | Jay Adelson

Todd: [00:00:00] 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 I have a special guest friend and prolific entrepreneur, Jay Adelson.

Jay has sold multiple companies including SimpleGeo to Urban Airship, Revision3 to Discovery, and he took Equinix through an IPO, which was one of the most powerful internet infrastructure companies, and today handles 90% of the world's internet traffic. Jay's incredible entrepreneurial talents are second to none, so it comes as no surprise that in 2008, Time Magazine named Jay, one of the Top 100 Most Influential People in the World.

Today, Jay and I discuss how founders who excel because they believe in the impossible need to face many new real. When entering an M&A process from understanding the real [00:01:00] value of your company to realizing that your team and stakeholders may not all be on the same page as you. There's a lot to uncover today.

Jay shares some of the lessons he's learned so we can all be a little smarter when it comes time to sell our businesses someday. I hope you enjoy my conversation with Jay Adelson. Thank you very much for being here to share this prolific entrepreneurial journey with our fellow founder. I know you're gonna have all of this insight.

It's gonna be invaluable for them. I really, really appreciate you being here, so thank you.

Jay: Absolutely. My pleasure to be here. Thanks for having me. It's, it's, it's always great to be able to talk about these things. Yeah.

Todd: And I know you like mentoring people and giving back, but I gotta say, when you agree to come on the show today, I immediately bumped Mark Cuban from this time slot.
I had no qualms about doing that, so thank you.

Jay: Well, you can blame me. You can tell him my fault.

Todd: I usually like to start by saying, how do [00:02:00] I know or how did I meet our guests? And generally, I remember these moments far more than our guests, so. Don't feel bad if you don't remember, but we were both pitching our respective businesses in Detroit to Midwest venture investors.
I think, you know, it was a big auditorium, and you went first for whatever reason, probably ranked by height, certainly not qualification, and I didn't know what you were pitching, but because I was just too nervous, I had to get up next and I just, I remember. Opening with, regardless of how this pitch goes today, I want everybody to remember that Jay Adelson opened for me , which thank you for laughing.
There was one person in the audience that laughed.

Jay: You know, I actually have stage fright.

Todd: That’s right. You mentioned that. Now I remember you mentioned, On stage.

Jay: Right. I've always had it. I've given, you [00:03:00] know, a thousand presentations. I've, I've, you know, done commencement speeches in front of like 15,000 people.
It has never changed the fact that I have a total panic attack. Every time that I'm on, I'm on stage with all those episodes I shot of the Asj show. I was nervous every single time. It's, I don't know, to me it's almost kind of like a good thing.. Because I think that it, it, the nervousness sort of forces me to, you know, but I remember, you know, going to the Detroit Venture partners, you know, downtown Detroit, um, a number of times, and, and sometimes it was, it was because they wanted me to talk about a topic, you know, like maybe it was exits or, or what have you.

There was one point where they invested, I think their first fund maybe invested in one of my startups, and we had an exit. We actually had an exit with that one. It was called Opsmatic. We sold it to New Relic. I [00:04:00] wanna say, gosh, I, I wanna say 2013 maybe. I, I actually,

Todd: I had you sold in 2015.

Jay: Yeah, there you go.
Thank you. Yep. Yeah. My memory .

Todd: Well, when you ring so many of these up in a row, my gosh, like, Yeah. How do you remember the dates? Well, why don't we jump in, right, Because I think you're gonna have a lot to share. Obviously, we had a, a quick chat of like, what can we, you know, share with fellow founders about, specifically about M&A.

But maybe, and I know this isn't fair to do to you, but maybe you could run. A list of the companies. I know you've done a dozen, but maybe pick three or four to take us back to where, you know, your last one, and then we'll jump in on the kind of the m and a side and lessons that you've learned.

Jay: Sure. I, I guess I'm probably best known for Equinix, which was really my first sort of sole.
Like I did it. I had one co-founder, Al [00:05:00] Avery, uh, we started that in 1998. It's now publicly traded, EQIX on NASDAQ. Um, doing pretty well. We took that public in August of 2000. Um, not the greatest time to take a company. Uh, it was brutal. But since that point, I started Revision3, which, uh, was the first internet television network.

That one went, uh, was sold to Discovery Channel. I started Digg where I was CEO, I, I wanna say for five years. Give or take, um, and tried to sell. That one didn't happen. Um, I started Scorbit, which I mentioned Center Electric, uh, was a my venture firm. There's a few things sort of inserted in there, you know, Um, SimpleGeo.

