Impact Multipliers and Evaluating Acquisitions

Independence, Impact, Money and Mission…

As I sit here writing, I am faced with dilemma — a question, one many founders are forced to confront.

What matters more: the money or the mission, the impact or the independence?

The answer is complicated, and reveals not your character but something more. Let me explain.

Start with Why

Simon Sinek is a smart guy. If you haven’t watched his TED Talk on the power of “why,” ie motivation, I suggest you do.

But first, let me provide some context. My mission is to help startups succeed, as many as humanly possible. I’m a startup advisor, angel investor and serial entrepreneur and have built solo businesses for as long as I can remember (more on my background here).

Today I am working to grow The Syndicate, our accredited investor network which invests promising pre-Series A startups (more on our investment thesis here).

The biggest challenge I face is one of resources. I’m a one-man show and our syndicate is not yet large enough to write large checks. This makes securing allocations in the best companies challenging. VCs can cut bigger checks and have more resources at their disposal to help portfolio companies succeed.

Which brings up a question…

What is the mission?

I am currently advising several pretty awesome startups and making occasional investments, but I find myself wondering if my impact could be amplified at a fund.

As a serial entrepreneur I find myself asking: “Should I join someone else’s firm?”

This is a foreign concept for me, and one I am not fully comfortable with. But again, do the ends justify the means? If my mission is really to exponentially impact startups, isn’t this a no-brainer? Is it selfish if I don’t? Is it selling out if I do?

These are the questions bouncing around my head — and they mirror those of founders everywhere, hence the need for the article.

Compromise

Every great founder starts with a WHY. What is the driving force that motivates you to sacrifice security and peace of mind to put in 80+ hour grueling work weeks? Why would anyone put themselves through that kind of emotional rollercoaster?

Is it the money? I hope not. Money is NEVER a strong enough motivator (more on this below).

The Memorable Elevator Pitch that VCs Can’t Ignore_5 Steps to a Perfect Elevator Pitch and How Startups can Use the Pitch to Inspire Investors and Employees…_thinkgrowth.org

Founders make it their mission to change the world.

But when is compromise acceptable? When are you sacrificing the mission for money?

The idea of the acquisition

There are three ways to view any acquisition: 1) a payday 2) a failure or 3) an amplifier.

Source: SimplyBusiness.co.uk

1. Paydays

Paydays are obvious. You build something great, another company wants the tech, the team, the customers or to kill competition and they offer a ton of money to acquire you.

2. Failures

The second type of acquisition are the firesales. Your startup raised money and hit its goals. It is obvious you won’t make it and investors want to recoup their investment. The company gets sold for relatively small amount, no one is particularly happy and everyone ultimately is stuck accepting.

3. Amplifiers

The most interesting acquisitions are amplifiers — acquisitions where the acquirer brings assets to the table to help the startup scale and succeed. This is often true with pharma companies but can apply to any industry (often related to business line expansion or distribution deals).

Amplifiers are the hardest acquisitions to evaluate. Basically an acquisition is like a partnership that could accelerate the startup’s growth and help them achieve their mission but likely means leaving money on the table (by not selling later).

Evaluating acquisitions

The easiest way to evaluate acquisition offers is to understand what drives your decision? When the offer 1st comes in, what is your initial response?

It is impossible to fool your instincts and gut reactions — remember those. Write down in detail how you felt and what your first thoughts were.

That is the best way to evaluate any offer.

The unspoken stress

Founder’s rarely talk about this. Few want to own up to the moral dilemma of deciding between mission and money — either choice can alienate investors, employees or other co-founders. Entrepreneur’s don’t want to face their own scorn either.

“Is money really more important for me?”

The good news is, there is no right answer. Your gut will usually tell you what to do. The reptilian brain in our stomachs is designed to process information and create subconscious responses to stimuli and past experiences — our own little black box (neural net) for making decisions.

I once heard a podcast interview where the interviewee said something to the effect of “every time I make a pro and con list, I am either trying to talk myself into a bad opportunity or out of a good one…”

I believe this applies to the majority of decisions.

Weighing your options

Numbers alone won’t help you make the right decision — intangibles are often the most important factors.

For founders, this means meeting prospective acquirers and hearing what they have to say. It means taking offers seriously and interviewing employees or past acquirees of the company to understand the culture, red flags and how the acquisition could affect your company. Get a feel for the guys and gals on the other side of the table — assholes are not the best business partners, regardless of the check size.

For myself, I’m weighing my options carefully and headed to Toronto to meet with a few firms. I haven’t decided anything yet and am going into the experience with an open mind.

Know your weaknesses and yourself

I am ADD. I get excited about and often agree to things without really thinking through the details. This can create problems. I know from experience that I need time away from the situation to make a rational decision. And talking things over (and/or writing) helps me to clarify my thoughts (hence part of the purpose of this post).

Before you go into any acquisition or big commitment conversations, make sure you consider these things carefully. What are your weaknesses, what are your patterns? Have you made mistakes or done things you regret in the past?

Simply knowing and acknowledging these helps you control the situation.

“Know thyself, and thou shalt know the Universe and God.” — Pythagoras

(I would modify this slightly “Know thyself, and thou shalt [own] the Universe and [be thy own] god.”)

Selling a business

Three times I have decided to sell a business I had built. Each time there came a day where I could not stand running it anymore. I was sick and tired of the day-to-day and excited about exploring new opportunities.

While I lacked the mission motivation which made the decision easy, I still went through the same decision making process. Every time I felt a weight lift when the process was finally complete. My internal and emotional responses validated my decision.

Yours will do the same. When you make a decision, pay careful attention to how you feel (and how your body reacts). These simple reactions often tell you if you made the right choice. Visualizing the decision and D-day ahead of time can trigger similar responses and help you in the decision-making process.

Good luck.

Closing thoughts

Life is a series of decisions, compromises and actions — nothing is black and white. We do the best with the information we are given and accept the consequences, that is decision making 101.

I don’t know what I will do. I am very intrigued by the idea of joining a formal venture fund and bringing my skill set and deal flow to a large organization, but still undecided.

You probably don’t know what you will do either. Every opportunity invites second-guessing — a derailer of success.

Make a decision, push forward and re-evaluate when necessary. Detours are okay, just keep course correcting.

Have you sold a company previously? What went through your mind? Any regrets?

Would love to hear from others that have made hard decisions revolving around money and mission and how you evaluated opportunities.

We all go through similar situations, I hope this article made you think and helps next time you are faced with a choice.

Nothing is worse than blindly following the guidance of others…

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