The Wise Exit

JONAH MIDANIK - E49 | CASHING OUT PODCAST

00:00:00:18 - 00:00:12:15
Jonah Midanik
People who spend, spend, spend to grow, grow, grow are actually going to end up returning nothing. Whereas if they had taken a different path, yeah, they wouldn't have, you know, returned the fund, rung the bell, but they would have had a really good outcome.

00:00:12:17 - 00:00:34:11
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 Jonah Midanik, who spent the last 20 years building companies in Canada and the United States.

00:00:34:13 - 00:01:13:17
Todd Sullivan
Jonah has been fortunate enough to have seen the startup journey from a variety of perspectives. First, as a successful bootstrapped founder of Casino Media Group, an advertising agency focused on the online gaming sector. Jonah was early in this industry and became the agency of record for PokerStars and Bet365. Jonah sold the business to Immersion Media in 2008. Jonah then jumped around using his advertising and gaming and technical talents to work for clients like Mercedes, the Toronto Maple Leafs and the UFC, which developed the first legal online betting platform in the United States and where Jonah launched the first legal hand of online poker live in the U.S..

00:01:13:19 - 00:01:37:15
Todd Sullivan
Jonah then left the UFC to found Limelight, a venture backed company focused on live events. After finding initial success, Jonah stepped away from the CEO role to sit on the board of Limelight and spend his time helping companies grow at a different kind of venture capital firm called Forum Ventures, as the COO and general partner. In this episode, Jonah and I discussed the value of putting an entrepreneurial win on the board.

00:01:37:17 - 00:02:10:02
Todd Sullivan
Deciding to step down from the CEO role for his company's next stage of growth and his advice for our fellow founders thinking about fundraising and the M&A process. I hope you enjoy my conversation with Jonah Midanik. Jonah, thank you for being here. I'm really excited to have you on the podcast today. Just because your background, I think, lends itself to giving lessons to our fellow founders around building businesses, around exiting businesses, around buying businesses.

00:02:10:04 - 00:02:28:09
Todd Sullivan
And I know you're really in the thick of it, so you have not hung it up. You're still in the middle of your entrepreneurial journey, but very much giving back to the community. So I really appreciate you being here. Just so you know, we had Mark Cuban booked for this spot, and when I found out you were agreeable to take it, I bumped him immediately.

00:02:28:09 - 00:02:30:16
Todd Sullivan
So thank you for being here.

00:02:30:18 - 00:02:36:04
Jonah Midanik
I appreciate that. I'm sure Mark is heartbroken.

00:02:36:06 - 00:02:58:05
Todd Sullivan
Well, he's sitting in the green room. We'll get him on at some point. So, Jonah, like. Yeah, again, right? I don't want to tell your story. That's for you. But what's fascinating to me is very early on, you had an exit, right? And big or small, we learn from every one of these exits. So I'd love to hear about the beginning of you falling into entrepreneurship and having that first exit.

00:02:58:06 - 00:03:24:08
Todd Sullivan
And then the next company you build with venture capital, and then you go out and you buy a company. You actually go out and find a new CEO, a new capital, and you've kind of you're putting the right pieces in the right place, right on the chessboard, and now you're funding these companies. So I think the best place to start for our listeners, just kind of if you could go back, give your personal background and and how it evolved into that first company, That would be a great start.

00:03:24:10 - 00:03:40:13
Jonah Midanik
Yeah. Thank you. I really appreciate the opportunity. So I've always been entrepreneurial. Even when I was in college where I studied engineering. I kind of knew that wasn't my path. And, you know, it started a couple of, you know, kind of side hustle type businesses. But as I was graduating college, I needed to figure out what to do.

00:03:40:13 - 00:04:08:18
Jonah Midanik
I realized that what I wanted to do was not work for someone else. And so I started doing something that, you know, happened like a lot of those businesses early on happened, which was just some of circumstances. I had been involved in the poker community as online poker was taking off. You know, I understood the technology a little bit and a lot of these rising online poker businesses cannot find standard marketers to take their money because the regulatory landscape was very gray zone at the time.

00:04:08:20 - 00:04:27:16
Jonah Midanik
And so some of these businesses came to me and said, hey, you know, you've got some access here. Would you be interested in putting together some small events? And that blossomed because those companies are actually really well known businesses. I mean, one of those businesses was Bet365, which is one of the largest sportsbook on the planet. They own a Premier League team.

00:04:27:18 - 00:04:53:17
Jonah Midanik
One of those businesses was PokerStars, which is, you know, the largest online poker business in the world. And it kind of blossomed from what you do a couple small events to really run our experiential marketing for us across North America. And so through, you know, a combination of very place right time and figuring things out on the fly and frankly, their lack of other options.

00:04:53:17 - 00:05:13:19
Jonah Midanik
In the early days, we were able to bootstrap our business up to about $5 million a year in revenue, you know, completely bootstrapped. I think I was 24 years old when we hit that that revenue number, and that was, you know, almost 20 years ago not to date myself. So a pretty significant revenue number 20 years ago for a bootstrap business.

