 How many of you are founders and startup builders? Raise your hand. Okay, that's a lot So imagine the outcome that you want for your company. What does that look like? Is it a big acquisition? Is it an initial public offering? Well for those of you that want an acquisition Don't even think about getting acquired Today we'll dive into why that's so important and Along the way, I'll share my lessons about my playbook and how I built a successful startup So first my name is Terry and I'm an ex-founder Previously I worked at Asana. I worked at Microsoft and I committed five years of my life to starting a company So during the five years, I lived and breathed the startup. I Know hobbies. I know social life Literally night and day. I was at my computer and it was probably one of the most painful experiences. I've ever had So as founders, why do we subject ourselves to this pain and it all comes down to this We had a mission that I believed in that was really core to my personal experience And it really got me through the multiplicity of hardships So what was my mission? Growing up my parents immigrated from Taiwan to Arizona They were dirt poor and they rented out this low-income unit and in this apartment complex And it was the cheapest unit where there was right next to a trash can And I kid you not my toys are bedding our furniture was all from this trash can And my parents really sought to survive so they Couldn't they collected recycled trash cans my mom went door-to-door knocking on our neighbors trying to get babysitting and house and haircut gigs and My dad got a job at the local cafeteria So with per-sense since they reached an inflection point and that was when they found their community That community was called the Taiwanese American Association in which They helped make them fulfilled helped get them connections to jobs And so years later My dad got a job at Intel as an engineer And then my mom became a real estate agent and she became the president of this local community So Bivoli was a way for communities to accomplish their goals together and it was monetizable by creators We raised two and a half million from all-star angels and VCs So it included people like the YouTube co-founder Steve Chen the lean startup co-founder Eric Reese kiss matrix founder hit and shaw the meet-up comm founder Scott Heiferman and many more and In an early 2022 we were acquired by the six billion dollar company Kajabi and It's a way for creators to earn revenue through starting a digital business So that includes coaching memberships community and courses Once I joined I became the head of product Like the moderator said we I became the blog her innovator of the year and I now write for the Forbes business council And it was an absolutely life-changing experience So I can tell you personally The biggest outcomes come when you're not looking You want to focus on building a sell worthy business not a sellable business And here's why When you build a delightful product customers actually depend on you have strong fundamentals high growth Your exit will come IPO or acquisition And if you decide to take investments don't even mention the word acquisition At the end of the day investors don't want to play small right you have 10 companies you invest in Seven of them are going to go belly up two of them will have inconsequential gains and one of them Will actually succeed and return the fund of the portfolio So let's run through how to build a valuable sell worthy business So I love this video Because it shows you how crazy can turn into genius. How many of you have seen this video? Okay, cool Hopefully more of you will find it inspiring If it plays There we go So this was at the sasquatch music festival in Georgia and when it starts out it is a Kind of a nut job looking guy dancing, right? I think if I had been standing there at this festival, I would have thought Okay That's kind of cool But he has one of his first followers join in here And he starts dancing with him And so at this point, you're probably still thinking that a few of them I was just having a good time probably on something but having a good time nonetheless and More and more people will start joining And so this eventually becomes what a startup is like it is a vehicle of believers And so for this one, he's got three believers So the first one the second one they could be your early co-founders They could be your early teammates your first investor your first customer And he's still dancing and there's another person who joins and there's four there's five There's six or seven this continually grows And so when you're starting a company you not only start recruiting people to your mission to the problem You're solving But more and more customers join in more investors joining and it starts ballooning and it becomes this massive movement that you've created And eventually you have a massive unicorn of a business where all your customers believe in you all your investors believe in you And everyone looks back and says I knew from the very beginning So the full full clip is you can find on YouTube But it's just basically continues to stretch out and become more and more people dancing So even when you do things a hundred percent, right? You will hit this trajectory and I know the last speaker touched on this as well But this is directly from YC There's an exciting moment where you think that you've made it and then there's many many many low points In fact, you'll notice that most of the journey is low and not high And that's something as a founder you get used to you have to go through it You have to have grit you have to overcome it and that's you don't have a business without it So our company vibrates had multiple troughs and when I tell you there were a lot of troughs I really mean it. It was really difficult. We had co-founder changes. We had product fires We had key employees leave and so here's one of the stories that I'm gonna share with you today about our biggest trough To hopefully get you through your own challenge So at the beginning the company was focused on helping communities develop fulfilling Experiences through our wedge of meet-ups So you'll see that there was a map and there was a way for people to segment into their locations and eventually Have an in real life meet-up. So we had 550 meet-ups in 150 countries and it was working There was our servers were overloaded with engagement and I thought wow, we found a product market fit you guys and It all came crashing down with one catastrophic events And that was COVID in 2021 So it went to zero in the span of a week and I thought this is probably the end. What are we gonna do? So our team got together and we started brainstorming How can we create the same mission with the assets? We have which is the online ability for us to connect and so we brainstormed and came up with this after much experimentation