When is an early exit smarter than raising another round?

The chances of achieving a multi-billion dollar exit are unbelievably slim. Venture-backed companies have circa 99% failure rate over a long enough time horizon. >> Why did you end up selling platform 360? >> I'd gone from Microsoft to MySpace. We had really strong growth metrics. Everything was going to plan. And then all of a sudden, revenue was falling off a cliff. >> I lost seven figures due to my board blowing up a deal before we sold that to Walmart. all due to their degree and misunderstanding of the market dynamics. Why is it a smarter strategy to sell early for maybe not your fullest potential? >> If you have a profitable cash flow generating business, then why would you want to sell that? Hey >> everyone, welcome back to today's show. Today I'm very excited to have Oliver Low, not just a serial founder who built and sold this company to a strategic and then rolled it up into, you know, what became a public company in the London Stock Exchange, but also my partner here at Thunder helping support founders on M&A transactions and helping founders navigate their their options when it comes to, you know, buy side or sell side M&A. Oliver, thanks for coming on the show today. >> Thanks, Jason. Pleasure to be here. >> And I apologize. It's a bit overdue. You know, I was looking at like who ah man, who should I bring on the show? There's all these amazing people that I like, oh, I got Oliver. I work with you like every day. >> We haven't Yeah. We haven't introduced you to the to the community yet. >> I assumed that the invitation got lost in the mail. >> Yeah, exactly. Just uh forgotten the fray of the chaos of day-to-day operations of >> uh what we do here at Thunderbed. Um, you know, you have a fascinating story and I would love for you to, you know, introduce because not a lot of people get the the full story about you, you know, when we meet with founders and I think it'd be great for for people to have a little bit of an idea like the company that you built. So, you know, Microsoft did MySpace, but then it really you you built your own company. So, that was Platform 360. Kind of kind of walk us through that story and why did you end up selling it? >> Yeah. Um I yeah I'll sort of skip through the the early stages of my career where I actually had a job. Um it's pretty brief career. Uh realized pretty pretty quickly that um I wasn't really built for the corporate world and in any case my intention was always to set up um set up a business came from an entrepreneurial background and um always felt like destiny to to start something myself. So got my chance to do so um in 2008. Um, as you said, I'd gone from uh Microsoft to MySpace, um, which was the biggest social media uh, company at that time. And 2008, obviously, financial crisis. Everything exploded, including, uh, MySpace. Um, and that was my ticket to starting a company because we got like at that point a year's paid severance, uh, which wasn't taxed. So, it was like sufficient runway to to do something. And um we built in the first instance an agency um we built an agency because you know post crash especially in in Europe at that point there wasn't a lot of capital being deployed and so we recognized that we would need to to bootstrap whatever we built and bootstrapping technology companies back then was hard. It's not like the day you know where you can vibe code a product in in you know a few hours. It costs like many millions to build a product. Um so you know bootstrapping was pretty challenging. Um we recognized that and it was also sort of the boom time of you know what was called digital at that point. So, you know, much like at the moment where all the companies are trying to build, you know, um AI solutions at that point, it was sort of digital and everyone wanted to build uh websites and apps and and all of that good stuff. And we could do that and uh so we used our agency as a vehicle to building products because that was always our intention. Um and I think it was a pretty smart model in hindsight. uh we were able to to deliver, you know, projects for like the World Economic Forum and Coca-Cola that were really profitable and we could have just, you know, kick back and enjoyed uh those profits ourselves, but we funneled every scent back into essentially building products. Um we had what we called a lab, which really was sort of an early version of a venture studio where we built products. Um, we were able to distribute them ourselves because we had an internal marketing team. And so it was actually a pretty pretty neat system. Um, we built an adtech, you know, we built a lot of adtech because that was really the era of adtech. The internet was obviously booming and um, advertising being how the internet was and kind of still is monetized. there was just a ton of um attention and capital pouring into uh to building advertising technology companies. And so yeah, the first company that we really built as a product business was platform 360. Um it was essentially you know applying machine learning to targeting of advertising um in the first wave of AI and uh and for better or worse we doubled down into that sector of the of the of the world. Um, I say for better or worse because it was certainly a big wave, you know, um, in in in adtech and and generally the advertising industry um, was growing really quickly at that point. Um, but it was also incredibly competitive and still is, I think, one of the most competitive sectors in the world because you're literally competing with sort of Meta and Alphabet um, etc., etc. So we kind of recognized that after some time you know building platform 360 and and sort of recognized that um you know to to really go after it we would need to raise significant capital and spend you know many many more years in that space and uh frankly didn't really want to do that. um you know, didn't really want to stick around in adtech and uh and kind of wanted to fairly early on, you know, secure secure a win in the form of an exit. Um and so we sought to do that kind of as soon as possible. Um and tried to get the timing right. Of course, it didn't work out um as well as it often does when you're trying to time things, but um nonetheless, we secured an exit um uh to to a sort of bigger strategic player. And as you said, we we with them did a bit of consolidation in our market. Um which is, I think, you know, a really good strategy to consider, especially in moments of sort of volatility where there are a lot of players that are probably looking for a home. Um and it's just a very smart inorganic growth play for buyers to be able to consolidate those companies, integrate them, um benefit from their uh revenue, which is you know the strategy that essentially we deployed um postacquisition. We we hoovered up some other companies in our space and then took the combined entity public um after which you know I kind of uh you know decided that it was time to end that chapter and move on to the next thing. So there's a lot to unpack on that story, but I want to really focus on the the deal structure. You made the decision to sell, you had your reasons, but when it came to architecting the deal like did you guys run a competitive process? Did you bring in bankers? Did you yourself did they find you? And then what was the deal architecture? How did that conversation go? >> Yeah, we we brought on adviserss. Um we recognized at that point um you know despite being quite young and relatively naive in in the sort of founders's journey that um you know managing that process whilst you know managing the day-to-day of running a startup you know would be really challenging. So we did bring on um an adviser to help us through that process. We did run a competitive process as