00:05:13:22 - 00:05:18:09
Jonah Midanik
So that's how it all kind of started. And then, you know, it carried from there.

00:05:18:15 - 00:05:36:09
Todd Sullivan
I love businesses that jump out of a passion, right. So you clearly were into this community and you're solving a real problem for some of the biggest brands. I can imagine that, you know, you've got certainly revenue building to$5 million. And that is no joke that as a real business, you're running events probably all over the country.

00:05:36:10 - 00:05:38:19
Todd Sullivan
I was it all in the United States.

00:05:38:21 - 00:05:50:08
Jonah Midanik
Across North America. Yeah. I mean, they for most of those folks, they weren't allowed to set foot in America at the time. So they were eyes and ears operating out of Canada, running across North America.

00:05:50:10 - 00:06:09:16
Todd Sullivan
What I think is really interesting potentially for our fellow founders that might be looking to exit a business is, you know, one thing is the revenue. The other is like you're in this category that is going to explode at some point, right? Regulatory is going to come around and participants are going to know the lanes they can play in.

00:06:09:16 - 00:06:26:02
Todd Sullivan
In this industry, as we know now, has exploded. And you've got a list of customers. This is like the who's who of it today. I'm interested. Right. You obviously built a cool business, but you made the decision to sell at some point. Can you talk us through what that was like?

00:06:26:04 - 00:06:45:15
Jonah Midanik
Yeah. So I mean, a couple core learnings there, right? And we'll get into it. But revenue quality and customer concentration absolutely matter. Yep. The other thing was I saw the writing on the wall. I mean, part of the reason why we were able to be so successful is PokerStars couldn't just knock on ESPN's Door and say, Here's $50 million, I'd love for you to deploy it.

00:06:45:17 - 00:07:20:06
Jonah Midanik
You already talk to every 21 to 35 year old male there is. Yeah. ESPN wouldn't take their money. Yeah. I was instrumental in getting sports leagues to take their money. I did the first ever pro-sports league deal with an online gaming business. But as the regulations started to mature and as the market size started to become clearer and as it was clear that eventually the market would be regulated, more and more big players were entering and we really couldn't figure out what our competitive advantage was long term because all the things we had access to the bigger players were going to do.

00:07:20:06 - 00:07:46:02
Jonah Midanik
And it was pretty clear to us that, you know, these big players were kind of come in and be like very heavily financed. And so, you know, like all founders do, we look at our options and our options were keep running this thing until it dies, which, you know, we figured had like a three year window. Okay, try and sell it and get something for it or go get capital and go again and see if we could, you know, become part of one of the bigger players.

00:07:46:04 - 00:08:08:12
Jonah Midanik
And in evaluating that spread, obviously running something till it died was not particularly appealing as a lived experience. Yeah. And, you know, we went in to go visit a couple of hedge funds and realized very quickly if we were being honest, we were wildly out of our depth. Yeah, like the amounts being thrown around were like billions of dollars.

00:08:08:12 - 00:08:29:11
Jonah Midanik
I mean, if you look at the players now, I actually launched the first ever legal hand of online poker in America, and I did it for Lorenzo and Frank Fertitta and Dana White under the UFC umbrella. They had unlimited I mean their balance sheet financing. They owned station casinos the Ultimate Fighting Championship at the time they were two $4 billion businesses cash flow.

00:08:29:13 - 00:08:40:02
Jonah Midanik
They're just balance sheet financing whatever we wanted. And so just realizing that like, all right, we got to sell and that's when things got really interesting. So we just had no idea what we were doing.

00:08:40:04 - 00:09:00:17
Todd Sullivan
That's incredible to be able to as an entrepreneur, look at the writing on the wall. Right. And say, okay, I've got these three options. And, you know, but frankly, a lot of us are in those positions, right? We've got a competitive environment that's going to really increase and the competitors are going to be heavily financed and have the relationships.

00:09:00:19 - 00:09:17:10
Todd Sullivan
So that seems to be like not the smart path to try to get a bunch of money and compete. And if you know that the next couple of years is just going to be an uphill battle, is there somebody that values the assets that you have? It's the intellectual property is the customer list. Certainly you have the revenue.

00:09:17:12 - 00:09:31:16
Todd Sullivan
So you make this decision based on like eyes wide open. This is probably the right decision for for yourself and for any other shareholder. What was step number one in saying, okay, if we're going to go down the M&A trail, you know, where do you start?

00:09:31:18 - 00:09:51:08
Jonah Midanik
Well, step number one, and you know, we coach a lot of founders on this now. And Todd, from your seat, you obviously see a lot of this. But we did have a partner who is no longer in the business, who had started it with us, who had, you know, a decent share, and we hadn't papered anything particularly well.

00:09:51:10 - 00:10:10:10
Jonah Midanik
And so step one was, you know, getting them on board. And that was that was a challenge, right? So we had different objectives, we had different realities, like we had to live and do this. They no longer did. And we had different views on what the value of the business was and what, you know, what the market was going to be.

