Turning Down A Life Changing Acquisition

We had just closed our $25M series B and I was strolling by the beautiful Duomo cathedral on a rare vacation with my wife when I got a call from the division head of one of our largest F500 customers. 

“….Justin, we have a problem here with the licensing agreement you are proposing. We need to control our destiny here. We aren’t willing to outsource the dispatch and routing technology to a platform company. We need to [own the technology], and control how it’s deployed. We’d like to pursue a JV or acquisition”

F***! My co-founder and I had just met with this company’s CEO a week prior, the final step to close this 8 figure commercial deal. The meeting had gone too well. They wanted to buy our startup. 

Sure, an exit after 12 months would make economical sense to us as founders, but what about the rest of the team? 

95% of startups will fail, and the equity becomes worthless. What’s less commonly known is that venture backed startups often need to achieve $300-500M+ exits for their equity payouts to match that of a standard big tech offer. Note: There are other creative structures to make sure the team gets paid when M&A does occur, which I’ll write about in a future post.

I knew this company was not prepared to pay $500M for the startup. I had heard horror stories of startups being swallowed by this bureaucratic conglomerate. I knew that if we sold, the integration would be so painful that there was very little chance the tech we were building would change the world. And, the team would be incredibly unhappy working there. 

The next few days, I was constantly on stressful calls, and breaking down during dinners with my wife. I’ll always remember the train ride into Lake Como, with the sun was shining through the mountains, feeling trapped. I was stuck in the prison of my mind, feeling the weight of the decision for the path ahead.

I had led Uber’s first three acquisitions to jump start its mapping and self driving efforts. Now I realized, it is much,  much easier to be the buyer vs the seller. 

We stood our ground and rejected the acquisition. We had 36 months of runway, kept costs low, and had a lean, high-performing team. Negotiating is always a function of alternatives. When you have more runway than you need, you always have alternatives. 

We never ended up closing this particular commercial deal. Fast forward a few years, and this F500 giant shut down the division driving their mobility efforts. This would have been our fate - layoffs of the entire team, and the technology never seeing the night of day. 

What did we learn? 

• Raise more money than you think you need, when the capital is available. The more cash you have, the greater your negotiating power. 

• Prioritize culture when it comes to M&A and integration, because if the cultures are too different, both teams will be unhappy, and the chance of failing is much greater. 

• Model out the team’s equity payout when evaluating acquisition opportunities. Don’t forget the people that put in their blood, sweat and tears into building your dream 

Money comes, money goes, but the folks you go to war with on the startup journey will become some of the most important people in your life.