well. Um you know there's there's a sort of longer story version of this um around timing. Um we we sort of engaged in a cellside process um when the uh EU GDPR regulations came into play and uh we you know we were 100% compliant. So we weren't too considered about uh you know too worried about this um you know these regulations coming in. But what we um didn't realize is that in the uncertainty of these you know really broadreaching and you know quite punitive regulations a lot of advertisers uh stopped spending for a number of months. Just so happens that those months coincided with our sellside process. So you know engaged with a lot of buyers great conversations. Previous to this, we had really strong growth metrics. Everything was kind of going to plan. And then all of a sudden, revenue was, you know, falling off a cliff, not just for us, but for everyone. Um, and so we were kind of forced to uh continue those conversations under duress, which is a really, really difficult place to be. Of course, we did have some optionality. we could have you know pulled out of that process and you know tried to grow the business but it was a challenging moment to raise capital as well with declining revenues and uh in a market that was in a lot of short-term turmoil you know our point of view was this is going to quickly resolve itself indeed it did you know that was probably Q2 by Q4 everything had turned around our revenues rocketed back up and the industry was absolutely stable but yeah we we did that in a really challenging moment of time so that of force impacted, you know, um the process. Um in terms of, you know, the specific mechanics of the deal that we did. Um I yeah, I learned a lot through that deal. Um I suppose that was the first deal that I was involved with. Since then, I've been involved with many deals on the buy and the sell side. So, um you know, what would I change about about that particular deal? Like pretty much everything. Um I you know I won't go into too much detail but yeah needless to say um a lot of lessons were were kind of learned the hard way. Um I think one very key thing that I can take from that maybe pass on to others is just like you know earn adups are almost always set up to fail. Um I'd estimate anecdotally and through having worked on lots of these that you know nine out of 10 earn ads fail completely. Um and and the reason is is pretty simple. It's that you know you're you're asked to hit targets but you don't actually have control over the levers. Um and you're suddenly inside a you know a bigger organization or a different company with uh with politics and competing priorities and you know slower timelines and timelines that you yourself often can't control. Um so if I were structuring again I would you know and this is advice that you know I often give to founders is like avoid and earn out entirely if you can or you know structure it to be such a small piece of the deal that you know whether it fails or not doesn't really matter. Um you have to assume that you know you won't see that money that component of the deal probably won't arrive or certainly if it does it's going to be a small fraction of what you originally thought it would be. Um and and we made a lot of the mistakes that you know I advise founders against today. Um no I completely agree on the air and out uh structure but you know the the reality of your situation is given the macro market you know the duress situation that you were put in like negotiating not you know non- earnout you know not having an earnout is not you know not not necessarily on the table for for some companies that are in that state where it's you better take the win and and move on and despite the reality that earnots might not be great you know if you don't have other options a deal is a Um, >> 100%. >> Would you agree or agree? >> Totally agree. I think, yeah, that's why it's fundamentally important to build a business that gives you optionality. And what I mean by that is ideally a business that's profitable, kicking off a ton of free cash flow. If you have that, you have infinite, you know, optionality. If you have a business that's not profitable, you have two options. One is raise more capital which you know at moments like we're in right now can be really tricky. Uh you know capital is constrained or you sell to a strategic um who finds utility in in what you've built but um you don't have the best leverage in those deals. So yeah, you you often have to pretty much accept what comes your way. >> Yeah. And I just I I see this time and time again. Like I have a you know another friend who's in a major lawsuit over the earnout and just dealing with the complexity years after selling. You know he sold years ago. He's still in the lawsuit like chasing these guys to, you know, make good on he delivered on his side. They didn't deliver on on theirs. And there it's cheaper for them to pay the lawyers and drag it out than it is to actually make him whole. >> Yeah. Um, and so that's what will happen indefinitely. And he has to keep spending money, burning money to to fight. And so the complexities of earnouts are, let's say, easily easy to warn against, hard to, you know, when you're in the thick of it and making a decision of selling your company, hard to really negotiate. >> Indeed. >> Build a profitable business that people want to buy and have more options at the table. Have a competitive process. uh and you'll mitigate the the stren the strains of uh of internet >> in an ideal world. Exactly. >> And when you kind of you know you're you had this quote on another podcast where you kind of you know selling in the fourth inning you know why do you believe that's often a smarter path? So rather than go raise and you know keep on this like growth trajectory until you either IPO or have a mega nine figure you know 10ig exit you know why is it a smarter strategy to sell early um for maybe not your fullest potential. M so I guess first of all like I don't think that you should always sell. Um you know kind of back to what I was just saying like if you have a profitable you know cash flow generating business with with kind of long-term legs then then why would you want to sell that you know um I think you can you can continue to run that business you know as a someone who's operationally involved but again you have tons of optionality you can step back um you can let someone else run it. you can take on a chairman role, you know, you've got endless optionality. So, you may not want to sell that business. Um, but if you're running a lossmaking business, a VC backed business that, you know, um, again has limited options, then, uh, then in many cases, um, selling is the kind of smarter uh, lower risk path. Um and and that's of course you know more true in the in the early stages of your career when you want to secure the wins you want to secure the bag um generate you know some form of financial freedom after which maybe you know you think about things differently um but yeah in the first instance I think that um you know going after an exit um is is probably you know the smart way. Um back to my earlier point the timing of that is really important. Um, I think unfortunately, uh, and I've been in this position myself, we when things are going really well, you know, we tend to think they're going to keep going really well forever. So then we're starting to anchor ourselves to, you know, this bonanza unicorn um, outcome, billions of dollars, you know, you're seeing dollar signs galore. Um, and you know, and you're not thinking about an exit in those moments. You're thinking like, hell no, why would I sell? you know, I'd be insane to sell. Um, but history tells me that those moments don't usually last forever. And that unfortunately a lot of founders