00:10:10:10 - 00:10:21:00
Jonah Midanik
So that was kind of step one, which is kind of my first big lesson to all of this, which is having things papered properly, matters downstream a great deal.

00:10:21:03 - 00:10:43:15
Todd Sullivan
Can we hit on that? You know, it's such an important point, Jonah, that, you know, all the stakeholders that have influence over the major decisions that you're making in a company include doing an M&A transaction. You have to be on board whether they're, you know, voting, doing that kind of proactively or they're kind of just legally bound to follow the majority of the cap table.

00:10:43:15 - 00:11:13:10
Todd Sullivan
Right. The voting shares, you have to have it papered. There's just no excuse for not doing that. So I want absolutely hit that home. I think it is a great point that one of the reasons to give some context is what we see is when you have an outlier investor who has very different expectations around the business, selling a business for, say, $10 million, whatever, pick, pick the number and what goes into this person's pocket is, say, $1 million.

00:11:13:12 - 00:11:33:08
Todd Sullivan
That person may say, no, I'm not in it for $1,000,000. I want to roll the dice. I want to go big, because $1,000,000 doesn't mean anything to me where the founder of the business might take two or $3 million home, and that is life changing dollars, right? So when you get to this goal line, when you're ready to think about selling a business, people need to be aligned.

00:11:33:08 - 00:11:46:02
Todd Sullivan
And if they're not going to be aligned kind of based on their financial needs, the documents have to align who has the control to make this decision. So is it really, really important point? I appreciate you you saying it and sorry to interrupt.

00:11:46:04 - 00:12:07:21
Jonah Midanik
Yeah, no, I agree. And actually four even points before Greg said so, you know, we coach founders all the time. Like like most long term marriages are partnerships. A significant percentage of them don't work out. It's really hard to do these things. And that's okay. But what you want to know is when that happens, what is the decision making process know?

00:12:07:23 - 00:12:26:14
Jonah Midanik
Because where you really run into trouble, exit or all of those kind of middle signposts in between is when it's unclear and you're just at a stalemate where you're staring at each other. That's actually the biggest value destructor that I see across the board. Interest, just unclear decision making, right? So it's just, okay, we don't know how to resolve this dispute.

00:12:26:14 - 00:12:52:23
Jonah Midanik
So we're going to spend a huge amount of time and emotional energy not building the business or not selling the business. So that was kind of the big first piece. And then the second piece that we learned pretty quickly was, you know, revenue quality, customer concentration, the quality of your books, your defensibility, all of these factors that smart money, you know, really consider when they're making an acquisition.

00:12:53:01 - 00:13:11:16
Jonah Midanik
And we did not have a good presentation layer for many of these things. I mean every business has some weaknesses. We can look at the biggest businesses in the world. We can find weaknesses in Apple or Tesla. So I assure you, my you know, little business with 30 people had a bunch of weaknesses, but we didn't have a good presentation layer on any of that.

00:13:11:18 - 00:13:31:14
Jonah Midanik
And in doing so, we probably knocked ourselves out of the ballgame for a big chunk of the potential acquirers right away because we weren't presented in a way that they were able to see the value or we weren't presented in a way that looked like, you know, this was going to be of interest or value generating downstream for them.

00:13:31:16 - 00:14:09:02
Todd Sullivan
Maybe we could jump in a little bit on that. So I'd love to have you kind of your definition of quality of revenue. But when we talk about customer concentration rate for the listeners, if all of your revenue is really on one or two customers or say 80% of your revenue comes from one area, there's a tremendous amount of risk in that because if that channel or that customer goes away, right, the future of the business is really in jeopardy and all buyers really want to understand that you have diversification among and of your customers is that when you're talking about quality of revenue, are you saying more than that?

00:14:09:04 - 00:14:26:16
Jonah Midanik
Yes, So more than that. So some of it was it was really difficult for them to understand just how recurring this revenue was. Interesting. Yeah, because events are definitionally discrete events. Now the sum of discrete events is a continuous function, but it was not papered that way. And we had had revenue from the same guys for seven years.

00:14:26:16 - 00:14:48:20
Jonah Midanik
Yeah, but it wasn't papered. You know, Mercedes Benz is one of our customers, but we didn't have it papered like a recurring revenue relationship, even though it had been recurring for years and years and years and years. And so because of that, it was difficult for them to project what the forward looking revenue would be post-acquisition. And in doing so, they had to apply a discount to it.

00:14:49:00 - 00:15:07:23
Jonah Midanik
You know, from a discount obviously reduces the, you know, the present value of your business. But we you know, we never thought to go to Mercedes and say, Hey, will you paper it? Is this because we had a master services agreement and they called us and then we just did what they asked and they paid us on time.

00:15:07:23 - 00:15:37:14
Jonah Midanik
You know, it was a great relationship, is a highly profitable relationship, but we never sought to paper it in a way that would make the revenue quality look quite good. And the other thing was our margins were actually quite good, but because we had we buy stuff for events, you know, Mercedes Benz wanted to, you know, hire a Chromeo to play in an event like, sure, that would cost 80 grand and we'd pay for that and then they'd reimburse price.