Todd: Yeah, I was gonna say SimpleGeo. I remember that one cuz I remembered Urban Airship. I think we were using that product at the time. [00:06:00]

Jay: We sold to Urban, which is now Airship, you know, uh, they changed their name. They're like the, they're like the push notification, them and one, a couple other guys. And, uh, uh, you know, I, in between all this stuff, and maybe even more importantly than those, than those companies, uh, there was another, you know, 10 plus companies that completely with that bat, like, like, Either they were sold for parts or they were, they just didn't, they just didn't get to the second round.
Um, most of 'em, venture backed, I mean, Center Electric was, we raised one fund and we invested in a number of companies. We're actually still operating that fund, if you believe it. It's almost, it's, it's getting to that point. I think about eight years. Um, had some exits in. And, uh, and then, yeah. Now I'm a, a pinball professional.

I, I started a [00:07:00] company that provides essentially the, uh, uh, a connective tissue between physical world games. And sort of the, the world of apps and profiles, sort of like Xbox Live, but for all machines. And that may seem completely tangential, but it's a passion project with my son and myself and, and my two co-founders, Brian O'Neil and Ron Richards, who, um, we all just share a love for this and this.

This is something that we. Uh, this is my full-time job now.

Todd: That's fantastic. What I liked when I had read about that with you and Ben was, you know, I have, I have kids and trying to think of what other businesses can I start on the side to basically shepherd them through, let hand it off, let them make mistakes, let them learn about entrepreneurship that way.
So we have a couple of like side projects in our home as well. That will be, you know, in the hands of my kids when they grow beyond five and three years. So, um, as you know, the M&A process is largely this black box for founders who have not gone through it.

And even when you, you're fortunate enough to go through it one [00:09:00] time, there are so many permutations of what can happen from aqua hires to asset sales to strategics to. IPO, and I think you're one of the few guests that we've had that have seen pretty much all of those different versions of merger and acquisition.

So I'd love to kind of get into what you think are some of the things that founders could learn from your experience and maybe share some stories and, you know, talk through those.

Jay: I would be happy to, you know, The very first thing that jumps into my head when you say that is “run”. Yeah. Just run. Um, it is, it is very, uh, uh, the, as you know, there is no one sort of consistent truth across all kinds of deals that you might be involved in.

And, and all startups are different and all founders are different. And the conditions by which. [00:10:00] You make these decisions, uh, are changing in real time. So there's no like, perfect solution. But there are some things that I wish I could go back in time and talk to my, you know, young self before we like went, you know, on a road show to take the company public or, or before we tried, you know, selling a company one way or the other.

Um, it's not. It's, it's, you know, as a 30 year old, I think I was 30 or I just, I was about to turn 30 when Equinix went public. And if I had known then what I know now, I probably would've done things very differently because…

Todd: of where Equinox went or just the way it happened?

Jay: The family stuff. Okay. So I believe that when you start to get attached to the.
Of an exit. An exit can mean different things, right? It [00:11:00] could mean in your mind, an end to the hard work you've been doing. Right? For some founders, some of it is, um, uh, some kind of financial security. Other folks see something like an, like it as an opportunity to build something bigger or, or take you to some kind of goal.

And I think. When you get attached to those goals, one of the things that necessarily comes back is this perpetual denial over the realities of what that means to, to everyone around you and to, um, you know, to the, you know, the term sheet from the, from the details of the business all the way through to how it affects your personal life.

And I remember, like, we used to use this term, this term on paper, About how if you were getting acquired or you're going public, that on paper you were worth so much money. [00:12:00] And, and the veterans would always say to me, You have to ignore that. Like the veterans who had been through multiple exits would say, Don't pay attention to those numbers.

Uh, try to disconnect yourself, but you can. You know, particularly if you're 30 years old and it's a life changing opportunity. Now, how are we supposed to know when Equinix was going public that there was gonna be a Nasdaq collapse in the entire, you know, universe would turn upside down. Um, and I think that that just remained true deal to deal to deals, that there's always a disconnect from what you believe is going to be the change, whatever it is.

Ends up being the truth in the end , you're playing

Todd: right into the entrepreneurial playbook, right? We build companies under this veil of denial that what is it, one outta 10 actually work, right? That we're gonna be the one out of the 10. And, and so it takes that [00:13:00] optimism. So I, I can relate to this idea of denial, of what you believe you're gonna create in this exit, and what's, what's really true, not just for you, right?
For everyone around.

