When we think of exiting via acquisition, it’s easy to think that if it’s a reasonable deal that it’s going to be an easy decision to say yes, but for three founders we spoke to at TC Sessions: SaaS recently, It was anything but. Founders have to balance many different decision points and deciding whether to sign on the dotted line is going to come with some anxiety and doubt before reaching a conclusion.
It wasn’t an easy decision. Even though, at $3.7 billion, everyone thought it should probably be a no-brainer; it wasn’t. Jyoti Bansal
The panel, which looked at what happens after you get acquired, included: Jyoti Bansal, current founder and CEO at Harness, who sold his previous startup AppDynamics to Cisco for $3.7 billion in 2017, the week he was going to IPO; Monica Sarbu, who is currently founder and CEO at Xata, who sold her startup Packetbeat to Elastic in 2015 just two years after launching the company, and finally Nick Mehta, who is currently co-founder and CEO at Gainsight, who sold his email archiving startup LiveOffice to Symantec in 2011 for $115 million.
As you can see there was life with new startups after the sale for each of these founders, all of whom founded new companies after they left, but first they had to go through the sale process and decide to sell or not. Each founder took a slightly different path.
The sales process
Bansal was ready to take his company public in 2017 and was content to do just that when Cisco came knocking while the company was doing its roadshow. He rejected two initial offers, but when the company sweetened the pot enough, he simply couldn’t say no.
“And then they came back and gave me the third offer, which was $3.7 billion. At that time, it was a little bit more than 2x of what we expected we would trade at,” he said. It was in fact an offer he couldn’t refuse, but that doesn’t mean it was an easy decision, especially with the IPO days away.
He said that it involved balancing a lot of different constituencies from investors to employees to founders, but he felt like this would really take care of everyone. In fact, he said that close to 400 people who worked at the company became millionaires as a result of the sale, meaning it was a life-changing event — but in spite of that, it still wasn’t an easy decision.
“It was four days of long board meetings and discussions and debates and fights and getting to the decision. So it wasn’t an easy decision. Even though, at $3.7 billion, everyone thought it should probably be a no-brainer; it wasn’t,” he said.
Sarbu was in a very different place than Bansal. Her company didn’t have a ton of investor interest and she was building it with mostly her own money. She said, in 2013 in Berlin where she launched the company, most of the venture capital was directed to B2C companies and hers was a technical network monitoring product.
Although she wasn’t looking to sell, when Elastic expressed interest, and she found some kindred spirits in its founders, she decided to take the deal and become part of a larger organization. “For me, it was important to [join] a company where we could continue our vision as a company, continue to build a product. And this is something [we were able to do at] Elastic … And so we really liked the founders, and we thought that we had this really good connection with them from the beginning … So I think to me it didn’t feel like we were selling the company, and then you’re doing something else,” she said.
This turned out to be the case as Sarbu ended up staying with Elastic for five years and helped build a whole division around the product that she had brought to the company when Packetbeat was acquired.
Mehta said that when he and his co-founders built LiveOffice, they never saw it necessarily as something that would be a public company, but they thought if they built a good product a larger entity might buy it. That’s what happened when they had built up the business to around $25 million in annual revenue by 2011 when they were acquired.
“I think from a logical perspective, I felt selling was the right thing for the company. It’s the right thing for the shareholders, who made great money. It was all good for everyone. So just the mental side of it checked all the boxes,” he said.
Should I stay or should I go
Mehta stuck around for just six months and wasn’t actually deeply involved in the transition to the new company. He was ready to move onto the next thing, and Symantec was kind enough to leave him that opening.
“I remember where I was on that call where the person that was buying our company said, ‘How long do you want to stay?’ And I thought he was going to say, like, two or three years, and he’s super kind. He’s like, ‘I know you’re an entrepreneur, you want to go do another startup.’ And so he said that I could do six months,” Mehta said.
As luck would have it Mehta’s wife was pregnant with their third child and was due in six months, so it seemed like a logical cutoff point. But, leaving wasn’t just a simple matter after putting so much time and effort into building the company,
“All that effort you put into your culture and your values and stuff, which I’m so passionate about, that part of the movie is over immediately. The product isn’t gone. In fact, I think that product is a decent-size business now. But the intangibles of your company kind of go away,” Mehta explained.
For Bansal, he says that he wasn’t really wired to work at a larger organization, and while he stayed on for six months in an advisory capacity, he was already looking ahead to the next thing. “I was interested in exploring the next set of interesting challenges. So it was the right thing to actually hand it over properly, and I had a six month as an adviser/consultant to help through the transition and hand it off in the right kind of way,” he said.
While all of that made sense, it didn’t make the emotional transition away from the first company any easier for Bansal, even if like Mehta, he knew selling was the right move. “It is hard, the personnel [side] is hard. It’s your company, you go there every day, you spend time there every day and then suddenly you’re not there. So you miss the interactions and you miss all of that. So that’s definitely a very emotional, bittersweet element of how the transition happens,” he said.
Even for Sarbu, who remained with Elastic for five years after acquisition, there was eventually the pull to start again and to take advantage of the experience she had gained working inside a larger organization and put that to work in a new company.
As she points out, her latest startup, Xata, is a bigger challenge technically than Packetbeat was, and part of that is due to the fact she is ready to take on bigger challenges at this point in her career. “I feel like I’m in a phase of my career where I’m able to take on more challenging tasks, compared to the first company … And, of course I think the maturity and experience [I’ve gained] over the years has helped me,” she said.
Mehta went on to start Gainsight the year after he sold LiveOffice. He sold it to private equity firm Vista earlier this year for over $1 billion, which he characterized as more of an investment than a purchase, and he has remained with the company.
He said that when he started Gainsight he wanted to be in it for the long haul and so far that has been the case. “So what [the LiveOffice experience] actually gave me is I want to do my next one as long as possible. That was basically the takeaway I had from my last one … I wanted what I’m doing now with Gainsight, I want to just do it as long as possible because I love it,” he said.
Bansal dove into a slew of projects after selling AppDynamics including launching the venture firm Unusual Ventures and two startups — Harness and Traceable.ai — and he has said in the past that starting companies is his passion. The proceeds from the AppDynamics sale certainly gave him options.
Lessons for startups thinking of selling
What does all this mean for startups out there who might be facing the decision on whether to sell the company? Bansal recommends thinking about whether you want to stay or go after the sale. In some cases, you may be contractually obligated to stay for a certain amount of time, but he says that it is something you should think about carefully during the negotiations process.
“Sometimes entrepreneurs reach out to me and say ‘my company’s being acquired, what should I do?’ They’re like, ‘you didn’t stay at Cisco, what should I look at?’ So, it’s a little bit binary, either commit for [a short transition period] or you commit for say three to five years, something meaningful that will make an impact of some kind and some mission, something that you still want to achieve out of there,” he said.
Sarbu says that it’s not always just about the money. You have to be comfortable being a part of the company that’s buying you if you’re going to remain for a significant period of time as she did. “Choose the company that you believe in, and you want to be part of it, instead of the financial part, because sometimes they’re not equal,” she said.
Finally Mehta says when he sold the company he was as depressed as he has ever been in his life, and you have to be prepared for the fact it’s going to take an emotional toll regardless of your decision. “Be prepared for an emotional rollercoaster, and it’s normal for you to have lots of mixed emotions even though on paper, this is a great thing,” he said.
Ultimately selling your company is going to be a big move for you regardless of what you personally choose to do in terms of staying or going. If these three founders are any indication, it certainly doesn’t mean your startup founding days are over. There could be plenty of action waiting for you down the road after the sale goes through and the dust settles.