00:15:37:16 - 00:15:53:16
Jonah Midanik
But the way we structured the books made it look like we were running like 5 to 10% margins on some of this stuff when in fact we literally just pay for most is on a credit card and they just basically pay the bill. It didn't really touch anything at all. It was just through. Yeah. And our revenue margins were much more like 30 to 40%.

00:15:53:18 - 00:16:16:20
Jonah Midanik
But you couldn't see that in our books. You're looking at like non diversified, you know, lower margin non-recurrence revenue and in fact it was higher margin, recurrent, more diversified than we could show. And those things had like significant downward pressure not just on the exit value but also in the universe of potentially interested acquirers.

00:16:16:22 - 00:16:41:22
Todd Sullivan
Yeah, these are great points. So I think for our listeners, what I would take away is that these contracts that you have with customers were often seeing that our clients will go back and say, Hey, could we restructure it? Could this be a longer term contract? Will you sign up for a couple of years so we can kind of smooth out our own revenue, know what the commitment is and to your point, model revenue going forward for buyers?

00:16:42:00 - 00:17:00:20
Todd Sullivan
And that's not unusual, right? You get in business, you take what you can get, but over time you want to improve those contracts with customers who know they're going to stay with you. And I think that really the second point in presenting the finances, you know, what is your accounting looking like? Are you a cash accounting versus accrual accounting?

00:17:00:20 - 00:17:27:17
Todd Sullivan
Right. We we all as entrepreneurs, our businesses grow up and they get more sophisticated. But I think for me, what I'm hearing, the overarching piece of advice that I would end up giving is that if you go to market in a very sophisticated way and you have a team, an investment banker that is going to represent you, they will address all these things, customer concentration, right, the contracts, quality of revenue, your accounting and getting all that in order before you present to the market.

00:17:27:19 - 00:17:34:07
Todd Sullivan
So I'm guessing that you were doing this largely on your own when you went to market. Yes. Yeah. Yeah.

00:17:34:09 - 00:17:35:07
Jonah Midanik
Yes.

00:17:35:09 - 00:17:56:08
Todd Sullivan
And so you're learning the tough lesson, right? This is the tough lesson because you got you have a valuable company, you have a valuable customer list here. Clearly, they're happy with you. You're in an industry that is going to grow, grow, grow. And it sounds like, you know, unfortunately, that this wasn't presented by, you know, the best, the professional is right that do this for a living.

00:17:56:10 - 00:18:21:18
Jonah Midanik
No. And that was reflected. Like I said, it's a significant portion of our potential outcome spread was an immediate not even looking at this because you know they could tell wasn't professional just wasn't and it didn't matter that you know, we were executing at a high level for huge well-known brands because the presentation layer wasn't there. You know, they're all said, What are we buying here?

00:18:21:18 - 00:18:22:20
Jonah Midanik
Really?

00:18:22:22 - 00:18:40:06
Todd Sullivan
I think one other thing that you just said, right, is that serious companies wouldn't even look at you because it wasn't presented effectively. And what we end up seeing was just on a call with an owner of a private equity firm that approached a client that wasn't a client of ours. Right. Just approached a founder and said, we'd like to buy you.

00:18:40:06 - 00:19:07:23
Todd Sullivan
And they called us and we put a team around them and that buyer was all excited, say, Oh, great, right now we're not going to have to fight through this kind of accounting trends, transition or translation. The bankers are going to figure it all out and present this company effectively, you know, and we can then decide what the company is truly worth and put our best foot forward as opposed to like de-risking their offer to you at every stage because they don't really know what they're getting into.

00:19:08:00 - 00:19:20:23
Todd Sullivan
So I really appreciate your willingness to share that. Those are really, really valuable lessons. So you end up transacting, right? You figured out the thing with the partner who gets what and you kind of close that chapter. Where do you go next?

00:19:20:23 - 00:19:51:00
Jonah Midanik
Jonathan So from there I went to Virgin Gaming, where we had raised or I don't know, probably about $100 million to be the betting layer inside video games, video games. Everyone's played. We're the betting layer inside Halo. Me and my team actually built the betting layer inside FIFA for e-sports. So our it doesn't exist anywhere. Once upon a time we used to be able to bet like someone that five bucks that you'd beat them at FIFA and do that like from within a lobby in the game.

00:19:51:00 - 00:19:52:05
Todd Sullivan
So cool.

00:19:52:07 - 00:20:14:07
Jonah Midanik
I saw as I was running marketing there, I thought it was an amazing idea and giving my online gaming background that had real legs and you know, Virgin lent us their brand and EA Sports gave us their catalogs so did 2K, so did Halo, and we basically lit that money on fire. It was pretty clear to me within about six months of being there that we weren't the right team for this particular job.

00:20:14:10 - 00:20:30:05
Jonah Midanik
Interesting. And so I gave it a year and parted ways. A lot of learnings there. One of them being that sometimes when we tell founders too much money isn't a good thing, I, I saw that firsthand. Oh yeah, the underlying business never really materialized.