will change their thinking about this when, you know, the opposite is true. When the growth has suddenly subsided, they've hit a wall and the market's turned and everyone's selling and valuations are plummeting and then they're like, "Okay, let's sell." Um, and that's precisely the moment that you don't want to be doing that. >> You know, you bring up the the word anchor, and this is something that I, you know, we run into and I run into constantly of founders anchoring their expectations to a certain outcome. And it's often almost nearly impossible to pull them away from where they're anchored on whether it's valuation or the future potential of their business. Yeah, we're going to be a bill you billionaire bust, you know, kind of a perspective. What I always kind of stop founders, you know, we're just meeting them for the first time or maybe we met before and I just I always ask them like what do you really want? You know, is there a and like most times founders, you know, puff their chest like, you know, I want to be a billionaire. Like, do you really like what you know what it takes? Like you got here and you suffered immensely. you will can just because your business gets bigger, you will you're going to suffer more. Yes. It's going to get harder. Like those are harder, you know, milestones to eclipse. Like as you move up the revenue chain or user chain, whatever your KPIs are, it just gets harder and harder. And until you create some kind of liquidity, you can't really break free. And if anything were to happen, your entire net worth, your entire value that you've created is tied up into this one entity and then the fade. And so, you know, this you there's another founder that we're talking to. It's crushing it. The business on fire, the 2x, 3xing year over year, but it's in a super unattractive category that no one really cares about and he's break even. He could be profitable. But, you know, it's one of those things where I was like, do you really want to try to take this to a mid nine figure exit and grind for the next five 10 more years? >> Yeah. to do that or do you take 10 million in your pocket today and retain you know 50 60% of the business for a future upside. Yeah. >> And give yourself little give yourself a little cushion a little break. >> Absolutely. uh and change your perspective because every founder right now and you as we know in the post exit the founder group you know the perspectives of people like you just you evolve as a leader as a founder as a creator as a builder when you've had one exit under your belt and the optionality that comes after that is exponential. >> Absolutely. >> And so I always try to tell those first-time founders that haven't had a win yet like you know especially if you're young like take a win early. >> Absolutely. >> And then have so much more options. Yeah, the longer you're around, the more you experience this anecdotally. So I think you know for people who are you know in the mid to late stages of their their founder uh career they kind of understand this inherently but in the early stages you don't and uh you know you have to be a bit insane to be a founder. You have to be a bit you know delusional um you know to keep going and build through you know all of the trials and tribulations. But you shouldn't lose sight of, you know, some semblance of reality. And, you know, the chances of achieving a, you know, multi-billion dollar exit are unbelievably slim. Um, one of the things I've been doing over the last couple of years is working with a team out of Cornell who've been studying venture creation and they are, you know, amongst the, you know, the the the most knowledgeable about this topic in the world. Their data shows that, you know, venture-backed companies have circa 99% failure rate over a long enough time horizon. You know, like the the big successes that we all know about, they're extremely rare. Uh so, you know, when you're playing that game with the intention of having that kind of big, you know, bonanza outcome, know that it's incredibly unlikely to actually happen. And you know there are many ways to play this game. There are many ways to climb a tree. Um there are lots of different paths that you can take to achieve financial freedom. There are lots of different versions for that. And yeah I think when people are honest with themselves they don't really need billions of dollars to to to get to where they want to be. um you know there is a number and you know uh some people have a very clear view of what that number is and they've worked it out in terms of what that will achieve for them over a number of years. I don't know if you have to be that scientific about it but I think you know the more realistic you are about um you know what the outcome is that you want to achieve the higher the odds are that you'll you'll probably achieve it. Yeah, it's just an important conversation for founders to reflect on, you know, when you built this, you know, this company has value. Um, you know, when when do you cash in either at least just a little bit, you know, and you obviously you got to build a business that's worth buying or investing into. That's I think priority number one. But once you do that, uh, when you are on the top and everything's going up into the ride, just take a little bit off the top. Absolutely. Give yourself a little bit more optionality, a little bit more protection, take bigger risks. >> Yes. you know, cushion, you know, that that allows it. I think that's one thing that people don't realize, like it's like if you get a little bit off the table, you can actually take bigger risk. And I think founders think counterintuitively to that. They're like, "No, I have to go all in on the business and that's got to be everything." Um, but you know, I think there's just a different mind shift change that happens when you have a, you know, a much bigger bank balance uh at home and you can have a little bit more optionality and feel a little bit more comfortable with the decisions you make because you're not betting the farm on everything every single thing you do at the business. >> Absolutely. Absolutely. So, let's kind of switch gears a little bit and talk about, you know, the deal dynamics that we're seeing in 2025 and what we kind of project out in 2026. You know, both of us having sold companies, been, you know, in the founders shoes ourselves, but also now advising countless founders on, you know, their future transactions and past transactions. Like, what's your take on, you know, the rest of 2025 and 2026 for the M&A market? >> It's an interesting time in M&A. Um I I think the game is is definitely changing. Um at the same time, you know, it's staying the same. Um strategic exits are are still, you know, going on. Um that that game is alive and well. Um but other sort of key shifts that I' I've noticed especially over the last few years are um new buyer profiles coming into you know the sort of tech startup uh VCbacked landscape um specifically private equity. Um I don't know about you but if I think back to sort of the early stages of my founder life I didn't know anyone that sold to PE. Um but these days it's a very common outcome. uh which is like partially as a result of just you know the the the never- ending growth of private equity as an asset class. Um I forget the exact number but it's like you know 10 or 13 trillion or something of assets under management. It it dwarfs you know most um asset classes and scale and that capital has to find a home somewhere. Um and it it eventually found itself into you know the tech and startup worlds. Um it also sort of helped that especially post Zerp um startups started to optimize for metrics like profitability and free cash flow that made them appealing targets for private equity