The many faces of optionality — Exit Insights Part II
Would you recognize optionality? Sometimes its staring at you straight in the eyes.
For VC funds and founders, each exit provides for a unique story. How much of the exit process is at the discretion of the founder, the CEO, the Board, or the investors is entirely fluid, and stems from good relationships and a willingness to keep dialog open and options on the table. All of this is to us, “optionality”, something we see as key to a successful exit.
Building skill and success with optionality requires facing challenges and exploring opportunities that aren’t always immediately apparent.
At Inovia we make a practice of conducting internal and external post-mortems after exiting a company. Learnings that come from these sessions have been extremely valuable for us as a team and as individuals, allowing us to sharpen our skills, and over time, to help us build better optionality across our portfolio.
The recently announced Well.ca acquisition by McKesson Canada, a business unit within the global supply chain and healthcare leader McKesson Corporation, represents Inovia’s 8th exit this calendar year. While each transaction has been invigorating, some have provided notable insights, which we are sharing in a series on optionality. We first offered a reflection in my February blog post — “Thoughts on what it takes to get to a successful exit — it’s called “optionality” — using the acquisition of Luxury Retreats by Airbnb as the business case. Today I’ll share some of our recent learnings from the strategic acquisition of Well.ca by McKesson Canada.
Well.ca — delivering health and wellness
We first invested in Well.ca in October 2010, when the company was headed by its founder, Ali Asaria. At the time, it was an early entrant to Canadian e-commerce, and was primarily a technology company. Ali and his team had the goal of improving Canadians’ health and wellness through home delivery of health products and a great online user experience. Seven years later, the Company, led by Rebecca McKillican and Erin Young, is one of the most recognized e-tail brands in Canada and a brand which is consistently recognized by Forrester Research as being in the top 5% of all brands in Canada as it relates to customer experience. The company has shown constant, strong, year-over-year growth and profitability — driven by incredible customer loyalty and satisfaction, rigorous performance against KPIs and consistent delivery against the stated brand promise. And it now has a team over 250 people in Guelph and Toronto.
Adapting to change — when the option is staring at you
After Well.ca’s three strong early years, the global e-commerce market was becoming exceptionally more cut-throat. This was due to the fact that a large number of companies had launched from 2003–2013; venture capital to support their vast needs was drying up; and perhaps most importantly, Amazon was becoming more aggressive and more ubiquitous.
A lack of capital combined with an expanding competitive field drastically pushed valuations down. Burning cash in return for high month-over-month growth was no longer under consideration, and Well.ca needed options. While technology was part of the company’s early success, it was suddenly clear that a best-in-class, embedded technology team was perhaps not mission critical for the next stage of growth. Initially it felt counterintuitive to spin off the core team, but through an honest assessment of the changing marketplace, we all saw this was the best option. We arrived at this decision in partnership with the Board and Management — and eased the exit by providing Ali seed funding as he became President & CEO of a new retail mobile-first, cloud-first enterprise software company called Tulip.
This decision was a pivotal “first exit” for Well.ca. It allowed the company to reduce its burn rate and created a domino effect on other decisions that created new opportunities. Suddenly Well.ca had more flexibility to focus on customers and find its niche. Rebecca McKillican signed on as President & CEO, after having just moved back from the United States, where she was part of the KKR Retail team. Erin Young, previously with McKinsey, joined and led retail strategy. Under new leadership, Well.ca honed its focus on online services in health, beauty, baby, home, and green / natural products — making it possible to better target a defined customer base of professional working women between the ages of 25–45. Within one year, the company was profitable and growing at 40%.
Learnings: In retrospect, the critical option of management change and in re-evaluation of the company’s core competence seems natural and obvious. At the time however, seeing through the fog of profitability required extremely hard decision-making. It required commitment on all sides to intellectual honesty about the market and very strong collaboration and trust between the stakeholders. Optionality stemmed from both trust and honesty.
When optionality becomes part of the process — the painted picture
Management built a 5-year plan and presented it to the board. Rebecca and Erin pulled together an inspiring newspaper front-page business section mockup article on Well.ca, dated May 22, 2022. The visioning article was titled “Wellness Truly Delivered!”; they went into detail explaining how the company would continue to evolve and be a world-class leader in customer experience, in turn driving incredible customer and revenue growth, and continuing to deliver on the brand promise everyday to every customer
If you’ve never heard of the « painted picture » approach towards managing individual and company goals then you are missing out on an extremely powerful tool.
