Thoughts on what it takes to get to a successful exit — it’s called “optionality”
As published on @Betakit on February 17,2017
Entrepreneurs and limited partners often ask that same simple question: “What does it take to get to a successful exit?”
The answer is simple: Optionality.
Optionality for Inovia:
We have the complex opportunity of identifying early stage tech entrepreneurs with whom we gain enough confidence to partner over the long-run. The difficult task of “selecting” entrepreneurs to entrust with the monies that Inovia’s own investors have in turn entrusted to Inovia, is something we take very seriously. It comes with the challenge of seeking out those entrepreneurs with whom we have affinity, chemistry, alignment of interests as well as similar values, and of course, in whose business and markets we believe deeply. We meet a lot of entrepreneurs, but the size of each fund and the time commitment required to back the great ones command us to partner with a limited number of entrepreneurs and thus a finite number of companies per fund. Another challenge is that we need to be “selected” by the entrepreneur as well!
Usually, our nascent partnerships with founders are followed by years of efforts in supporting their companies’ growth and vision. As a VC supporting its entrepreneurs in building category-leading companies, we provide sound-boarding and focus on several core elements: attracting talent, helping build corporate relationships, developing internal corporate machinery such as sales processes, financial and business planning, and compensation structures, and attracting growth capital.
The exit stage is just as complex, and a whole new set of dimensions come into play. We believe “exit” isn’t the best term as entrepreneurs shouldn’t have to “sell” their companies, but rather get acquired, or have the opportunity to IPO in order to enable their next chapter of expansion.
But let’s face it, for a CEO to get into the mindset of early relationship building that can bring offers to the table is often new, and frequently seems difficult. Building towards optionality is time-consuming because it requires resources and can distract from the daily operations. However, for a CEO, having enough alternative options to be able to “say no” to an inbound proposal (whether of financing, acquisition, or some kind of partnering) is pretty powerful.
Optionality for Luxury Retreats (now part of Airbnb):
We had the opportunity to meet and build a relationship with Joe Poulin, Founder and CEO at Luxury Retreats, starting back in late 2010. Joe hadn’t raised any venture capital at that time and he had the option of choosing investors to fund his vision. Our relationship building resulted in an investment in early 2012. With sufficient capital on hand, Joe started pulling together a high-quality board of directors: Peter Kern (Expedia board member and media expert), Hugh Crean (CEO of Farecast acquired by Microsoft) and Bertrand Cesvet (CEO, Senior Partner at Sid Lee and branding guru). I (Inovia co-founder and entrepreneur) also had the pleasure of joining as a member of the board. The composition of the Board was in line with the vision that Joe has set early-on, as well as the expected growth challenges ahead.
Then came actions to solidify the team in order to build for growth. Over the following few years, Inovia actively worked alongside Joe and the board in helping attract a stellar executive team with deep sector expertise (including executives from vente-privée, LesConcierges, Air Canada and Aldo). It wasn’t easy by any means, it took a few rounds before attracting the right team members, but we eventually got there.
The Company was solicited a number of times over the years to be acquired and this led to some deeper thinking. It forced Management to review the growth path the Company was on and take decisions pertaining to how it would move to the next level. This ended up accelerating the Company’s second financing round, led again by Inovia, in 2015. This time, we invited three of our limited partners (Inovia investors) into the round to invest alongside the Fund and this led to the financing closing internally.
During this whole time, Joe never strayed from his original vision of owning and developing the most exquisite luxury travel experience for his guests. His ability to attract top talent, develop technology-enabled experiences for relationship and concierge management, and build strong strategic relationships proved extremely valuable. Building strategic partnerships was second-nature for Joe. Luxury Retreats partnered early on with HomeAway, VRBO and Airbnb for reach and distribution.
As CEO and co-founder of a profitable company, Joe evaluated every acquisition proposal and financing offer as if it were the last. While building something the market valued and, ultimately, Airbnb found irresistible, he entertained relationships and made sure the competition and deep pocket acquirers knew about Luxury Retreat’s performance and results. He also made sure investors and key industry players knew the company was empowered by its team’s execution abilities, and that they had a stream of inbound exit opportunities, as well as financing options. These relationships are developed over long periods of time and generally entail a working relationship first. This allows each side to get to know each other better and, more importantly, discover the strategic value you can bring to a potential acquirer. It takes unique skills to build viable options prior to engaging the Company into pursuing any of them. Sometimes, founders tend to focus on a narrow set of options, but Joe mastered them all.
Optionality proved to be one of Luxury’s biggest strengths when Airbnb knocked at the door to investigate how much deeper the initial commercial relationship could go. Joe’s vision for luxury tourism services was crystal clear and I’m sure Brian at Airbnb fell in love with it, along with the quality of the management team and the high growth potential of combining both companies. The alignment of interest and key assumptions reminded me how we (Inovia) also feel when we decide to back an entrepreneur.
To be acquired doesn’t mean that the company first have to be put up for sale. But as a CEO, it does mean having the opportunity to review and decline an unsolicited offer. And being in a situation of optionality requires an investment in time and effort towards building key relationships along the way. We are really proud to have worked tirelessly together with Joe Poulin, Gian Carlo Di Tommaso, Julien Zakoian, Nick Guezen, Amr Younes and the rest of the board to make this happen. Over a little more than five years, we’ve seen a highly promising company evolve into a highly successful one that decided to further its growth by joining Airbnb, another amazing company.
With the Luxury Retreats transaction, Airbnb will gain access to over 4,000 of the best properties in the world, unique technology and the knowledge of 260 key employees with deep luxury travel and concierge expertise, the vision and clear understanding of an executive team that can grow this segment like none other in the industry.
Impact for Montreal and Future Growth:
Luxury Retreats is the second transaction Inovia has been involved with alongside Airbnb — the first one being the sale of Localmind, another Inovia portfolio company back in 2012. Localmind was a much smaller company also founded, funded and launched in Montreal that benefited early on from a strategic relationship with its acquirer. The difference between the two is that the Luxury Retreats’ technology talent footprint and deep industry expertise should lead to even further growth in both headcount and ecosystem relationships in Quebec and Canada in the coming years.
As a Montrealer, I’m extremely proud to see Airbnb now having such a substantial footprint in our backyard. Great ecosystems develop when these kinds of transactions happen and we’re excited that Montreal has once again raised the bar. Joe Poulin and Gian Carlo’s active angel investing and local implication will only further fuel our already growing tech community. I think that this acquisition could have a multiplier effect on the Montreal tech ecosystem, and we anticipate startups will reap the rewards of having an anchor tenant join the Montreal community for decades to come.
In summary, a company should never have to be up for sale. GREAT COMPANIES ARE ACQUIRED NOT SOLD. Forging strategic relationships and having options at every step of the way helps build great value. But none of that comes without a clear vision and execution.
Congratulations to Joe Poulin & the amazing Luxury Retreats team as well as Brian Chesky and the Airbnb team for such a great transaction.