buyers. Um so you know you have the combination of these two these two trends that um have resulted in a lot of private equity deals um occurring within within our world. Um which is you know it's probably a good thing. Um you know as we'll often say as as a founder you know you probably want to be aiming for a strategic exit um in terms of you know maximizing um your personal outcome. But uh strategic deals don't always work out and uh as a result of that and as a result of other trends on the strategic side like for example Lena Khan at the FTC being you know super anti- especially big technology companies doing M&A um and also again post Zerp that there's sort of increased scrutiny on you know big technology companies to focus on core business and and and on profit stability themselves that it became harder and harder for strategics to justify uh acquisitions. And so, you know, you you do see fewer of those deals than you did before. So, you know, it's definitely good news that you have private equity buyers um you know, entering the game, albeit you need to know what that game is. It's a different game um than than than you're playing with a strategic buyer. Um so, that's been interesting. Um and then beyond that there's this like increased uh focus on consolidation plays. Um you know generally consolidation plays become more appealing in moments like we've experienced over the last few years of like volatility. Um post zer you just have like thousands of startups what um when I was at tiny we would call venture distressed um that had hit that wall you know in growth and capital dried up and they were looking for a home. Some of them are great businesses um with product market fit and solid products and uh and and looking for somewhere to go. So you can consolidate those. Um and then the other play that's been really interesting is sort of like growth buyouts or AI buyouts which obviously you know we um at Thunder have a a really acute interest in. Um you know obviously from a personal personal perspective I love these strategies. Um I think that they are just incredibly compelling force multipliers for founders you know um to drastically increase um the scale of their potential outcome through consolidation. Um so yeah it's an interesting it's an interesting time in M&A. Um it's not all good news. you know, like multiples are certainly down um versus, you know, what we've seen in in and especially the the heady days of of the ZERP era. Um but probably down and back to, you know, some sort of reversion to the mean um to sort of more realistic um multiples that that kind of make more sense. So, you know, it is what it is. Real quick, if you're a founder doing over 5 million in revenue and want to know what the best hund00 million plus founders are doing to fuel their growth, then make sure to subscribe to our $100 million exits newsletter. Get the playbooks that are proven on how to fund, grow, and sell your business. I'll even give you a curated list of investors that want to invest in your business. It's totally free. All you have to do is click that link down below. Subscribe. Do it now. I promise it's worth it. You won't regret it. You got nothing to lose. Go ahead, subscribe now. Back to the show. >> You know, it's been fascinating kind of watching the private equity markets over the last, you know, several years. Like just, you know, to kind of throw out some stats for the audience, private equity, there's about 100 billion a year being invested, uh, back in 2000. And, you know, now looking, you know, looking at, uh, 2021 2022 is almost 2.2 trillion. That's like net new capital going into private equity firms. um you know nearly a 20x increase. Now 2020 2022 to 2024 saw roughly a 75% drop 80% drop in net new capital. So obviously that's um kind of what I think founders are feeling right now. Um, and and kind of what I've picked up on is we got such a unrealistic taste of fantasy land in 2021 and that again using that word anchored anchored expectations, anchored values of like I'm building something everyone's going to want it and like everyone got funded. that should never been funded got funded. And so now you have this just >> all this talent in these no growth opportunity businesses like they're not outcomes. It's like all this talent locked in to these businesses. Most of the founders and their their you know their best people >> still passionate still having hope. Um but you know and then you're seeing a a shortage of net new capital coming in and a concentration of capital going into the biggest deals and these smaller deals where companies doing millions of years, you know, millions in revenue but break even losing money or you know not you know profitable haven't really cracked the code just yet to kind of have out you know outsized returns. They're stuck in this limbo of, you know, now what? >> And they think capital raising because they they still care about their business. They still have hope. They still have passion. And everyone tells them like, you got to keep going. Failure is not an option. You gota you got to keep, you know, grinding away. Um, but the reality is is like I see and like you're alluding to it is a consolidation play. I think we're going to see substantial consolidation either for bolt-on acquisition value of like you know product complimentary products um being added to existing larger platforms because the in today's age it's all about distribution. >> Yeah. And if you own the distribution, meaning you know you have the customer base, you have hundreds, thousands, you know, of customers, you have a platform for distribution, whether it's you're an influencer or, you know, you just have great sales, uh, marketing efforts. Uh, the value that you can create as a company with distribution by just bolting on and buying up, you know, companies. Yeah. >> Uh, is just massive. or you have a killer product, you have a ton of capital, but you're struggling on distribution, you know, buy companies that have the customers and wipe their, you know, get rid of their tech and integrate your tech or, you know, so I think there's going to be a lot of, you know, smart founders that are investing in their own corporate development strategies on the buy side, which is, you know, something that you and I are doing now, you know, for a couple clients in terms of helping them identify buyside strategies to give them um you know this upside potential you know inorganic growth as they call it growth acquisition >> where you know your company can go out and execute these strategies yourselves or >> be the consolidate E and get acquired to be you know bolted into those things and >> there's obviously all kinds of different ways those deals can be structured but you know that's kind of want to you know allude into now is like you know from your perspective when you see the different types of consolidation plays or bolt-ons or platform plays like you know what what's kind of your bet? What are you seeing that you know is more probabilistic for let's call more tech companies software companies uh when they think about getting bought by private equity or PE or independent sponsors or strategics like kind of what do you you know see as the potential on the on the horizon for these types of deal structures? Yeah. So, you know, first of all, um it it is a tragedy that there are so many, you know, startups, especially venture-backed ones that have hit that wall. Um you know, it's a sort of classic Charlie Mer, show me the incentives and I'll show you the outcome. Um a lot of startups were incentivized to go after growth at all costs and when capital was abundant and flowing freely and then the capital dried up and suddenly it's like you know the game has changed and uh you know your investors suddenly