Jay: That's right. It's, um, it's interesting because a founder is in a really tough position at the beginning of such a thing because for all sorts of reasons, um, privacy, security, confidentiality, uh, how much it can disrupt your employees life. If, if, if they find out there, you know, there's an exit coming, how it changes their behavior and it ultimately affects the outcome because if they think that's coming, it changes the way that they behave.

And so you have to keep these things secret. And then the people who are allowed to talk to you about it are often the people who have very different, uh, end games than you do as a founder. So you're getting advice. In [00:14:00] a secret time from the people who probably aren't the best suited to give you that advice.

And so you're, you're kind of stuck in a very lonely situation. And so what, what do you do? You, you, you take the data you have and the faith that you've put in the business and, uh, and the situation that led you to this point, and you've kind of fallen into that pattern of that same kind of belief. And what ends up happening.

Even if things go incredibly well, it, it's, it's always going to be extremely different than what you intended it to be.

Todd: Can I just mention to give some kind of a concrete example? I think for me what I've, I've seen many times in m and a and helping fellow founders through this process is they wanna believe that the people around them are giving them.

Advice that isn't just self-interest. And a lot of the businesses that we work with are venture backed. And so if [00:15:00] you look at it from the perspective of a venture capital firm, they wanna deploy as much capital into their winners as possible, right? So at some point that alignment. And it falls off. But as a founder, you wanna believe this team that has gone on this journey with you all have the same interest.

And, and yeah, frankly, it's not true. And on the other side, there may be employees that, that could really be on your side where in an engagement right now, where one very key employee knows the power he has at this very specific moment and doesn't really know what it's gonna look like on the other side, and is choosing to exercise this power in, in a very uncomfortable way in an M&A.
So it is tough to know who to trust.

Jay: Yeah. And it, and, and, and I do, I I will give credit. I've had a lot of great venture capital investors over the years who, who are transparent in this, in these different outcomes. Who would tell me [00:16:00] directly, you know, we make money and our LPs make money. Uh, our model is support.
Only if you sell with these kinds of terms and you'll hear it directly. It's like literally told to you in black and white. And then still there is this sort of sense that you're in more control than than you think you are. And that, uh, ultimately things, things can, can work differently. Now. Now I, I think that there are exceptions to.

To that. I think that there are, I've heard these, these mythical stories, uh, about certain founders who, uh, you know, were able to create. An outcome from the very beginning, exactly how they intended, you know, with, with a, with bylaws that were structured a certain way, they had controlling interest of their [00:17:00] company.

They always wanted the outcome that they get to. But I will tell you that in every single time where I've run across one of those situations, It was not their first rodeo, it was their 10th or their 12th, and most of the initial money that went into the company was probably their own.

Todd: Yep. Yep. I would say that's a big difference right there.


Jay: Yeah, I mean, I, I, uh, I remember that, um, you know, if we go sort of forward to like 2005, 2006 and, you know, dig was, was, was a hot property at the time. We got to this point where I think the rest of the world assumed that we were getting courted and we were trying to sell the company when we weren't.

Um, but it changed the, uh, the mindset of the employees to think and believe what they were reading, that we were very [00:18:00] valuable. Uh, and so that created a very interesting dynamic as a CEO of a company to have to deal with the constant, not just external, but internal, uh, rumor. And then when the day came where, uh, we did have a deal on the table and we presented it, this was Google who had, who had actually proposed to us a pretty significant.

You know, amount of money, like 150 to 180 million, which at the time was a big deal for us, right? Yeah, yeah, yeah. Um, we had negotiated the entire definitives, Everything was done. Everyone had their, their, you know, their plan the next week to meet with their manager, uh, on the Google side. And Google walked away from the deal at the last second.

Okay, so, so what was interesting though, uh, as a CEO [00:19:00] was what the employees already knew or what they believed, they knew, what their expectations about their wealth would've been. So there was this, this, uh, complete disconnect. Like if we had act, if the deal had actually gone through, I think a lot of these employees ultimately would've been disappointed.
With, you know, a 50 K or a 100 K outcome. When, when, in their mind as just an employee of the company, they thought that it was gonna be much bigger than that. And then you would have to deal with the ramifications of keeping those people motivated and inspired beyond that point. So the denial part, it, it goes everywhere.