Once the plan outlining the next phase of growth for Well.ca was developed, there were some key decisions to be made, including whether to look at various sources of equity financing, or to look at alternative strategies such as an industry roll-up in conjunction with private equity financing. A roll-up strategy was an option with significant merit as it would enable the company to access capital for acquisitions, operations, and also a potential secondary.
Management used this growth plan to build strong working relationships with various strategic partners with whom they could potentially work with to execute and accelerate this plan. Hand-in-hand with the 5-year growth plan, Management began creating more options for partnerships and growth.
With further hindsight, we were lucky to have a solid board of directors in place, with two independent members having retail and transactional expertise, the founder, the CEO, and one investor representative. This board structure made meetings efficient and decision-making a quick matter. David Ceolin, an early angel investor, further supported the board and Management throughout the strategic planning process. His input was extremely valuable and helped guide the Company forward.
Being highly data driven, Rebecca and the team understood their business better than anyone. Combined with the strategic relationships built over the last year, and the new market dynamics (like Amazon’s aggressive developments in Canada), the Company started getting approached by retail giants from Canada and across the border with an interest in acquisition.
The Company continued business as usual with its hiring plans and attracted Nikhil Handa (formerly of Restaurant Brands International — Tim Hortons) as VP Finance, and further promoted key personnel critical to the success of the company including the VP of Marketing and the VP of Merchandising. By continuing to build and invest in an A+ team, Well.ca made a bold statement that it was accelerating its growth plan. This was a clear signal to the market and interested parties, showing that we were building this company, not selling it. It turned out to be more than just signaling. The ace team followed through on the 5-year plan, hitting budgets month after month after month. These combined strategic and tactical wins kept optionality — and the soul of the company alive.
Learnings: Long-term vision and execution attracts much better short term acquisition and financing offers.
When the moment was right — McKesson Canada knocks
McKesson Canada has been a long time partner of Well.ca. In fact, the relationship goes back to the Company’s inception within Ali’s father’s pharmacy, when they became Well.ca’s first distributor and enabled the launch of the Company as an e-commerce platform. So when Domenic Pilla, President & CEO of McKesson Canada reached out to enquire about a strategic relationship which could result in an outright acquisition, Management was already receptive to this option seeing the clear benefits McKesson Canada could bring to the Well.ca brand and platform.
Fueled by the mounting media coverage of Canadian retail activity this year, including the pervasive actions by Amazon in both the USA and Canada, two other strategic Canadian retailers, as well as one large American and Canadian retailer demonstrated a high level of interest. It’s no surprise to me that they initiated discussions with the Company’s founder, Inovia, and Management. These discussions cumulated into multiple offers to acquire the Company.
Optionality was becoming real. And, as a testament to our vision around the meaning of optionality — it wasn’t the valuation alone that triggered the sale to McKesson Canada. Instead, it was the combination of price and chemistry between the two management teams, and the mutual long-term vision for the brand and Well.ca employees. Quality exits like this don’t stem from a “for sale” sign tacked to the door: they take years of strategic partnerships, hard work and conversation. The McKesson Canada team showed leadership, determination, and transparency throughout this process.
It has been a privilege and an honour to work with Rebecca, Erin, the entire Well.ca team and the Well.ca board of directors. McKesson Canada is fortunate to have such an amazing team driving part of their digital future. Congratulations to all involved in recognizing true optionality among major restrictions and challenges and getting to such a great outcome for the brand, the customers, the employees, and all stakeholders. Thank you Ali for letting Inovia into your company and for letting us play a role alongside Management and the board in forging together an amazing company.
In many ways optionality means “remaining in the driver’s seat”. Startups can do this, and VC firms can support founders by helping identify clear goals, focus efforts on core competencies — as they relate to real market conditions — and put in place what is needed to execute on a strategic vision. It also means building trusted relationships with people, employees and companies that make sense now, and that may make much more sense years from now. More often than not, the options are staring at you right in the eyes, but you can only see them if you help to create them.
And that’s just what this team did!
Relevant articles:
● McKesson Canada Acquisition of Well.ca official press release
● Betakit: Well.ca acquired by McKesson Canada
● Thoughts on what it takes to get to a successful exit — it’s called “optionality”
● Exit Preparedness for Venture-Backed Startups — And Why It Matters