expect you to be extremely profitable uh rather than growing really rapidly and those are just totally different games and some are able to adapt you know and and optimize for profitability and therefore have optionality going forward but many are not set up to be able to do that. They don't know that game. They never played it. So, you know, they've hit a wall and um luckily there are options for companies in that boat. Um you know, there are strategics that are looking to integrate them for a forementioned reasons. Um and there are uh companies consolidating uh that that can, as you say, be distribution, you know, channels for startups that typically lack that. It's distribution that's that's kind of hitting their growth. Um, so I think from a from a seller perspective, you know, thank God for for those options because otherwise, frankly, you don't have a lot of options. So you want to take that deal uh as soon as possible and yeah, have realistic expectations about what the outcome is. It's that or the client into shutting down, which is happening, you know, to sadly thousands of startups at this moment. Um, and yeah, if you're a buyer, it presents an opportunity. um you know uh it's an incredible opportunity to engage in um yeah either just straight consolidation of competitors that you can integrate into your company because you fundamentally have a foundation which works you know you've figured out the game of you know building a sustainable business um that doesn't require endless you know capital to prop it up. you can absorb other companies that have you know fallen foul of the growth at all costs and you know haven't been able to achieve distribution. and you can integrate them and acquire revenue, customers, uh talent, tech, etc., etc. Or you um you know, in a strategy, which which of course we're um deploying within Thunder, you could uh you could look to deploy something like a a growth buyout or an AI buyout where you yourself would be the platform. you know, you have a a technology company um which acts as the platform. In the traditional sort of rollup version of consult of a consolidation play, the platform would typically be like a big, you know, scaled, very profitable, structurally sound business. in the context of a growth buyout or an AI buyout. You may not have all of those attributes, but you have uh a solid business and you have a technology which you can deploy into perhaps more traditional businesses. um where you know you'll see an uplift by uh yeah by deploying technology to potentially reduce opex meaning you need less people to do the work within the company or to you know uh provide new revenue streams through new products and services that come through technology >> and and one thing I want to add to that which you know we've been exposing founders to and it's it's been quite an eye openener because some of these companies like one of our clients like great product, killer product, but you know, the category she in isn't sexy anymore for venture. It's it's just falling out of favor. Doesn't matter how good she is, doesn't matter how good the product is, doesn't matter how good the sales are, there's just no capital for continuing to fuel the venture narrative of that particular business. But what makes it interesting is going out and acquiring businesses with her technology and leveraging that uh actually makes it easier to raise capital because that's a playbook private equity and private credit are very familiar with you know growth acquisition acquisition financing uh it's very common and being able to secure you know anywhere between like one to 3x whatever the cash flows are of the target company uh is is very attainable and that can help fund you know future acquisitions. And that's the private equity playbook that has made trillions of dollars in returns over the last, you know, a few decades >> of these kind of what we call like multiple arbitrage, you know, strategies and >> fun education for for those listening and you know, Oliver, I'd love your take on this as well of like what multiple arbitrage comes down to is like let's just say you're a $10 million a year business with $1 million EBIDA like your value multiple your EBIDA multiple would be in like the five to 10x depending on your business whatever it might be like multiple is not so much relevant here outside of what it does when you hit certain thresholds. So if you are trying to go from 1 million ebida to 5 million ebida um you know you can do it organically but that's 5x you know growth that's not easy to do but if you buy another business that's got half a million or a million or 2 million you know EBA whatever it might be you're buying them at the same multiple that you're worth today but when you over uh when you surpass like the $5 million uh Ebida um line item multiples actually increase by anywhere somewhere between 20 to 50%. >> Yeah. >> So your the value of what you bought that company for today, let's just say it was a you know 3x evida multiple that you bought it for. >> Um but when you scale the company the value of that entity whether it grows or doesn't grow actually is just inherently because it's bigger and more in that case validated and you know safer. >> Uh and there's bigger check writers who need to deploy a lot more capital. they pay a higher premium >> and so if you gobble up a couple companies to get past like the next milestone in terms of a multiple jump >> uh that's absolutely like a massive value creation where you're able to buy a company like say a million dollar EBIDA you're able to buy for three and then you're able to finance some of it so it's not really c like there's all these really cool strategies that you can implement that are not that in you know wild of an idea that there's tons of playbooks out there that people have already done it. >> Um it's just a matter of you know does it make sense for your business? >> Yeah. >> Is that you know so I'm curious to get your thoughts on like what you're seeing in the market for from that perspective. >> Yes. So like first of all um it it absolutely flips the script you know like if if you've hit a bit of a wall you know like the business is is is solid. It's growing but it doesn't have sort of venture characteristics anymore. And again, we see this often. Solid business, product market fit, significant revenue, but like it's not going to be a unicorn. And the VCs of of have >> it's a venture orphan. >> Exactly. It's a venture orphan. And um you know, that doesn't have to mean it's it's a bad um path or a bad outcome. Um by engaging in a sort of buyout strategy, you completely change the narrative. you also allow you yourself to to open up to different sorts of of investors be it, you know, equity investors that might be private equity or family offices or indeed private uh uh private credit. Um and uh it's it's just infinitely easier to buy revenue than to kind of grow organically, you know, like having done both uh you know, buying revenue is just so much easier. It's an easy you're playing the game on easy mode when you're buying companies versus like okay we're going to double down and invest more into sales or marketing like that is not an exact science. It's so hard to increase topline revenue through you know doing more sales and marketing. So it's an easier game and uh and there are you know incredible deals to be done at the moment. Multiples are, as we've discussed, pretty low versus historical averages. So, you can flip the script, open up channels of investment, you have a ton of deal flow that you can access at like stupidly, you know, discounted rates. And for founders that are you know where this makes sense because it doesn't always make sense you know uh but where it does it can I mean it can change the potential