our meet-ups were transferred to be online and So you can see these are specific communities that all met up with each other and We introduced this concept of challenges where people would do activities together in person during our online during the pandemic and Then we expanded into more traditional Facebook group like this tools like discussions So this was our trajectory once we pivoted and so you can see we were really Making our creators happy because they were making money charging for their communities And we are on track to hit six million in ARR in total membership volume for our communities And so we are averaging 57 percent month-over-month growth, which is phenomenal. We were very happy Then we got our series a term sheet. So this is what an example term sheet looks like from a Venture capital fund and so this is an offer from a fund essentially to say hey We'll put in this amount of money for this amount of return And we simultaneously got inbound interest from other companies So we had corp dev teams reach out to us from Google from patreon And the thing with when you focus on traction is that word travels? So we had multiple companies reach out to us, you know a lot of venture and corp dev teams They have tools and insights to be able to track and see which companies are actually doing well Like buying credit card data for example And you can even intentionally as a founder plant that word of mouth by building in public Having notable advisors and investors who can like whisper into the wind So Then I started to think about the risk versus reward so I wanted to make the best strategic decision possible for our company and Unlike a lot of founders I spoke to Actually shopped around so this is really unique I don't think a lot of founders do this and I highly recommend it because it gave us a lot of leverage and options So let's say that you are going to get acquired What should you do? So we have four M&A criteria to think about so the first is your product market fit conviction So this means how much product market fit do you have? Really and this requires some self-awareness Some emotional intelligence to be able to look at your business look at yourself and analyze whether or not you've really hit it and Believe me if you're questioning whether or not you have product market fit You probably don't have it right when people describe the feeling of product market fit It feels like things are flying off the shelves things are growing. You don't need to really push the boulder uphill I knew that when we stopped pushing that boulder that it would roll back even though we were exponentially growing The second is your own founder energy and this is something that after five years I was extremely burnt out If you're a founder the entire company relies on your energy your creativity your mind space and you really hold the burden of the entire company So you have to make sure whatever you execute that you are preserving your own energy as a founder And it probably don't want to do what I did where I had no life Third is market timing. So what valuations are you seeing in the macro environment? So this one is an element of luck. So Today in the 2023 market We would have had a very different offer than in early 2022 and you can best believe in 2021 It would have been even better because it was a frothy market in time So that's an element you want to consider and then the last is Financial return this one's obvious, but you have multiple shareholders. You have your investors. You have your Co-founders you have your own family. You have your own angel investors And so that is something that you have to analyze and when there's a conflict of interest You should always prioritize the ones that gave up the most So what kind of valuations can you expect? So there are three parts to every valuation. There's team product and traction So with a team the company wants to acquire a top tier Talent and team so they're going one. That's going to change the trajectory of the business in its entirety So when you're in talks you want to make sure that they believe and they can see why your team is the best in the business So any accolades any pedigree any information about what they've accomplished that all needs to go in the conversation The second is product. So the experience you built whether that's an app or a store When we were acquired vibrably became integrated into kajabi communities So it became part of that deal which increases the valuation and Then third it's traction So this is the heaviest weight of all so the logos you saw earlier of Figma of Whole Foods of What's that those outlier return size returns came only because they had such unspeakable traction That there was an existential threat to the companies that if they didn't buy it they would be in a hole Broadly the more you stack the higher your valuation So these are example multiples Just as baselines for you to compare So you'll see in SAS it could be six to ten X consumer tech four to eight X however The thing to consider is when you're in tech and you saw those big deals that happen in the billions Those were at a 50 to 75 times multiple in some cases So it all doesn't all follow these rules so one principle when you decide to sell is You want to remember that M&A is not Fundraising it's really important to remember because during fundraising you're taught a lot of different mechanics And I won't go through all those today But you want to make sure that you come off with someone likeable and someone collaborative Which is very different than in fundraising where it's a little bit of a game with investors If there's any investors in the audience, I'm sorry to say, but they tend to subconsciously reward people who are a bit like Adam Newman or Travis Calcane is or Elon Musk, we're so sure of themself that they can come off sometimes as a little bit of an ill and So you have to differentiate yourself during the M&A process These are people who you're going to be working with for the foreseeable future So they need to see your ability and see that they like you Next is to sell the vision. So what would it look like if your two companies join forces? So you want to help your acquire? Imagine the future so think about what are their goals? What do they want to accomplish and Then pitch them on that. So I had a you know, 20 point deck with each of these companies I pitched over 15 of these companies and for each I had a vision of how the two would work in synergist and energy and how Vibley would bring their company to another level With the jobby it was obvious because they needed community to stay relevant and I pitched them on what would happen to the revenue to the business if they came together Does this work? Okay. Great Next we have get leverage and this is really important because leverage increases price And it increases urgency if you ever sold something