I Sold My Startup for $25.5 Million

What you realize, though, is that partnerships are rarely a real thing.

This is tangential to the core of the article but I can't stress enough how true this is. In the two companies I've co-founded, we've been approached for partnerships by huge companies (Oracle and Adobe) and tiny, 1-person, pre-revenue shops. In almost every instance, it's been a net loss in time and money. The tiny shops just want help making inroads into your industry and customer base. The huge companies just want to show they have "partners" to their direct reports or sales leads. They'll ask you to build out some integrations (on your dime) and scrap the entire project 6 months later (true story). To them, it's a rounding error but to a startup, the financial and opportunity costs can really hurt. There's a reason Gail Goodman calls partnerships a "mirage" [0].

It's great that this call turned into an acquisition for Perfect Audience. I would advise everyone to take Brad's advice: take the call and maybe a meeting–but just one. Unless the meeting goes well and the strategic fit is too obvious to ignore, just say "no" to partnerships.

[0] VIDEO: http://pawel.ch/post/71104054756/the-long-slow-saas-ramp-of-death-i-have-just [0] TRANSCRIPT: http://businessofsoftware.org/2012/10/gail-goodman-the-long-slow-saas-ramp-of-death/

This is a success story no doubt; a $25 million exit in under 3 years and with just ~$1 million in funding is obviously a better outcome than what the vast majority of startups will ever realize. But it also highlights just how hard it is to realize a meaningful windfall as a startup employee.

Even if you assumed that the 12 non-founder employees equally split 50% of the company (which is almost certainly high), likely none would net $1 million after exercising their options and paying taxes. What's worse: the vast majority of this deal was paid for in stock. The Marin Software stock chart over the past two years is not very inspiring, which is especially interesting given how good the market has been to so many other tech/software companies. In an all or mostly stock deal involving a public company, you are ideally acquired by a company with a rich valuation. That's not the case here.

The $2.7 million in equity retention grants, if split equally amongst 12 employees, adds $225,000 for each, but that too is stock and the employees have to stick around and work for it. I don't know much about the acquirer, but working for stock that has for some reason languished during one of the most impressive bull markets in history isn't a very compelling proposition.

This all seems lost on the founder of the company. I can't help but wonder if it's lost on the employees too.

The really critical point I'd like to highlight is this one:

Marin’s team sent over a list of hundreds of technical, legal, and business questions that we’d need to answer for the deal to go through...Tracking down document after document was tedious beyond compare.

Having your ducks in a row as much as possible can make a huge difference in the complexity, risk, and overall stress of doing a sale/acquisition.

I don't mean Day 1, of course, but once you're starting to have conversations around acquisitions, it's really helpful to make sure your books are clean, that you have clearly documented your software stack, all of the third-party code you use and licenses, all of the contracts and MSAs you might have signed iwth your customers, employment agreements with contractors, and so on.

It's annoying, but once you have it done it's relatively easy to keep up to date.

When we sold our last startup, our CFO had done this 10+ times before, and on the first day of the due diligence, he handed over a URL for a data room with hundreds of documents, categorized and neatly organized. The acquirer's lawyers said it was the easiest DD they'd ever seen.

EDIT: I sentence misplaced words in a

Yeah huge tech firms reached out to our company. After going out of our way (many miles) & spending a ton of money to demo they were horribly rude. They literally took their huge name/foot and squashed us like a bug. They promised us the moon and the sun and when we arrived it was hell with how they treated us. Saying things as they showed us to door... "You better run fast the race is on." This is after they baited us for our secret sauce with promises of helping us out and or more (we didn't divulge everything). Also, they blocked our tech from working during our demo (wth?).

Well after that experience when other big tech firms reach out .. one recently asking let us understand how your technology works. I'm like HA screw you!

Partnerships are a time sink. One that could go nowhere, get you feeling squashed like a bug or actually provide a win.

Though that's how it all goes with this entrepreneurship game. Game on!

"One thing that did cut through the exhaustion was a task I’d been anticipating for more than six years: writing the Facebook post in which I announce to friends, former friends, frenemies, ex-girlfriends, college roommates, future wives, and family members that I was not in fact an obscure failure but a new, minor footnote in the annals of Silicon Valley startup successes."

Amen. This has been personally the hardest thing for me about being a tech entrepreneur. My friends all assume that overnight I'm going to be the next Zuck (I'm not) and wonder why I don't have time for them. Let's take aside the fact that I'm a fairly privileged person, it doesn't negate the fact that putting my heart and soul into a startup, means many of my relationships have taken a back seat. That sucks, but you soon realize the relationships that are most important to you will ultimately wait.