00:20:30:07 - 00:20:55:17
Todd Sullivan
You know it's, it's so interesting because in the online gaming world, we have an investment banker out in Seattle and she is amazing, right? This is she understands kind of the graphical engines that drive e-Sports and every kind of facet of of gaming and having that kind of insight and knowledge for founders even before you're thinking about selling.

00:20:55:22 - 00:21:11:13
Todd Sullivan
I think that I know the next time if I go out and really build a technology company, I am going to have one of these bankers sitting on my board to give the insight of what's going to work, what's not, what are the things that are happening behind the scenes that are going to change the industry Because as founders, we're kind of guessing, right?

00:21:11:13 - 00:21:24:06
Todd Sullivan
Like you put a bunch of money towards it and then you go, Oh, that was never going to work, and maybe get some time back by having that that insight all right. So that ends. And I want to get to Limelight like I want to hear about that story.

00:21:24:11 - 00:21:46:04
Jonah Midanik
Yeah. So I had one step in between where I launched that gaming company for the UFC where we put a huge amount of money in that also didn't end up working for regulatory reasons. We made a bad regulatory bet, so I left after a year there. That was clear to me that just we had bet that one regulatory regime was going to exist and a second one did, and we were just going to get wiped off the map.

00:21:46:04 - 00:22:12:09
Jonah Midanik
And then company of closing about a year after I left, unrelated to my leaving for the record. Yeah. And then I went to go form Limelight, so I'd seen a whole bunch of issues in the event marketing industry because I'd run a business there and I saw it firsthand. We'd walk into CMO offices and it used to be like, you'd present it like, This is the event plan, but now you're walking in and going up against dashboards from Facebook.

00:22:12:11 - 00:22:45:01
Jonah Midanik
And I said, If, if events can't become data driven, then they're no longer a viable option for marketing. And this was like a $30 billion a year industry. And so we need to data ties and scale and ad technology and analytics around all of this stuff. So was the idea behind Limelight and I founded it, I was able to, you know, raise a lot at the time, okay, amount of venture capital progress, but $50 million and build a business, you know, so we did and you know, that's still a going concern today.

00:22:45:01 - 00:22:50:23
Jonah Midanik
And we've got, you know, very major enterprise customers. There's really a business there that's great.

00:22:50:23 - 00:22:55:12
Todd Sullivan
Was Cvent is that in your space because they just had a pretty big exit.

00:22:55:14 - 00:23:23:09
Jonah Midanik
Cvent in our space. Yeah. Yeah. So see then you know same idea. Cvent is great. More on the corporate B2B side than anything. Our idea was for kind of brand activation. So if you're at a Warriors game or Knicks game and someone stops you or you're, you know, at a festival, all of those live experiences rather than events that are all kind of unmeasured, we were measuring all of those.

00:23:23:11 - 00:23:35:07
Todd Sullivan
Yeah, super interesting. Well, okay, so you grow that business and then to grow it, right? You can grow organically and inorganically, meaning that you bought another business. So can you tell me about that experience.

00:23:35:09 - 00:23:58:19
Jonah Midanik
Yes. So we had met another business just before COVID hit that was doing all the measurement analytics there from London. It's a really complementary product division. We like the team and then COVID hit. So I'm sure you can imagine the event marketing space kind of took the result. There was slightly less events in 2020 and 2021. Yeah, and we were left with the decision.

00:23:58:19 - 00:24:19:18
Jonah Midanik
I realized I was not the CEO to guide it to this next stage, and we needed a more professional CEO who understood acquisitions and getting acquired because we were at that stage of our life cycle. Yeah, and that wasn't me. I learned some stuff the first time. I had a long list of what not to do, but still not a great list of what to do.

00:24:19:19 - 00:24:44:18
Jonah Midanik
And I just wasn't the right person to guide us for the next stage of the journey. So I told the board I made my exit and I still sit on the board today, but brought in a professional CEO who knew how to buy and sell businesses. And, you know, introduced him to this original team and he was able to bring home that acquisition and we acquired that business, a really successful acquisition actually.

00:24:44:22 - 00:25:07:04
Todd Sullivan
That's fantastic. I think, you know, I want our listeners to really hear that. You know, when I coach entrepreneurs, I want to understand that you understand your skill set right and you might be great product market fit guy, you might be great at the unit economics, but you might not be great at scale, you might not be great at M&A and you can certainly learn things, but there are people that have been doing that for a career.

00:25:07:04 - 00:25:24:21
Todd Sullivan
And so to have the awareness, Jonah, to say in order for us to take this next step, acquire businesses and grow and set this company up for, you know, a liquidity event for all shareholders at some point in the future. Right. That somebody else has to take the reins. That is an enormous decision and I've done it myself.