And I, and I've seen it, I've seen all of the problems that it creates for, uh, for a founder. Because when things don't go right, you can often be traumatized by that [00:20:00] disconnect. And, you know, in my case, the trauma was less that the, that the deal itself didn't go through in that particular case, the trauma was, was, uh, the, the feeling of disappointment.

Like I, I felt that I was, that I was letting my team down was, it was pretty brutal. And, and I had to deal with the emotional context of that, you know? Yep. Personally. And so that, you know, I, I, I've seen in every kind of deal. Um, of course, you know, it, it's easy also to believe that a deal is real long.
it's time to actually attach yourself emotionally to that. That's a big denial. I mean, I, I know that, um, as a, um, board member watching the CEO and founders go through these, these m and a processes about how they get attached to the [00:21:00] idea of a deal, to the point where, um, you almost don't hear, the advice.

Or recognize the reality of the value of your business and then you end up disappointed in the, in the process.

Todd: Let me kind of recap that cuz I think there's maybe something really great here. So with Digg, you've got, Google has maybe approached you or you cuz you weren't running a process, right? So has this inbound interest at.

Jay: Yeah, this was inbound interest, by the way. We had tried to process like six months before that. Um, we used a, a bank called Allen and Company, which had been pretty well known for, for, um, you know, helping to broker deals. And we had a lot of interest.
We even had term sheets that had presented to us that were, you know, below what we thought we were worth. And so we didn't. End up selling the [00:22:00] company. Um, and we had sort of walked away from that. We had raised, uh, another round of funding and things were growing. Um, but, but Google had approached us. They had just launched a product called Google Plus, and I think that they were looking at Digg, and Google News, and they were looking at, at Digg.
And my, my, uh, uh, the founder of Digg, Kevin Rose, who was in. Absolute brilliant product. Product, you know, consumer product guy had really an incredible knowledge around managing communities like that, particularly around sourcing. And I think they also wanted him and they wanted that level of knowledge.

And so they approached us. Yeah. And they, um, they presented terms that we agreed to. We had signed term sheets and then, you know, we kept things secret for as long as you can. , uh, in a lot of these larger companies, when they [00:23:00] get to that point where it's, you know, the end of the definitives and they're starting to do that, that that final diligence, they then interview your team.
Mm. Okay. So there's no way to keep it secret anymore at that point. Right. Right. And so that we were already past that. Everyone had gone through and passed these interviews. And then we were basically, the wire transfer was like a Friday morning, and I think it was the Thursday afternoon that they pulled out.

Todd: What could you have done differently though, to make that happen? Was it completely just black box? You don't know.

Jay: That's the thing. It, it, there really wasn't, um, in this particular case, There was probably multiple contributing factors inside of Google. Like we've talked to the Google folks for years. I mean, that was 2008, so there's been years that have passed since then.

And it really was just a combination of factors. We had, uh, a market that was, uh, fluctuating and in danger of [00:24:00] collapse. We had, uh, I think it was Google's first negative earnings that they had ever posted. I think that there was, uh, also concern over culture. The fact that we were sort of a, a human based algorithm and it was very much a sort of AI sort of extension in algorithm.
And so there was a lot of different ways that, you know, you could, uh, sort of find ways to poke holes in the deal, but we managed to not, uh, you. Uh, obviously anyway, check any of those boxes that, that would get the deal, um, to collapse, but we'll never know what the ultimate, you know, uh, crossover point was.

All we know is that Eric Schmidt at the last second said, “No more deals” and they backed out. And our, our product champion at the time was Marissa Mayer. Who would later become CEO [00:25:00] of Yahoo. And she was just, you know, distraught over it. She was very disappointed because she really wanted the deal to go through.

But this is my point. You, you as a founder or as a ceo, can't possibly know what's gonna happen. And so, um, at this point I had been around enough to know that it was. For sure thing. It was extremely disappointing. But even though logically I knew that emotionally it still impacts you, it impacts you subconsciously, you know, I didn’t sleep for weeks.
It was, it was the sense that I had let everybody down somehow, but there was no way I could have impacted that deal.

Todd: No, it doesn't sound like it. Yeah. Series of factors emanating from macroeconomic environment and then inner workings of the acquire.