outcome by orders of magnitude you know the example that you referenced I think in that um scenario we model out that it will make like a you know 50 to 70x difference to their personal outcome on exit. uh you know that's not a an incremental change in outcome. That's like a drastically different outcome and it's very much doable. It's all about execution. It's a fairly lowrisk strategy versus basically any other strategy of growth. >> But what do you when a founder comes to you and says like sounds cool but where do I start? How do I do this? I don't know anything about acquiring a company let alone being acquired. >> Yes. I mean and that is the typical scenario. Um you don't know what you don't know. Um we have learned this through you know experience and having been part of you know a multitude of deals on the buy and sell side consolidation plays rollups holding companies etc. When I was in my first phase of building a company in my 20s like I had no idea that any of this stuff existed and I wouldn't have been able to initiate it. It would have been a disaster. And so um you know a learn you know do what you can to learn about you know these alternate strategies and we're lucky to live in a world where there's abundant information be it podcasts or articles or AI itself that you know you can use to to to learn about this sort of stuff um and and you know take guidance from partners you know of course I'm biased to think that investment banks add a lot of value in this context um you know but but I believe that they do and uh you know for example how we work with um founding teams to implement this strategy really varies depending on who they are. Um you know some of them are um not really set up in a way to to be able to initiate such a strategy internally. They're set up as a product business. They don't have you know vast uh finance team or M&A resources internally. And in those situations, we kind of act as their external corp dev team, you know, their M&A department. Um, and we initiate a lot of the uh strategy ourselves with others where they are set up to initiate a consolidation play. They've hired an M&A team. They have internal resources. We still add into that in a number of different ways, whether it's capital raising or deal sourcing or deal structuring. Um but it's more of a light touch kind of um alocart as you go um um sort of setup. So >> yeah outsourced corp dev as a service uh is effectively what it is. But >> I want to you know something you touched on that I think would be valuable for for the audience to understand when it comes to you know who to listen to and how to ask questions. You know chat is great. >> Yeah. you know to you know a banker an adviser you know anyone and everyone you want it to be but it comes about understanding the nuance of your business uh having chemistry with the person giving you advice and understanding incentive alignment >> you know we talked about Charlie the miller like show me the incentive I'll show you the outcome like that's so important like when um and I always preface this with with founders that have raised venture and they're now a venture orphan >> they're often told you know the VCs on their board um that are now harder to reach, harder to engage, you know, that have kind of distanced themselves because, you know, you're not the winner of the portfolio anymore. They got to prioritize towards other things. That's just their incentive. >> Or you have the the VC that really loves you and cares about you, but there's nothing that they can truly do for you or they don't get their hands dirty for you. And I always just say like cautious of that the advice brought to the table from those situations in the sense that uh the person that wants you to preserve and not die. That's just throwaway advice because they don't know what else to say and they rather not have you go zero. They'd rather not have a zero on their books. And maybe something magical will happen like conserve cash, be profitable, but then you're what do you have to offer as a business? Like who's going to acquire you? What's going to create liquidity? What does that mean to you as a founder? What's the outcome that you can derive >> that's to you? >> Are you able to clear your prep stack? Can you not clear your prep stack? >> Um, you know, we've had investors come to us and say, "Hey, sell one of my porcos for me." And we sit down with those porcos and they're like, "Hey, you fun fact, you're not going to make a dime if you sell today." Like, you have to do something different. Uh, and you have to grind for years to, you know, create an outcome that's only just going to pay off your investors, you know, 2x. So like what's really on the table for these founders and having an honest conversation getting the honest feedback of what's the actual market look like what could be done what can't be done uh and what are all the options because most most VCs either just give you throwaway advice because either one they don't know or haven't done the homework or two their incentive is billion bust >> like you're not a if you're not a unicorn you're kind of worthless to them. >> Yeah. you know, like getting a a 1x 2x return um or something in, you know, anything less than like 3x return doesn't move the needle for them. They make 40 bets and they're returning, you know, it's like that's it's more of an accounting problem for them to return the capital to investors with a 1x return >> uh than it is actually meaningful to them. So those incentive structures can be very confusing for founders because founders trust them. >> Yeah. >> Oh, you're on my board. You trusted me like I want to trust you. But, you know, go ask a couple people. Go ask some exited founders who have been in their, you know, your have been in your shoes. You know, expand your network and and ask at least three people from completely different backgrounds and ideally people that have no skin in the >> Yeah. Don't just ask your investors. >> Yes. >> Ask people in your industry. you ask people that have sold companies before, done transactions before and get that outside perspective because without that um there's there's just too much inherent bias in the feedback that a founder would receive otherwise. >> Totally agree and you know this is not to you know to on VCs. There's a tendency of people to do such a thing. I'm uh you know I'm I'm glad VC exists as an asset class. Um it's been an incredible force multiplier for founders and you know thank god it exists. Um but yeah, of course, you know, they're not incentivized to help founders achieve meaningful exits for the founder, but for the VC, it's like, you know, irrelevant. Um so they're not incentivized. And of course, it varies like some VCs will will bend over backwards to help founders to achieve those outcomes if they've recognized that it's that or the business trundles towards zero. Um there are a lot of good VCs that will help to achieve exits. Um but there are a lot that you know either will be a barrier to that or you know simply won't help at all or or will potentially give bad advice. Um another thing which I often encounter not just with VCs but with a lot of people is like they don't really understand that game fully. They don't really understand the M&A game. They haven't experienced it enough to be able to to provide good advice. So you know do try and learn from others. um you know learn from podcasts, learn from books, um absorb as much of you know what other people have been through so that you don't have to um you know be a victim of the same pitfalls. Um and then yeah take advice from people that are trusted who have experience and where they're incentivized to you know generate outcomes that are aligned with with the founders's interests. Um and and I would