TL;DR: Finalizing the acquisition of your company is a momentous accomplishment! Jason Nazar, who co-Founded Docstoc in 2006 and sold to Intuit at the end of 2013, shares his insight of the acquisition process and takes us down memory lane: From the moment he began to consider an acquisition, to how he determined the right time to sell and the questions he asked along the way.
In December of 2013, serial entrepreneur Jason Nazar woke up, rolled out of bed, grabbed his iPhone and with bleary eyes read the headline:
“Document-sharing platform Docstoc acquired by Intuit for $50 million.”
This wasn’t just any headline – it was his headline. Today was the day Nazar would announce to the world that he had just sold the company he had worked on for eight long years for a reported $50 million to Fortune 500 powerhouse Intuit.
Do you think he was smiling?
THE BLACK BOX OF ACQUISITIONS
We wanted to know the answer, so we spent some time with Nazar to dig into the process.
The problem with understanding startup acquisitions and how founders manage them is that people rarely talk about the process – they just talk about the outcomes. The process itself is largely a black box that gets overlooked in favor of the romantic story of the big exit.
But we were more curious, as founders, what the real story and process looks like from the founders’ perspective.
- How did Nazar as a first-time entrepreneur get the acquisition process started?
- How did he know it was even time to sell?
- What does the process look like and what can Jason help us avoid?
… and most importantly, when he read that headline, what was his reaction?
THE MAN BEHIND THE SALE
To get a look behind the curtain we sat down with Docstoc co-Founder Jason Nazar. Nazar is not only a founder but also one of the best-known connectors in the Los Angeles tech community, having interviewed many top entrepreneurs and venture capitalists with his Startups Uncensored series. He’s also serving this year as the entrepreneur in residence for the City of L.A., appointed by Mayor Garcetti.
Within a year of selling Docstoc, Nazar was already getting to work starting his next company, Comparably, which helps people compare workplace compensation & company cultures. This is a man who lives and breathes startups.
By now Nazar has gone through the entire startup lifecycle, from pitching his idea to investors to scaling quickly to completing a sale. Combined with the amount of time he spends with other top entrepreneurs he’s learned some invaluable startup lessons.
More importantly, Nazar was eager to share those lessons with his fellow founders so that they could get a look inside the acquisition process.
HOW TO KNOW WHEN TO SELL
Nazar first pointed out that long before you even begin the process of a sale, you have to begin the process of serious introspection. We’re literally talking about taking everything you’ve worked so hard to build – the thousands of hours of work, anxiety, risk and perseverance – and hand that over to someone else.
Jason reflected on where he was at mentally and emotionally at the time:
“The team and I worked tirelessly to take Docstoc from an idea I had in law school in 2006 to a company that employed over 70 people, drew over 20 million small business visitors per month, and had over 50 million members worldwide. We had raised venture capital and had a lot of folks counting on the success of the company. I had forgone countless nights and weekends with my friends and family all in the interest of seeing Docstoc succeed.
I knew when I started that my eventual goal was to sell the company or take it public, but we had been heads down for so long focused on building the business, I had never really thought much about that outcome. But after eight years and more inbound interest in the company, it forced me as the founder and the primary fiduciary for all the shareholders and stakeholders to make a call on how best to proceed.
“I decided it was time to consider an acquisition.”
Getting to the point of even considering a sale is a milestone within itself – it means that you likely have built something of value worth purchasing. But that alone doesn’t make selling your company any easier. In fact, it makes it harder, because you have far more at stake if you get it wrong.
Everyone has their own circumstance but the most common questions a founder or a team must ask themselves are:
Can I keep going?
Founder burnout is real, and as it happens the most turbulent times tend to occur in the early days, meaning that as the company grows, often past the 5-10 year mark, the constitution of the founder and the early team is severely tested. The hit points are nearly gone and the energy bar is blinking red.
“I was really excited about where we were at with the business in year seven & eight, our revenue and reach was at an all time high. Not surprisingly we started to get M&A interest from a number of companies.
In our case we had only raised $4 million, a very small amount for a platform our size, so I was considering three options:
- Continue to run the business profitably
- Raise more capital
- Or, pursue M&A options.
It’s always such a hard decision to sell your company, even when it’s venture-backed and you know the eventual intended outcome is a liquidity event. I was feeling great about the business, but I had also been working non-stop building the company for eight years, I was moving into a different phase of my personal life, and wanted to make sure we had a great outcome for all the stakeholders of the business. There’s some inevitable fatigue after founding a company and running it for almost a decade. All that was mixed together along with a personal desire to have more time to focus on my health.”
How will everyone be affected financially?
Will investors get their money back? Will I take home enough to make it worth my while? Will my team feel like they were rewarded for all the sacrifice I signed them up for? If you’re selling LinkedIn for $26 billion then you can probably assume the answer is “Yes.” But if you’re like most companies who aren’t dividing a multi-billion dollar pie, it’s not clear if everyone’s serving size will be enough.
Most of our early investors got a 10X on the deal and some even got 20X. We also had a number of team members that had been with us for many years and I wanted to make sure they were going to make enough money to get out of debt and buy their first homes.
Personally, I hadn’t built any wealth as I was previously in grad school and actually took out loans to originally fund the business (that I was paying back until we sold). So, I was also conscious that the sale would really change things for my co-founder and me, and set us up for financial freedom.”
Is it too soon?
By the time you’ve made it to the point that the company has the potential to sell, you’re often saddled with trying to figure out whether to sell at all. No one wants to be the guy who sold his Apple stock before the Mac was released. Yet at the same time holding on has a huge cost too.
“My first concern on the financial return was for my investors and employees, I wanted to make sure they were both going…