Jay: Yeah, a a hundred percent. And, and by the way, that exists [00:26:00] pretty much in every time there's ever been a deal, even the ones that, that have gone through every single time, I can tell you consistently the outcomes, uh, always involved at least one acquirer who was never going to go through with the process of our control. There's a, there's a common story, I think, so I sit on boards and I advise a lot of entrepreneurs, and I hear this story all the time. And the story goes something like this.
Usually it's Amazon, but let's just say it could be any, any acquirer, you know, where basically, uh, they're kind of going about their business and their view is more like a three year. Sort of horizon. They're not really thinking about acquisition, they're not thinking about anything related to that. Um, the, the business might [00:30:00] have some obstacles to overcome and some struggle and maybe a couple more rounds of funding to do, but they're believers at this point and they're not trying to sell.
And then some large company comes and says, Hey, you know, we'd be really, really interested in acquiring you. Um, let's have a conversation about it. Just the CEO or just the founders and, and us. The m and a group. You get wind and dined, uh, lots of of, you know, positive discussion. You feel that there's this big, uh, player who's.

Speaking to you that that's, that's got the, the means by which that they could actually make something happen fast, which by the way, also never happens. Um, and so you go to your investors and the investors are like, Well, the only way we can, we can be cool with this is to know that the value is [00:31:00] the maximum value.

And there's only one way of finding out that it's the maximum value, and that's if there's multiple players at the table with multiple term sheets competing with each other, right? So then let's go out and, and talk to these other potential buyers. The problem is, is that you can't sell a company. You can only be bought.

There's no way to create. Artificial urgency, unless the deal was literally gonna happen. All you've had is a conversation at this point. Well, often these companies won't even put it on paper and they say it's their policy not to put it on paper. So you're going out there and shopping yourself now, meanwhile, this entire thing has been going down, all started from a conversation which has no meat behind it, right?
And so, [00:32:00] The advice I often give founders at this point is don't go to those first dinners. Don't have those conversations. Don't believe it when it's real, it's real, and it'll be aggressive. And even then, uh, you have to really have a, almost like a little black book of, of all the people over time who have come to you with that interest as opposed to the way around if you have.

Educate the other potential buyers on who you are and what the value proposition is. It's already too much. They should know who you are if there's that much strategic value. Right, And this is the, this is really, this is really the challenge with, with following through on those first conversations because that denial starts to take hold.

Now, suddenly you see this outcome where maybe you have a windfall and you know you have all this wealth generated. You get those board [00:33:00] members off your back and everybody's happy. That's a, that's a challenge. And so I, I've, I've always advise it, I can't stop it. Yep. And it, I never can .

Todd: Yeah. I don't, it's don't, I don't see how Yeah.
How you are gonna stop having those conversations. The questions we get a lot. When there is interest, you know, and who knows how much, how real that interest is. How do I not share too much that's the founders are asking us and um, we very much say the same thing. You're going at this. The wrong way, right?

You need to have multiple parties interested people know who you are in an industry, your obvious strategic value, and when you are ready to present that story to multiple parties, then you put a fantastic, the best m and a team in the world around you. Let them do the talking because you cannot be distracted by corporate development groups that are just trying to [00:34:00] learn about an industry and learn about the players.

A lot of times I feel those conversations are disingenuous, almost like an analyst from a venture firm calling to say, We're, we're interested in investing in, in your company. Right? No, they're not. They're learning about the industry and creating a thesis. So, um, it's great advice to try to keep them, keep the CEOs not distracted from that because if they have the value, it will come to them.
And when it's real, it'll be evident that it's real.

Jay: A hundred percent true. There is, it's, it's uh, uh, it's sometimes hard for startups to do this, but one of the things I've always noticed is that a lot of the times these problems happen is when you agree to fly to wherever they are. Oh. And you go into the, into their offices.
There's a, uh, uh, uh, a general philosophy that, particularly with the larger acquirers, um, if it's really meaningful and it's not just sort of their, [00:35:00] their, you know, frontline army who's, who's sort of trying to collect a potential deal flow on a pipeline, that if it's that interesting to them, they're gonna come be willing to come to you.

Todd: Well, it’s interesting. Combining a little bit of some of the stories is that what I'll tell founders is it is in the corporate development group that you want calling or asking you to fly to see them. It's really the product lead that sees, We've tried to build this a hundred times, and I think you've said this in our past conversations.

We just can't do it. And these guys can, and they're the ones driving that. And maybe the first step is some kind of, in a strategic relationship, it's a business development relationship. You get in bed and then the corporate development group comes and does their job of saying, Hey, we can't have this go somewhere else.