absolutely count us as being part of that uh that profile and bracket. >> You know, one thing I wanted to to do before we wrapped up was just kind of spend a little bit of time on deal structures. >> Yeah. >> Um you we talked a little bit about the you know concerns around earnouts and you know what to try to avoid them if you can or uh you but what are some other deal structures when it comes to M&A? you know, and think buy side or sell side. What what what's some structures that you've seen that you know, some clean structures and maybe some messy structures and and kind of what's the, you know, difference between them? >> Yeah. So, yeah, we've we've talked about um burnouts. I think that that's that's an important point. Um yeah, look, I I've been on both sides of the table um as as a buyer and a seller. Um as and as as an adviser. Um and yeah, it it does often come down to incentives. Um you know, show me the incentive and I'll show you the outcome is just like an adage which we should remind ourselves every single day in the context of business because um often we sadly are not um you know aligning incentives uh in the context of M&A. Um beyond that you know minimal or no earnout exposure I think is super key. Um, another thing is like clear uh, you know, commitment to working capital. Um, you know, if you're, you know, doing a strategic deal or if it's a, you know, financial buyer like a PE um, and and part of that deal uh, is based on you achieving growth, then you need commitments to access capital to allow you to achieve that. When it's your standalone business, you know, you get to make those calls, you get to allocate capital as you see fit. um as soon as you sort of hand over the keys to a buyer um your decision- making uh is diminished drastically and you know as I was kind of saying at the start um I think a lot of uh exits fail because founders don't have enough control to define the inputs and so the output doesn't get uh doesn't get delivered. Um and yeah, these are all things that we sort of, you know, specifically will try and help founders to to navigate when they're going through an M&A process. Um access to capital, um you know, aligning incentives around um if not earnouts, then retention bonuses. um you know access to um or or a sort of distribution of equity over a timeline which makes sense um from the buyer's perspective to ensure that the the founders stick around for the long term and don't just you know disappear after the deal is signed um but from a seller perspective where the buyer is incentivizing them to stick around um through both equity and and cash. So you know good deals come from from good incentives across all of these areas and um yeah having experienced a lot of the pitfalls myself personally um these are the things which you know um whether it's in the context of thunder or businesses that I advise or in have invested into these are things that I'm trying to um advise founders around when they're structuring deals. Yeah, I I think it's something that um founders just need to be educated on all the different paths that exist with this what they're coming to market offering and time can change those for better or for worse you know depending on the state of the business and it's just something that I think founders need to spend more time understanding uh how to play out their options like something that we do often for a lot of our clients is uh what's known as a capital strategy assessment. It's it's a deep dive understanding of their business, the market uh forces that might be impacting their their business specifically and kind of what investor appetite or buyer appetite might look like so that we can architect like hey if you do these you know five things over the next year this will be the potential outcome versus if you just go to market as is today >> and that might be a 10% difference or it could be a 3x difference. Uh and that advice just gives founders clarity on what they should be focused on, you know, because most founders come to us like grow at all cost, you know, raise the next round. But I was like, hey, if you're doing like 10 15 million a year in revenue and you're break even because you don't want to pay taxes, you want to funnel it on the growth. Sure. And you can continue to do that, but you're running at a high risk in terms of a bad event happens, you know, and something unpredictable happens and you're begging for cash in your worst state. >> Yeah. >> Versus, you know, maybe slow down growth, you know, knowing it depends on your category, where you're at, and what the market forces are. But that's what we do. We help kind of bring that education to founders and help them identify. It's like, well, hey, if you actually harvest now and you sell a portion to private equity and you take a bit of, you know, skin off uh take some um I don't I'm blanking. Take some take some chips off the table. There we go. uh if you take some chips off the table and you you it just changes so many different things for a founder or it's like hey you're not attractive right now at all but if you do these five things you know you will become attractive and here's how you do these five things and here's what these will you know have an impact on and if they go up or down how they impact your desired outcome like all right you you're a founder you're dead set on you know making 2025 million that's like your number and you got to sell for 100 million. It's like well >> maybe you're not even close to that, right? >> Yeah. >> It's like what are the milestones you're going to have to hit and who are the prospective buyers? >> Yeah. >> You know, I just had a call yesterday with the founder. I'm like, hey, have you started talking to strategics? You're at a scale now where you should be on their radar. They're not going to transact now. You're too small for them to buy or, you know, invest in you now. But if you double again, which that particular founder's been doing, you double again, you're now in their their sweet spot where they need they need to know your, you know, who you are, what your background is, what your company's capable of, where you're going, >> and that's going to be the sweetheart deal. >> Yeah. >> Have you started those conversations? And so that's something we often tell founders is like, >> don't wait until you want to sell to start building relationships, especially with strategic. Private equity can be transactions. You don't have to buddies with them right away. uh it's helpful especially if they're like industry you know leaders and they have a you know an influence in the industry that you're in but if it's just a regular you know financial buyer private equity maybe not too big >> but those strategic relationships are super valuable to start as early as possible be on their radar build the trust with either the product owner or like you know the product leads or the executives that are in you know the category of the business in addition to corp dev uh and that's how we ended up selling to Walmart is because we had those relationships >> and started those relationships early as possible technically with the intent to sell to them. Yes. >> Uh they didn't know that but we did. >> Yeah, I totally agree. Again, there's this sort of like mindset which um is very prevalent and and somewhat I think it comes from from VCs who of course are incentivized to have founders thinking only about this massive bonanza exit at some point in the future that founders are sort of laser focused on that and then sacrificing thinking about an exit and planning for an exit which my point of view is you maybe not from day one you know I don't think there's anything wrong thinking about it from day one and sort of planning for and thinking about what that exit could