before like a house or a car or you got a job All the leverage will like will do for you is increase your ability to get better options and Every price process you run should be a funnel So you can see here Everything we did whether reaching out to press whether getting customers and influencers whether having an investor likes Round fundraising round or even with M&A we had a whole lot of people who are our prospects tracked and We ran through it like a funnel and Ultimately we got five acquisition offers So this is a step-by-step process of what the M&A Can look like and it could be a lot longer But I think this is the minimum of what you would see so you could see introduction. There's a first conversation There's a team meeting. There's another meeting. There's a meeting after that. There's initial diligence There's a letter intent that comes. There's also team interviews purchase agreement negotiation diligence and then closing So that's 12 different steps So the number one mistake that founders make is that they don't They don't go through this funnel and they don't think about maximizing the amount of options that pass through So what is the likelihood that one of your options will actually make it through and One is the option. What is the possibility of price when that happens if you only have one option? Spoiler it's not that great and so one of my favorite founder friends she got an M&A deal and She had one and thought that she only needed one to go through just because of the certainty of what the deal was seeming like But without all the other options on the table It's stalled because there was no reason for the company to act now And so that's really the power of leverage is it gets you from point A to point B and you can use that to close it up Something will work here There we go. All right. The next thing is you want to make sure to manage the process So as a person running the process you do not want to leave things up to chance Make sure every action item is tracked Make sure there's a clear owner for each one and make sure there's due dates assigned and What you want to do is in all your communications continually remind your Prospect of what those action items are and lead them to the close So you're responsible for this and if you and this is an example here that you can see I used on one of our acquires So next you want to negotiate the deal terms There's so many different dimensions in a deal and I won't bore you with all of them But these are the ones that I found the most critical So there's cash versus stock and that is what are you going to get in cash versus? What are you going to get in the acquires stock? Obviously, there's cases where stock is better, but generally I recommend cash because it's liquid and it's more certain The second is upfront versus earned payout So upfront payout means you're going to get it right away versus earned over a period of time Obviously the better is upfront in this case because you get it in hand now Then there's time period to earn out so this can range from zero to four years The less time that you have to earn out the better so a lot of founders really push on this and Then if you're joining the company your salary your bonus your equity all matters So you'll want to negotiate that too But then there's your team and your team's compensation is Depending on you as well And so as a leader of the company you should be thinking about the people who trusted you in the first place and who? Sacrifice a lot of their lives to get here and Then the last is contract terms like indemnification and termination Which essentially means what it happens when the company fires you and who takes responsibility if there's a lawsuit that emerges So there's some commonly asked questions that I'm going to go through The first being when do you tell your team? So there are two variables to consider The first is team adaptability. So how comfortable is your team with change and unknowns? Our team was very comfortable with dramatic fluctuations in the business We had been through hell and back and so I told them probably earlier than most people would The second consideration is directional confidence You never know what an M&A deal will fall through So I still shared with our team about two months before the interview process so that they could have time to prepare But it wasn't right away when I had the discussions either Another commonly asked question I get is how do you know if you're making the right decision? And this one is hard you guys because there is no right decision Oftentimes it's all about making the best decision you can with the input you have at that moment in time That leads to the desired outcomes that you want So in the end if you keep making these best decisions you end up with this at scale the most The most right decisions as possible So what is life post exit? This is another common question I get Today I continue to run the product our entire team came on board so six full-time and then 20 contractors I travel a lot. I bought a house But what makes me the happiest is when I see others inspired by the work that I've done but there is a dark side to this and Not everyone realizes this But it almost feels like you've lost a baby. You've spent five years working on it You have now given it to someone else and you've now lost yourself And so many founders can feel aimless depressed suicidal post-exit Mike raker the co-founder of Instagram experienced anxiety and depression after selling his company to Facebook in 2012 masked Levkin who was a co-founder of PayPal acquired by eBay Also experienced this and since had treatment and recovered And then there are people like James Dyson who sold the company in 2017 for 11.9 billion pounds and Afterwards he struggled with depression and also needed treatment So I'll share with you my experience that I rarely tell people for about One month for four weeks. I woke up every day crying because I didn't know why it felt like I had some kind of Cloud over me and I didn't know exactly what the reasons were but it felt like I was really depressed and so Sometimes in that state you wonder what the point of life is so this goes to show that happiness is a state of Not possession, but a state of gratitude So for all the founders in the trenches building You guys are heroes and Your startup is a wondrous journey full of exciting possibilities full of challenges ahead of you And you can conquer so many of them and each one will be more fulfilling than the last and Then the bottom line is you'll never find anything more rewarding and more impactful in your life So, thank you for spending the final talk at slash 2023 with me If you found this helpful feel free to connect with me Or if you want to start a digital business you can start one at Kajabi and with that I could not be more excited for you to go forward and catch them all