In early May of this year, the team at ClassOwl was running low on energy, morale, and most importantly, cash. We had 90 days of cash left in the bank. We came together as a team and decided we were either going to sell the company or return the remaining funds to our investors.
One month later our team accepted an offer to be acquired by Branch Metrics, one of the fastest growing companies in the valley. If you’re unfamiliar with Branch (branch.io), it’s a free deep linking service used by thousands of apps to increase user growth and retention.
This is the story of our acquisition based on first-hand experience and advice we received from advisors, investors, and executives at companies like Facebook, Google, Pinterest, Uber, and Stripe.
It’s worth noting at the outset that this was a talent acquisition (“acquihire”). There’s a great post by Founders Fund’s Geoff Lewis on selling & other types of acquisitions available here.
1. Set a “sell by” deadline
The first thing we did was set a deadline: the date by which we had to accept an offer. We set our deadline to 30 days from when we started. This may sound aggressive, but when you factor in how much time and energy it requires, anything longer would have been disastrous.
The deadline was important for two reasons. First, it helped us filter out companies who were not genuinely interested very quickly. If they can’t push a deal through in 30 days, they’re probably not interested in acquiring you. Second, it kept the team motivated by giving us something concrete to pursue every day. We accepted the offer from Branch on the date of our deadline.
2. Create a sales funnel and fill with potential acquirers
We put together a spreadsheet and created a funnel with 7 Stages:
- Awaiting Intro
We found someone in our network that was able & willing to make an intro to a specific person at the potential acquirer
- Contact Made
An intro was made and we’re awaiting response
- Initial Interest
We chatted with them by email or phone and they were interested in meeting us in-person
- Social Fit
We meet and like them as people, and could see ourselves working alongside them
- Technical Interviews
- Offer Made
A written offer has been made
- Offer Accepted
Offer has been accepted and sent to lawyers to formalize
To fill the funnel, we got together as a team and created a list of general things we agreed were essential in what each of us wanted to do next. We were only interested in entertaining:
- Companies in Silicon Valley or NYC
- Companies with product-market fit
- Companies with 20+ people
- Companies building web/mobile products
We came up with 42 companies that matched our criteria. Many were the usual suspects — Facebook, Google, Snapchat, etc — but the majority were fast-growing startups like DoorDash and Stripe. Having this list allowed us cast a solid net very quickly and we were able to have conversations with 38 of them in under two weeks.
Be exacting in your criteria. The more you know about what you want, the easier it will be to sell the opportunity to potential acquirers.
3. Put together a one-pager on your team
One of our advisors, Jason Shellen, has had a few of his companies acquired, most recently by Pinterest. The first thing he advised us to do was create a one-pager: highlights on the team as a whole and a paragraph bio on each person.
This comes in handy with the next step.
4. Get high quality intros to the most senior people you’re connected to in each company
At major companies like Facebook, Uber, etc., we tried to meet someone involved in M&A. This can be a high level product manager, engineering manager, CTO, CEO. At hyper-growth startups like Branch, we were introduced to the founders through friends who work at the company (Derrick Staten connected us to Branch).
The people you’re talking to matter tremendously; if they don’t have “buck stops here” decision making power, move on.
Comb LinkedIn, hit your network, ask around, be honest with your situation. Figure out who knows who and who can get you in touch with the right person. Be relentless on this step.
Once initial contact was made, we would send the one-pager on our team and ask if they’d like to meet in-person to gauge social fit. This step quickly filtered out 26 of the companies (which is good, you don’t have time to waste).
5. “Ask for money, you get advice; ask for advice, you get money”
Yes, you’re selling your company. Be up front about it. But don’t go into the process selling non-stop, it’ll make you look desperate. Like the VCs say: “Ask for money, you get advice; ask for advice, you get money.” The same applies when you’re selling your company.
One of the best conversations we had during the process was with Avichal Garg from Facebook, head of product for Profile, Local, and Events. Avichal generously gave us an hour on a Saturday morning to advise on a bunch of little things that we would have overlooked (many of which you’re reading here).
All of the people we went to for advice ended up being incredibly helpful — investors, advisors, VCs, mentors. The more honest we were about the situation, the more help we got with introductions, interviews, advice, and support.
6. “We don’t pay for startups”
You’ll hear this from every company. It’s a lie.
It is true that major tech companies aren’t paying the $1m per engineer like they were back in ’11 / ’12. This happened for various reasons: many acquihires ended up being a bust, companies realized it wasn’t the best use of capital, there are many more failing seed-stage startups today than back then, etc.
However, if a company likes your team enough, they’ll make an offer. It’s totally dependent on how badly they need you.
The key thing here is to understand which companies will pay and which companies won’t pay. The easiest way to tell is to look at how quickly they move your whole team along in the interview process. Moving team members along individually and at different rates was a sign that there was no real interest in acquisition (just in individual hires).