It's integral to our process, our people, our product. That's right. But yeah, that at, that's, it's, it's a far better place to say, but you tell the story with Marissa Mayer. Driving this and she clearly [00:36:00] has a ton of credibility and somehow the external factors can ruin it. So I, I keep coming back like, what is this, this lesson through all of your experiences is, it seems like it's not over until it's over and quit the denial that, that this thing is actually gonna happen until it's done.

Very hard lesson to have sink in to an entrepreneur, Right. We we're all guilty of thinking about the future and. It's gonna impact us and our constituents, our stakeholders, our employees, our investors.
When we talk about kind of the disillusionment of even valuation, what you believe your company is worth before you even start this process, I think a great step for an entrepreneur to jump into reality is to even [00:40:00] talk with a professional that very much specifically markets.
Businesses just like yours. I've found that, you know, our network of investment banker. These guys should be on the boards of some of these companies because they're so niche and so specific to an industry. They know what value, really, how value is looked at in their industry. And they have their, um, you know, line of acquirers, personal relationships.

So I, I think it's one of the first places where an entrepreneur can, can move from emotion over to finance. And have an idea of what that business is actually worth before you go into these conversations. And you can do that without, you know, shopping your deal.

Jay: I agree a hundred percent. There's the, the going it alone.
Sort of cavalier entrepreneur attitude that works really well sometimes in that maverick kind of, you know, [00:41:00] archetype like that works really well for, for building products and, and, and launching things. But what's, uh, absolutely true about the m and a world is that there are people who've done this, you know, a million times before you,

And so what's nice about the, the banker involved in the deal, Is that, that's what they do for a living, right? That's how they, they, they understand, uh, who the players are. You know, the deck cards that they can put out on the table that says, Okay, this guy over here is responsible, and these are the seven deals that they just did in the last two years.

This is how they base their modeling. So when we approach them, this is the strategy that, that we would wanna approach, and it, and it matters. The problem is, is that the data isn't always accessible to the entrepreneur. It's not public, right? So if you go to people skilled in that space and they can actually show you the deal economics of previous deals they've [00:43:00] done with actual credible, not just that they've done, but the individual at the bank, at the banker,

Todd: You're speaking our language.

Jay: Actually has done this specific type of deal multiple times because they will actually have the relationships with those buyers. That brings with it some credibility. You know, the, the, um, and, and I was in high tech, you know, internet, you know, could both infrastructure and consumer. There is a subset within.

Social media or of telecom or of, you know, um, storage or infrastructure. And there are actually experts that come across that. Some of the larger, uh, uh, banks might have multiple experts that cross different sectors, but you kind of wanna look at a comparable deal, the closest thing you can find and find out who did it.

Todd: Right. You're right on. It's [00:44:00] really difficult to figure. Where the actual talent is. And they may be at these bigger banks and they may get siloed into cyber security or ad tech or MarTech, right? They can get very specific industry specific. And then those groups end up loving their industry, loving those relationships, doing great deals and leaving.

And now it's a boutique bank, right? And how do you find them? They're just shaking hands within their industry. And so that's what we've been very proud. Is to aggregate those individuals, those really talented people who can give a founder. Without signing up for anything. Right? This is how the industry will view your specific offering and this is how this specific acquirer we're gonna, we would need to approach them.

This is the story we would tell. This is the modeling we would do, which is very different with this acquirer over here. I had this great story. Love telling it. Where this entrepreneur came to me and initial offers like 5 million [00:45:00] bucks, he's, he says, What should I do? And I said, We're gonna put the best investment banker for your specific category.

And it was very specific and I can't go into total details and we're gonna put 'em on with the person that just made that offer. And we did that and made it a little bit of a surprise. And the acquirer on the other end put his hand up when he. Our investment banker on screen and said hi. Called him by first name and he smiled and he said, Look, we want this call to go well, but you know who I have to call in 15 minutes.
If this doesn't go well. Right. And that sounds like a threat, right? It is, but it's implicit when you are an expert in an industry who you're gonna bring a company to, how you're gonna talk about it. So it, this isn't, you know, an advertisement for exit wise, but I really like the way you're identifying that level of expertise is required and bring that entrepreneur back.

This is reality. This is the world we're living in. This is the value of your company to certain [00:46:00] stakeholders. And that information's just really hard for guys like you and I to try to uncover.
Jay: Yeah, it's, it's also important context how that relationship gets created. So, So I think that there are a lot of entrepreneurs out there who, um, Who are approaching this because somebody told them that there were something and that there's a deal to be had.