00:25:24:21 - 00:25:55:07
Todd Sullivan
I've had multiple founders Tell me what it's like to go through that. Ryan Vaughn was just on our podcast and I remember he was saying that, you know, I knew it was coming. We made this decision and the transition was great, handing the reins over. But the second I signed that I am no longer the CEO, he said it was like a real gut punch and he still had some influence over the business after that and they had a great exit brought in the right guy that drove the exit $50 million sale. Iin your case, you're sitting on the board, right?

00:25:55:07 - 00:26:06:20
Todd Sullivan
So you're still seeing the business and having some influence over what's going on. Do you think that Limelight is going to look to sell the business at some point or you're just on a growth path? That's really exciting. Right now.

00:26:06:22 - 00:26:29:08
Jonah Midanik
We're in a good spot in the sense the revenue quality's really good. We've got, you know, great big enterprise clients on 3 to 5 year deals that are kind of just, you know, they're on a positive way and we're growing. So we've got some options. I think it's one of those three buyer comes along that, you know, can maximize value for shareholders would certainly be open to a conversation.

00:26:29:08 - 00:26:40:11
Jonah Midanik
But by the same token, we can also continue to grow, you know, at a pretty high efficiency as we're doing. And, you know, we're in a lucky position of options right now.

00:26:40:14 - 00:26:52:21
Todd Sullivan
That's fantastic. All right. So you sit on the board, you've got a little bit more time and it feels like you've maybe done some reflecting. What is your your next move? Is the next move Like, how do I help founders?

00:26:52:21 - 00:27:15:01
Jonah Midanik
And yeah, so I realized pretty clearly I'm a 0 to 5 guy. I'm a pretty classic early stage jack of all trades, Like I'm an engineer, but I'm a bad one. I'm a product guy, but like a VP of product should come in and replace me. I'm a marketer. I can sell, I can do all the things, you know, I can do our first stage of books, like I can do all the things.

00:27:15:03 - 00:27:36:09
Jonah Midanik
Yeah, just well enough to have a professional replace me when appropriate. And so what I'm really good at is getting businesses from nothing to $5 million a year in revenue. I've done that any number of times in my career, you know, probably four or five at this point, and I'm good at that. And then beyond that, I know enough to say, now is your chance to hire professionals.

00:27:36:11 - 00:28:00:22
Jonah Midanik
And you can either evolve and continue to grow and listen to those professionals or you can jump. And that's a decision every entrepreneur needs to make for themselves. But for me, A, I think this is more fun and B, my I happen to be a reasonably effective Swiss Army knife. And so I think knowing what you are is really important to success.

00:28:00:22 - 00:28:06:18
Jonah Midanik
And so I just continue to be that for a bunch of founders as a player / coach.

00:28:06:20 - 00:28:10:04
Todd Sullivan
Okay. Can you elaborate on that? We're talking about Forum Ventures now.

00:28:10:08 - 00:28:40:00
Jonah Midanik
Yes. So I forum I'm one of our three partners and we're a studio. We're going to build eight artificial intelligence companies a year that I still run that. So I'm working hand-in-hand with founders to literally ideate, validate and build businesses. You know, I run an accelerator where we're going to fund 90 companies this year where we're the first institutional check in, and we help them kind of from what we call zero to sustainable, which we define as either raising a series A or $1,000,000 in revenue, and then we have a seed fund as well.

00:28:40:02 - 00:28:55:19
Jonah Midanik
So, you know, we'll invest in, invest or build 110 companies this year across North America, all technology, software, businesses. And so, yeah, I'm just helping select and guide founders on their 0 to 5 journey.

00:28:55:21 - 00:29:22:04
Todd Sullivan
John That sounds super rewarding, right? You've developed a skill set, you understand what it is, and now you get to share it with these founders that have got to be very thirsty to get to that zero to sustainability. Is it what you said? How do you when you say $1,000,000? You know, I think companies that take venture or outside capital, that million dollars probably doesn't get you to sustainability in our world of how we perceive venture, right?

00:29:22:04 - 00:29:34:06
Todd Sullivan
It's spend, spend, spend. They get very bloated and it's grow, grow at all costs. Are you coaching a little bit differently where that million dollars could be, you know, like a break even point? How are you defining sustainable, I guess, is the question.

00:29:34:06 - 00:29:54:20
Jonah Midanik
It depends on the business, right? So when we come in, we'll come in, you know, free somewhere between $100,000 and $1,000,000. And so to your point, sustainability is really a function of how much capital you've raised and the collected expectations around the table. If Sequoia puts in $20 than your million dollars in revenue, it's not going to do much, right?

00:29:54:22 - 00:30:14:03
Jonah Midanik
If you've only raised $100,000 and you look up and realize this isn't going to be in $100 million revenue business, then that's okay. I mean, you to manage the business, you have to combine with the expectations of the people around it. To your point that $50 million exit, that's a great exit unless you've raised $40 million.

00:30:14:03 - 00:30:15:00
Todd Sullivan
You got it.