7. Get to in-person interviews as quickly as possible
Despite companies saying they “don’t pay for startups”, nearly every company we were introduced to asked to interview us individually (our team consisted of three engineers and one product manager). We accepted as many as we could schedule in a 2-week period.
Those two weeks were hell. Interviewing for a job after spending two years raising money and managing employees wasn’t easy. What helped calm our nerves was researching each company and the people we were meeting with before walking in.
The interviews would typically consist of a phone screen, a take-home project (usually taking 2–3 hours), and a full day of in-person meetings. On the acquirer side, we found it made the most sense to bring our whole team in for a 3–5 hour block and do all interviews at once. It made things easy for us to schedule and the team could spend time before/after evaluating the company.
8. Getting to The Offer
We received our first offer two weeks into the process. It helped boost morale and create momentum to get other offers on the table.
Every offer we received had one theme in common: acquiring our team would accelerate the acquiring company’s hiring process by 6+ months. This is something companies are willing to pay for, either in cash, stock, or a mix.
This is the most difficult section to advise on; every startup is unique and every potential acquirer is looking for something different. At Branch, we were able to fill positions they were thinking of hiring for 6+ months in the future.
If you can make a company grow faster — i.e. make them more money or make it easier for them to raise more money—then there’s a clear path to an offer. If you can’t, an offer probably doesn’t make sense.
9. Choosing the company
Choosing the company was very difficult. We received three offers and they were each structured differently — payouts to investors (cash, stock, mix), signing bonuses, salary, stock options, etc.
During this time, we kept asking ourself the question: If it weren’t for the acquisition, would we join this company on our own?
We were encouraged to ask this question by our investors. Most of them had invested in companies that had been in similar situations, and the overarching advice was to do what was right for us personally. After all, if it wasn’t a good fit, we wouldn’t stay long enough for investors to get anything out of the acquisition (there were earn outs for our investors in every offer).
After a week of deliberation, we were all in agreement that Branch was a great personal fit for each of us. After some back and forth around a few key points in the offer, we accepted. This happened right on Day 30, our deadline.
But wait, it’s not over! Once we accepted, it was time to get the lawyers involved to formally close the deal.
Looking back, we should have had all legal docs in place before accepting; we lost all negotiating leverage the moment we accepted the offer.
Fortunately for us, the Branch founders are honest, upstanding people and didn’t mess with us in the next phase.
10. Closing the deal
Both sides worked hard to wrap up the deal as quick as possible. We were/are Branch’s first acquisition and neither side had experience with this type of transaction before. We relied heavily on good counsel and were frank with our lawyers— time was a real constraint.
It took an additional 30 days from the day we accepted Branch’s offer to the day we signed the final paperwork. Make sure you have enough cash in the bank to hold everyone over during this period.
We received counsel from Matt Bartus and Eric Batille of Cooley LLP and could not have been happier with the work they did.
I dug up our spreadsheet with the funnel and potential acquirers, and here’s how it played out:
- 42 companies in funnel
- 4 never replied
- 26 ended after initial contact (no interest or bad timing)
- 5 ended after social fit meeting
- 4 ended after technical interviews
- 3 offers made
- 1 offer accepted
As you might imagine, it was a crazy & stressful 30 days. Take time for yourself and try to exercise every day. On one interview-free day, we all rented tandem bikes and cycled over the Golden Gate Bridge. Take your team out to lunch and dinner and thank them for sticking around — each person could easily leave and get a job on their own.
With a little bit of luck and a lot of will power, we were able to push the deal through and are thrilled to be working at Branch today.
Here’s how we did on our criteria:
- ✅ Silicon Valley or NYC: Branch is in Palo Alto
- ✅ Product-market fit: Branch is growing exponentially
- ✅ 20+ people: Branch is ~45 people
- ✅ Web/mobile product: Branch is an SDK for mobile apps
To anyone out there in a similar situation: take a deep breath. You’ll be ok. People want you to succeed and will be there for you. Always feel free to reach out to me (firstname.lastname@example.org).
Finally, if you’re building a mobile app, I would love for you to check out Branch Metrics. It’s completely free and will help your company grow faster with deep links. Thank you!
Thanks to all who helped review drafts: Alex Austin, Avichal Garg, Charlie Guo, Claire Torchiana, Jonathan Hsu, Kevin Xu, and Michael Solana
And special thanks to all who helped in our acquisition: Julienne Lam (ClassOwl co-founder), Tim Shi (who intro’ed us to Derrick), Derrick Staten (Branch), Jason Shellen (Pinterest), Avichal Garg (Facebook), John Collison (Stripe), Ed Baker (Uber), Kirill Makharinsky (Enki), Jonathan Hsu (Social Capital), Dan Rummel (Shyp), Mani Kulasooriya (CAKE), Jim O’Connor (CAKE), and the entire Branch team.