That's not why to do a deal. Right? So if a banker shows up and says, Hey, we've, you know, we've been, uh, looking at the industry and we've seen some comps out. That other people have done deals on. So we think that your company would be really good to sell for this reason at this time. That's the wrong reason to go in.[00:47:00]

Right? The, the, the flip to that is, um, you have a board of directors that says, Well, the direction of this company isn't going the way. That, that we want it to go, we predict that it's not gonna have the positive outcome. Your best possible solution right now would be to do something and then on behalf of the founders, like, and the founders and the CEO goes in a and finds, uh, a banker to help you.
That's the other way around. Right? And that, that's a good reason to approach an expert in the field because at that point then you are, uh, You're not just selling a dream to someone. You, you've got a realistic view of the value of the company and what you can achieve and, and who tells you this? So the, the, the cautionary tale here is if you are, approached by an [00:48:00] outside group that said, that's not the buyer, but is a, a intermediary and says, We think you're worth something, take it with skepticism.

Because if that were truly the case, why has none of those companies come to you already and at least tried to approach a partnership or something if there's that kind of strategic value?

Todd: Can I jump on what you said? Where the investors say, Okay, the business is going in a trajectory that maybe isn't where we expected and maybe it's time to look.
What we see is a lot of investors have investment bankers who they know, right, that have been successful for them before. We always find that every company is very, very specific and there really is a perfect person to be selling that. I was on the phone with an entrepreneur the other week and then five investment banks right for them.

And the investment banks are just not fit in the bill for this one guy. So we keep hunting and you know, somebody in my office said, What? What are you really looking [00:49:00] for? And this hit me. What we're looking for is if you've seen the show Billions, Yeah. And Dollar Bill says to Bobby Axelrod, this is what's gonna happen.

And Bobby Axelrod says, Yeah, “how certain are you?” And he says, “I am not uncertain.” And, and that, that is what we look for in investment bankers, that when we present something, the light bulb goes on and it says, I already know where this is gonna go. It is. It is so relationship based.

Jay: But back to denial. Yep.

Right. I'm sure you've also seen the, you know, what I was referring to, which is, which is the entrepreneur starts to believe something before it's time. And then, you know, you've got the imperfect banker, the one that should be doing this deal, but is willing to play into that, that belief and take advantage of that entrepreneur.

Um, even in a success based. Uh, [00:50:00] deal. You know, often you see these, you know, the, you know, the, the percentage, you know, the two or 3% or whatever they take as part of a, a, a placement fee, even before the, if it, it's success based only, and there was no, uh, minimum fee, which there often is, right? The time it takes and the distraction it creates is enormous.
And that's why I, I always believe that it needs to come from the inside out and not from the outside in. And, you know, there's, there's a whole set of subset of questions of whether or not when the board starts pressuring you to go in that direction where even if you should even go in that direction,

Todd: yeah, you need good, honest advice around you.
Right? Good mentors. That's a great way to look at it. Jay. I haven't really thought deeply about from inside out to versus outside in, but I think the overall theme here is this kind of idea of denial of what, what is real and we're [00:51:00] entrepreneurs and we wanna believe. So that is a, it's a tough hurdle generally.

I think it's a great lesson, particularly in m and a. So you're not wasting your time, you're not wasting your team's. And ultimately you're not disappointed in something that's very, very difficult to pull off.

Jay: Yeah. Times of stress are really interesting. Bellwethers, you know, , Karen mine for, for getting a reality dose.

Uh, what the gap is between your belief system and co-founders or employees or board members? And what I, what I think is really interesting about m and a is m and a tends to be, It's kind of like, you know, moving or weddings or funerals. It's one of those really intense moments. Fundraising is another one.
You know, where, where suddenly you're given this real surprise because where you think people are at emotionally, what you've convinced yourself in order to [00:52:00] rationalize the behavior of your day to day. Just turns out to be different than you expect. And the problem M&A is particularly insidious because you can't talk about it with anybody.

Todd: That’s really well said. I love that.

Jay: And you're stuck so there's no therapist who can talk to you. And so, so when the time comes that you get to the point where other people are brought into the conversation and you get that surprise. It's so late in your journey. You've already set your head on something and become attached to the idea, and that when it starts to morph, then it's a very traumatic experience.