00:30:15:02 - 00:30:43:15
Jonah Midanik
In which case it's not a great exit. So, I mean, it really depends on what you've done and so forum, by virtue of being a reasonably small fund, is able to align ourselves with founder expectations that $50 Million exit for us in a lot of situations would be a good exit. In some situations it wouldn't be. So we can actually work with founders authentically and have these kind of real conversations born of us all, you know, failing a whole bunch of times and say, you know, what do you really have here?

00:30:43:17 - 00:31:02:18
Jonah Midanik
What is going to maximize your exit value and your shareholder return? Yeah, because in a lot of cases and we're seeing a lot of it right now, people who spend, spend, spend to grow, grow, grow are actually going to end up returning nothing. Whereas if they had taken a different path. Yeah, they wouldn't have, you know, return the fund or ring the bell, but they would have had a really good outcome.

00:31:02:18 - 00:31:21:10
Todd Sullivan
It's such an important point. I don't even know where to begin. If you take on a bunch of money and you have an exit, you may not have a great exit for your investors, but if you're not having a great exit for your investors, you're going to have a terrible exit for yourself. Right. As as the founder, if you're taking on a lot of capital because that is just dilution after dilution.

00:31:21:12 - 00:31:52:19
Todd Sullivan
And so the way you're describing your role kind of in the entrepreneurial ecosystem sounds enviable and, you know, frankly, something that people should really pay attention to. If you can come in and help set expectations of how big this business could go and funded appropriately. I think what it does is gives the founders of these businesses options to understand, hey, I could create a liquidity event, you know, at $10 million and change my life, or we could keep going.

00:31:52:19 - 00:32:18:07
Todd Sullivan
Right? What is the next hurdle? We got to get to $20 million in revenue and $3 million of EBITDA. And then my exit is going to more look like an $80 million exit. Should I take more capital to get there? Right. Having those discussions with your investor is really difficult, Jonah, because, you know, venture firms that need to deploy millions and millions of dollars into their winners don't have the same interest as the founder, right?

00:32:18:07 - 00:32:39:15
Todd Sullivan
The founder could literally change their lives tomorrow by selling those companies. And yet their partners are going to say, no, no, no, we need you to be the next billion dollar company. And we see it on the horizon and that is our business model. So I think what I'm hearing is you at that early stage are creating real alignment with founders, and I haven't heard a lot of that.

00:32:39:15 - 00:33:02:04
Todd Sullivan
So I really encourage people to look you guys up and explore. If you're the right financial partner, giving the right advice, right to founders. So thank you for sharing that. But can I ask what kind of education do you give around M&A, around exits, buying and selling companies to your founders today? I know you're at the very earliest stage, but are you are you coaching around that at all?

00:33:02:06 - 00:33:24:16
Jonah Midanik
Yes. So some of it's just laying the groundwork. Right. So what we talked about is, you know, when a company comes into us, the first thing we do is we make sure, like, are your basics checked? Like are you incorporated correctly or do you have IP agreements? Do you have the right founder agreements? Do you have a shareholder agreement that actually dictates how decisions are made that is like actionable?

00:33:24:18 - 00:33:49:00
Jonah Midanik
The other thing we do is like contract quality. Like do you have your contracts structured with your customers the right way? Understanding that early stage, a lot of what you can do is just take what you can get. Yeah, so we definitely do that. Then the other thing we do is we are very vocal with founders who haven't done this before, that when they get to the point, you know, you're selling the most valuable thing you likely will ever own.

00:33:49:01 - 00:34:09:22
Jonah Midanik
And yes, you know, as a serial entrepreneur, maybe your next one will be bigger. But maybe, you know, there's so many unknowns. Yeah. So we actually encourage them to find people like you and get professional help. It's it's kind of like you probably got a real estate agent to sell your million dollar house, but you're not going to get an agent to sell your $30 million business.

00:34:09:22 - 00:34:31:07
Jonah Midanik
That doesn't make a lot of sense. Correct. And so, yes, so we coach for the foundationals. You know, we definitely coach had our first conversations on the inbound team, which is, you know, sales in a pure respectful and give them no information of any kind and then call a professional because you're probably just going to screw this up respectfully.

00:34:31:09 - 00:34:55:17
Jonah Midanik
Yeah. And you know like and just be like, oh, that's, you know, we love what you're doing here at playing, you know, like, just be polite, be respectful, not a lot, see if they're fishing and then go talk to someone who does this for a living. Yeah. But outside of the foundational and coaching that no, we won't coach someone through a process for the simple reason that it's it's up to people like you who do this professionally to coach someone through a process.

00:34:55:17 - 00:35:29:09
Jonah Midanik
As you know, there's so much nuance here and there's so much not even incremental, there's so much additional value that can be unlocked in doing this correctly that no, we we are very clear on get the foundation right. You know, understand what you guys want as a founding team. Be very clear because I-bankers who don't have clear direction are frustrated I-bankers which makes sense yeah and then go find a pro.

00:35:29:11 - 00:35:49:05
Todd Sullivan
That's awesome right I think the getting your house in order right from the beginning what you're you know clearly coaching on and even you know structuring the beginnings of the data room right. All of those contracts in one place you're making the life of the investment banker a lot easier when you as a founder are doing this, or your firm is coaching that?