look like and making moves so that you're you know optimizing the business towards um characteristics that will be appealing to achieve that outcome. I don't think that there's any downside in uh in doing that. And um and again sort of you know I wish that I had known about you know or had been speaking to people that helped me to go through a capital strategy assessment um when I was building uh businesses in the past because it's just an incredibly illuminating process to go through. And um you know I I think that um for us it's just like a we just love the game. Like it's such a joy to speak to founders about their business and sort of figure out um you know what the levers are, you know, why they've hit certain walls or what the threats are to sort of dive deep into the the sector and the industry and figure out you know what the steps are to to get to that sort of outcome that they want to achieve. For us it's just like you know it's a passion. um we've been through it many many times and um again it kind of goes back to founders not you know they don't know what they don't know and unfortunately I think most boards are so badly constructed that they don't help founders to tackle any of this kind of stuff you know in fact they're often a hindrance to them having these conversations and making you know things happen which will allow them to maximize an outcome maybe it's not going to be billions of dollars but it could tens to hundreds of millions and uh unfortunately boards are not really set up to to achieve that. So we kind of operate as an external neutral party that is very much incentivized around getting the best possible outcome for the founders. You know, I'm so glad you said this. This is obviously a very sensitive subject for me because I lost seven figures due to my board um blowing up a deal before we sold to Walmart and all due to their degree and misunderstanding of the market market dynamics and their incentive. Their incentive was billionaire bust. >> Yeah. >> And that was not in the cards for us. Like I knew it, my co-founder knew it. Yeah. Like we were not selling, we were never going to get to a billion dollars because our competitors were moving too fast. Our competitors were Nvidia, Microsoft, >> Google, you know, it's like we had to sell with someone with the giant war chest to have a shot >> and Samsung tried to buy us uh and the day that we didn't get to sell because um uh our board basically delayed the deal by 3 weeks asking for more money, which went behind our back, did not discuss that with us. Just went straight to the um you know, Samsung Corp dev and said, "We we've been hitting all our numbers. we deserve more. And they came back and spent 3 weeks and came back with the answer of no. >> Yeah. >> And and then we were delayed three weeks. And guess what happened in those three weeks? This the CEO of Samsung went to prison for fraud or no corruption. >> Yes. >> And um and then our deal died on the bind the day of closing uh because of our board. And fortunately, our board then kind of backed down quite a bit. But they forced a crappy banker on us that we didn't like that didn't offer any value. uh we couldn't go and chop around. It was just, you know, and not every board's but cases, >> uh, we run, we struggle this often with founders where it's like they want to work with us, they they they like our advice, but the board will be like, "Oh, go, you know, like you should do it on your own. We shouldn't give up any fees or blah blah blah blah blah. >> Uh, you know, you're the founder, you should be doing this yourself. We don't need no banker." And like, I did it myself or, you know, someone I know did it themselves. It's like, okay, that's nice of you to say, but as a founder and a CEO, >> running a process is a full-time job. >> And on top of that, you have to build your business. You have to grow your business because if your business starts falling flat, then sort of your prospects of an outcome that you want. So, it's better to kind of bring in outside help that takes on the the the kind of the grunt work that's required in a lot of these transactions. It's just a lot of There's a lot of back and forth, a lot of communication. >> Yeah. >> Uh yeah. It just takes forever. And so outsourcing that, knowing that you have a partner you trust to go out and execute while you maintain your objects because if you had hold up your end of the deal, building a great company and continuing the trajectory that you're on. >> Yeah. >> Makes baker's job 10 times easier to go get a transaction. >> Absolutely. >> Whereas by yourself, everything's 10 times harder. >> Absolutely. Absolutely. And you know there's another topic which is probably a topic for another day because it's a podcast in itself is like a lot of these issues are downstream of the initial capital strategy of raising who you raised from it how much what sort of governance rights you gave away at that initial founding point you know like so many founders and again I've been foul to this I've fallen foul to this myself in the past sign term sheets which then result in a lot of downstream problems of you know construction construction of the board, decision-m and government's processes. Um, you basically lose control and you know, all of these things become infinitely harder when you don't have control or when you have bad guidance and governance. >> Yeah, I think that's a that's a good follow-up point to to schedule another podcast and and dive deeper on just the architecture of your cap table. Yeah, >> I think that would be a really good topic of just, >> you know, unfortunately some of your founders, you're already you're already in the bed, you you know, you you're already in the bed you made and you have to deal with those those situations. So then it's just more of a psychological, you know, relationship building and kind of nurturing certain things to kind of navigate the sandwiches you might already be in. >> But early days, like, you know, truly think about your partner, truly think about incentive alignment and what happens if things go wrong >> because everyone thinks about what happens if things go right. But, you know, statistically speaking, they will go wrong. >> Yes. >> So, you know, who do you what in your corner supporting you? So, I think that's a a great lead into a new uh new episode with you, Oliver. So, appreciate that. >> Agreed. >> Well, well, obviously we're all very biased here, Oliver, you and I, uh you coming here representing, you know, Thunder and what we do and and helping support founders in transactions. Uh but with a I I got to go with the shameless plug. If you're a founder struggling with the questions and you issues that we've brought up, you know, reach out. Like we're we're open to to have a chat, you understand what's going on with your business and see if there's, you know, what options might exist, you know, for you and how to navigate those options. So, just reach out to us at thunder.bc, you know, we're happy to to support you. Um, Oliver, it's been great having you on the show. Uh, for for listeners, new listeners, don't forget to subscribe. Uh, you know, give us a like, let us know that this is the kind of content you want to see from us. It's a little bit different than our typical, you know, interview. Uh, so curious to get the feedback from for the community. Leave us a comment. But thank you, Oliver. I will, uh, see you at the office. >> Thank you. Until next time. >> If you were inspired by today's episode, then go ahead, watch this next episode. Promise it's worth it. And if you really enjoyed this last episode and you want to connect with the guest I had on today, make sure to leave a comment down below telling me why you would like an intro to this guest and I'll make it