Todd: What I'm learning from this, I think we can do a better job as advising these founders and the people around them of what they're gonna go through. Talk to a founder even this weekend and he said, Oh my God, this is the hardest thing. And I'm like, We're just starting. Yeah. And in his mind, we're at the finish line and there isn't even a purchase agreement.
To argue every point to over. Right? And, and so there's a long way to go and, and trying to give that perspective not only to, to that one individual selling his business, but everybody surrounding him. I think we can do a better job as that Sherpa. In a deal. So I appreciate you mentioning that. Absolutely.
So, um, let me ask you, this is maybe a little off the cuff, but right when I read that you were, [00:54:00] is it Time Magazine, one of the top 100 Most Influential People in the World? So this is in 2008, Right. And. I'm like, I don't even have any influence over my three kids at home . And yet you're, you have this sta so what happens the next year?
Are you, do, are you on that list?

Jay: No, I think there are people who stay on that list. I think I was, I continue to be nominated for that by an unknown probably at the time. Digg users. Okay. Right. Yeah. Okay. I mean, it's realistic here. There's no, there's no editorial staff or, uh, published Nobel. Uh, you know, process of judging.
This is completely and totally a marketing thing that happens, you know, within the universe of time. And it was really, really a wonderful experience because I got to meet people with actual influence. Yeah. Okay. On , it was basically a surprise. The truth be told is that [00:55:00] my, uh, the, the founder of Digg, this guy Kevin Rose, Probably was the first real internet influencer and the, and what we currently today refer to as an influencer.

This is back in 2000 5, 6, 7. Um, he commanded the largest audiences in terms of video. He had a video show that was watched by thousands of people all over the world. Um, and he had a Twitter account that had the most followers. And at the time, that was a lot to have like 2 million followers.
And I remember like Ashton Kucher coming to our offices and asking him for advice on how to build, you know, a follower base. So he was actually influencial. Yeah, the sense now I think that there was a, uh, there was a theme going around cuz I was the CEO of the company and, and, [00:56:00] and orchestrating a lot of things that, you know, uh, uh, there's the sort of the silent but influential and there was, they had done a story in time, I think the year before about that.

And I'm. I was kind of shocked and I feel like probably what happened was the, the, uh, the use of dig tended to, there was these things we called information cascades where if you see boats bring up, you sort of fall on top of it and then that's how sort of dig operated. I think a little bit of that happened, and I always thought that Kevin was far more influential than I was, but, I had such a great time being part of that whole experience.
It was really fun.

Todd: I think we got this amazing theme that people can take from and some really kind of concrete examples. Is there anything in the context of m and a or, or when you're thinking about selling your business advice from. A guru like yourself who's been through what I, what I [00:57:00] what I love, right?

Is that you've seen so many different types of m and a, and not just from a founder's perspective, also from an investor's perspective, sitting on boards of companies that have had exited so kind of rare air to see everything that you've seen compared to, you know, us, us normal entrepreneurs that may get a shot at this one time in their lives.

So what do you share? What's the.

Jay: It's unfair of me to say to an entrepreneur, try to not be emotional in the early stages of the analysis, right? Because everything is emotional when you're an entrepreneur. I mean, that's, that's the point. Um, but if you ask yourself the fundamental question, which is, does your business need this deal?

In order to achieve your goals as an entrepreneur. And that goal could be financial, it could be an exit for you [00:58:00] or, or because you know you're exhausted. It could be, uh, that there's a product that you wanna build, but the fundamental question to that needs to be yes, this is absolutely something I. in order for that to come through in your pitches, in order for that to come through in the, in the, uh, in the process.

If it's a surprise to you that you need it, if this is something that you weren't thinking about last week, but you're thinking about it now, So that's, that's troubling. And try and try and put the brakes on there and step back. And keep repeating to yourself the question, Is this something that is part of my plan?
Start with that. And then, you know, the, the, the rest of it is, is a matter of having good advice at the right time. And, and I would, and I would just [00:59:00] say, you know, if, uh, if you can find another entrepreneur who's been through it a couple times, even once, even one time just having somebody to talk. About this process is, is, uh, it, it can mean the difference between success and failure.

Todd: Jay, thank you for doing this. This is great and I'm glad you're gonna be back in Michigan.

Jay: Yeah, glad to be here.

Todd: Thanks again for listening to the Cashing Out podcast. For more Founder Exit stories, please subscribe to the Caching Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts.

And please remember, exit wise.com and the cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.

M&A Advice from Time's Top 100 Most Influential | Jay Adelson
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