00:35:49:06 - 00:36:12:10
Todd Sullivan
I would say I want to add one thing to kind of the inbound offer when some a potential buyer calls a founder. Exactly. You're saying less, you're not signing anything. And one line that we've used quite a bit that works is, hey, you know, we're building a rocket ship here. We're really excited about the future. And I can absolutely see that we could get there sooner in partnership with you.

00:36:12:10 - 00:36:37:09
Todd Sullivan
So I really appreciate the call. We are interested in having this conversation, but I would like to get some professional help and what we see as really serious buyers will absolutely love that. They're like, Oh, okay, then they're actually serious about this conversation and they're not going to waste our time. And the most serious buyers, right? They really want to deploy capital into highly strategic initiatives.

00:36:37:11 - 00:37:00:09
Todd Sullivan
And if that is your acquisition, if you have the right representation, they're going to know how to and I don't want to use the wrong word, but exploit that vision that buyer may have. And so we are seeing countless I mean, you can 10X, whatever they're saying on call number one, the right professional uncovering the right strategic alignment is a 10X difference.

00:37:00:11 - 00:37:19:20
Todd Sullivan
So yeah, very much encourage you to get professional help whether we're helping you or not. Right. That is the the absolute right advice. Jonah, I'm excited that you decided to share all of this with us today. I know you're saying a lot of things that we try to teach, and I'm so glad that founders are getting this kind of insight at the beginning.

00:37:19:22 - 00:37:46:10
Todd Sullivan
It is one thing to go take money from a place and it is another to take smart money. And that really is like the real guidance to de-risk your business. You said one other thing on thinking about the exit is what is the founder truly want? And when you get a sense of what the value of the business could be and you get a sense of what your next step as a founder could be, are you going to go out and buy a business?

00:37:46:10 - 00:38:08:11
Todd Sullivan
Do you want to buy a house? Do you want to put kids through college understanding what what those numbers look like for you and what you're going to do? Post exit, even beyond an earnout with a buyer is really important to knowing that you made the right decision when you're looking back on it. So I would say planning personally what you would do post exit makes a lot of sense.

00:38:08:11 - 00:38:24:11
Todd Sullivan
Both financially and professionally. But really, thank you for doing this. I'll ask you kind of two last questions. Is there any kind of words of wisdom, parting words of wisdom around M&A? Any other piece of advice that you haven't given? Yeah. That you'd like to share?

00:38:24:13 - 00:38:42:01
Jonah Midanik
Yeah, I think the biggest one is, you know, be honest with yourself, seek advice from elsewhere, and then get professional help in exactly that order, because I've definitely seen people go into it who aren't clear to your point, Todd about what they're going to do. There's a lot of ego that get mixed up in there and that's all fine.

00:38:42:01 - 00:39:01:06
Jonah Midanik
But if you're not clear, it's going to be a muddy process. Seek out those people you trust, get their opinion as well, and then hire a professional. That's going to actually help you navigate the process. And I mean, whatever your situation is, I think those three things are almost always true. Yep. And then you'll end where you end.

00:39:01:08 - 00:39:21:13
Todd Sullivan
That's awesome. Just last question. I don't always ask this, but I think probably appropriate here. Is there somebody in your life that you would like to thank for all of this? Like success? It seems like you have really kind of climbed a ladder of entrepreneurship into a place that feels like is exactly where you belong. Is there anyone that you like to thank getting you there?

00:39:21:15 - 00:39:54:04
Jonah Midanik
So, I mean, it's more than one, right? Like for me, I view everything is being like highly collaborative. Like I'm going to collaborate person, not a no compete person. So like I can say, you know, my partners and all the people I work with now at Forum, but before this it would have been, you know, all the people I worked with said, you know, Company X and every single one of those was either a lesson or an opportunity to improve myself or, you know, I'll find myself speaking and dropping in, I guess, from people I haven't spoken to in six years rather than one like Yoda, like figure in my life.

00:39:54:04 - 00:40:15:15
Jonah Midanik
Although I absolutely have people that I turn to and trust for advice and mentorship know I'm lucky enough that, you know, I really do look at it as like it takes a village kind of thing. So I'm kind of thankful for everyone I work with now. I learned this stuff from my founders all the time. You know, I learned something today on this podcast and, you know, it's just today is just going to be full of learning opportunities.

00:40:15:16 - 00:40:18:02
Jonah Midanik
I get to be grateful a fair amount.

00:40:18:04 - 00:40:31:13
Todd Sullivan
Jonah, thank you. That's a perfect answer. Again, really appreciate you being here. I feel like there's ways for us to absolutely work together after this podcast. So, you know, please feel free to reach out in any way I can return the favor. You know, I'd love to do it. So thank you.

00:40:31:15 - 00:40:38:00
Jonah Midanik
Thanks, Todd, and really appreciate the way you're supporting founders during a really pivotal, difficult moment.

00:40:38:02 - 00:41:00:05
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 exercise dot com and the Cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.