Every founder dreams of building a substantial company. For those who make it through the myriad challenges, it typically results in an exit. If it’s through an acquisition, that can mean cashing in your equity, paying back investors and rewarding long-time employees, but it also usually results in a loss of power and a substantially reduced role.
Some founders hang around for a while before leaving after an agreed-upon time period, while others depart right away because there is simply no role left for them. However it plays out, being acquired can be an emotional shock: The company you spent years building is no longer under your control,
We spoke to a couple of startup founders who went through this experience to learn what the acquisition process was like, and how it feels to give up something after pouring your heart and soul into building it.
Knowing when it’s time to sell
There has to be some impetus to think about selling: Perhaps you’ve reached a point where growth stalls, or where you need to raise a substantial amount of cash to take you to the next level.
For Tracy Young, co-founder and former CEO at PlanGrid, the forcing event was reaching a point where she needed to raise funds to continue.
After growing a company that helped digitize building plans into a $100 million business, Young ended up selling it to Autodesk for $875 million in 2018. It was a substantial exit, but Young said it was more of a practical matter because the path to further growth was going to be an arduous one.
“When we got the offer from Autodesk, literally we would have had to execute flawlessly and the world had to stay good for the next three years for us to have the same outcome,” she said at a panel on exiting at TechCrunch Disrupt last week.
“As CEO, [my] job is to choose the best path forward for all stakeholders of the company — for our investors, for our team members, for our customers — and that was the path we chose.”
For Rami Essaid, who founded bot mitigation platform Distil Networks in 2011, slowing growth encouraged him to consider an exit. The company had reached around $25 million run rate, but a lack of momentum meant that shifting to a broader product portfolio would have been too heavy a lift.
“Our growth rate was slowing and we needed to kind of reinvent ourselves a little bit to accelerate growth again, and our investors felt like it made sense to [look at selling],” Essaid told TechCrunch. It helped that there had been a couple of companies that had expressed interest in buying them, and investors felt that he should capitalize on that interest, even though he was opposed to that initially.
Not-so-smooth sailing
Once the wheels of acquisition are in motion, there can be any number of glitches along the way. With Distil, the company was eventually sold to Imperva for an undisclosed price.
Initially, Imperva expressed interest in buying Distil, but movement on that deal was paused when equity technology investment firm Thoma Bravo purchased Imperva in October 2018. “It was a really interesting time and Imperva actually was the first one that expressed interest, and then we hired a banker and ran a process and got a number of other bids from a number of other companies and then Imperva during that period actually got acquired,” he said.
Imperva ended up circling back after completing that process and eventually won the bidding process.
Young said Autodesk was really the only company that made sense to her if she was going to sell. She didn’t want to be absorbed into a large corporation like Oracle or SAP where the brand would have been lost, but she notes that terms can be amorphous and are likely to shift throughout the process.
“Deals fall through. [ … ] and so at any point in time this deal can just evaporate. And for us, it did evaporate three times and just kept coming back funnily enough,” she said.
Making it happen
Both of these deals eventually came together. At that point, Young agreed to stay on for about a year, while Essaid decided to move on, leaving a seven-figure retention bonus on the table.
While Essaid negotiated to get his equity on day one, those retention bonuses required him to stay for a year or two. When he saw the role that Imperva had in mind for him, he wasn’t really interested.
“They really wanted me in a middle-management role of just working on integrating the company and the product without really a seat at the table. [ … ] It was just this weird worst of both worlds,” Essaid said.
So he left on the day the sale was finalized, an emotionally wrenching decision, as it turned out. (More on that later.)
Young stayed on and was given a VP as part of a team of startups that were acquired around the same time as PlanGrid. She said that the transition to working at a large organization turned out to be disorienting after being in charge of everything for so long.
“I landed on the moon. And I don’t think it was in a good way. I was so used to having complete autonomy in leading PlanGrid, I just have never worked for a big company before and it was so foreign and alien to me,” she said.
Saying goodbye
It’s not so easy to give up control of a thing that you spent so much of your life building. Essaid says he felt adrift and depressed in the first few months after he left. Beyond giving up his company, his co-founder was a friend since eighth grade who remained behind, along with others with whom he’d built deep personal relationships with over the years, which made the separation process even harder.
“It felt like not only had I lost my identity, but it also felt like I lost my friends because day in and day out, they were interacting in meetings or whatever and I was on the outside. So there was a good three to four months of grieving,” he said. Over time, he reconnected with those friends on a different level that didn’t involve the company and was able to move on to new projects.
Young’s transition was longer because she stayed on for a little over a year, but early on she felt some of the same emotions as Essaid due to the change in role and loss of control over what she had built.
“I had spent the last seven years at that point, building this company that I loved and it was beautiful to me. [ … ] and in a way, it was like my first child. I had poured my love into it, and so it was really hard to sell it to a competitor, even if it was a competitor that made sense,” Young said.
But sell she did, and the end came when she left in March 2020 just as the pandemic lockdown hit. On April 1, she and her husband, who was co-founder of the company, were home without PlanGrid for the first time in eight years.
Both founders figured out how to move on and started new companies. For Essaid, it’s Finmark, a company that helps startups build sophisticated financial models, a pain point he felt firsthand as a startup founder. Young is working on a new set of tools also aimed at startup founders to help them deal with some of the problems she experienced building her company. It’s still in the formative stage.
Like any big part of your life, the company you built will always be with you, but when it’s over Young and Essaid picked themselves up, dusted themselves off, took their equity and started something new, as entrepreneurs tend to do.