Villi Iltchev

A Different Approach To Tech M&A

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Editor’s Note: Tomio Geron is head of content at startup Exitround. This is part of a series on the tech M&A market. 

Many top Silicon Valley buyers like Google, Facebook and Twitter have a standard process for how they manage acquisitions.

One main part of that is the technical interview. In this process, the selling company’s key engineers stand before a whiteboard and answer a number of programming questions, brain teasers or computer science questions on the board.

These questions may not be directly related to the engineers’ everyday work but are often seen as proof to an acquiring company and its technical executives that a selling team is knowledgable or skilled enough to join a top company.

However, one Silicon Valley executive, Villi Iltchev, executive vice president of corporate strategy and development at LifeLock, often does not allow his engineering team to conduct these traditional technical interviews. This is one way Iltchev does things differently than other corporate development executives in Silicon Valley.

Iltchev, who previously led the investment and M&A program at Salesforce.com, thinks that for many top technical teams, this kind of interview is insulting. That’s because you often have 25-year-old engineers interrogating experienced PhDs, he says, which doesn’t make sense. “The (seller’s) product should speak for itself. The quality of work manifests in the product.”

Instead Iltchev prefers a more informal interview to ask startup teams about the challenges they’ve faced and how they solved them. “My approach is to have the startup’s engineering team talk about what decisions they made in building the product and why,” he says. “It’s a conversation and through that we can extract the technical knowledge and competencies without putting them through a process that can be perceived as demeaning.”

Despite his different approach, Iltchev has still gotten results. Iltchev oversaw Salesforce’s incredibly active investment program and led more than 15 acquisitions while at Salesforce.com. Now he’s trying to recreate that same model at LifeLock.

Corporate investing

In addition to acquisitions, Iltchev’s role also includes partnerships and a new program to invest in startups for LifeLock. While he doesn’t have the same scale and resources as he did at Salesforce, he is starting a program to invest in four to five companies per year. Besides providing potential future acquisitions, the investments establish a foundation of trust for building commercial relationships, enhancing LifeLock’s reputation with the startup community, and bringing intros to other startups.

Unlike some other corporate venture firms, Iltchev prefers having both investing and corp dev in one unit, to develop a flexible relationship with startups that could turn into a partnership, investment or acquisition. “For a startup, it is very stressful and potentially threatening to be very open with corp dev teams,” he says. “The conversation is one way and it is about whether they want to acquire you. I find it much more constructive and disarming to walk into a meeting with an open mind knowing that I have the flexibility to partner, invest, or acquire.”

Corp dev

Iltchev has a generally skeptical view of his own industry–corp dev–because the job is difficult to evaluate. That’s because there are many ways an acquisition can go bad: the wrong strategy, deal structure or post-deal integration. Or the top executive leadership or business sponsor on the buy side could make a mistake. Or they could do something great that corporate development had no role in. “It’s very easy to take credit when a deal goes well and it’s easy to deflect when things go bad,” Iltchev says. “It’s easy to survive in corp dev and build a career because it is so difficult to establish concrete goals and metrics upon which the corp dev function can be evaluated.”

In terms of getting a deal done, price isn’t always the most important factor. This is where corporate development can make a difference. Iltchev says he’s done multiple deals where he wasn’t offering the highest price but still won the deal because of other factors, like trust and reputation, the deal terms, the attractiveness of the buyer, strategic alignment or the people involved.

Relationships

For startups, having an existing relationship with a potential buyer is key if you want to get acquired. If you just get to know a buyer when you are weeks or even a few months away from running out of cash, that doesn’t leave enough time. Iltchev has never bought a company where he didn’t have some relationship or connection to the seller. “People forget an acquisition is mostly about the people,” he says. “It requires a level of trust. Those relationships are incredibly important.”

But how do founders get to know corporate development professionals, especially if they’re not well connected? Iltchev says many corporate development executives will reach out to startups in their own sector.  If they don’t, you should reach out to them. “It’s totally okay to say, ‘Hey Villi, we’re working in this area and we want to get your feedback and see what you think. And see how you guys view this space.’”

This is an easy way for an entrepreneur to stroke the corporate development team’s ego and not come across as too eager to sell. You can also reach out to the head of product or engineering in an area relevant to you with the same request.

A common worry of startups is that corporate development executives are going to steal their ideas. For the vast majority of companies, this is not going to happen, Iltchev says. And even if it does, this shouldn’t be your primary concern. “I’m fascinated with entrepreneurs who are afraid to talk to corp dev teams,” he says. “Ideas are a dime a dozen. Corp dev teams are looking for companies to buy, not ideas that can be copied or stolen. They want to be inspired, look smart, and feel confident that this team can execute.”

Startups

For startups, Iltchev’s main pieces of advice are first, when dealing with corp dev buyers you have to be honest and transparent. Most corporate development professionals have intuition to figure out when you’re feeding them a fake story.

Secondly, startups should surround themselves with good advisors. Many startups put their fates in the hands of advisors who have no idea how things work in Silicon Valley.

Finally, don’t wait until the last moment. “Buyers smell blood better than anybody. If you have less than three to six months of cash you’re in a really tough spot. I will know you can’t raise capital and are scrambling. Don’t wait to build those relationships and don’t wait until the last moment to start these conversations.”

Buyers: 18 hours a day

To make a startup acquisition successful, there are many things buyers can do, Iltchev says. The overall goal for buyers (and sellers) to keep in mind is that top talent on a startup acquisition wants to be empowered to build, iterate efficiently and work hard. Create an environment where they’re challenged and motivated to go all out for you. One way to do that is to empower them to get things done and avoid bogging them down in bureaucracy, he says.

“These hackers are going to work 18 hours a day,” he says. “The question is, are they working for you 18 hours a day or will they work nine hours for you and hack away when they go home?”

The success of acquisitions often comes down to the little things. For example, most founders say they don’t care about their title in the new company. But they will care eventually. “That’s how things work in a corporate environment,” Iltchev says. “Titles do carry weight and allow you to make things happen. As a buyer you need to be smart and save a founder from himself.”

For corp dev buyers, the biggest challenge is often keeping their ego in check, Iltchev says. Many times these people are high-ranking executives and they often let their emotions and pride get in the way of a deal. But swallowing your pride is often what’s required. “To be a really good deal maker, sometimes you have to put your pride and ego aside for the better of what you’re trying to accomplish.”

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IMAGE BY Shutterstock USER pichetw