The Agony and Ecstasy of Selling My First Company

Several years ago, Alex Iskold wrote a great overview of What It Is Like To Sell Your First Company. I thought it was a great description and encourage every entrepreneur who has never been through the sale of a company to read it.

Rereading Alex’s post inspired me to write my first person account of selling my first company. I’m sure I’ll get stuff wrong since it was over 21 years ago (I was 27.) But I’ll try to capture the good stuff that I can remember, especially since I know I had absolutely no idea what I was doing and could only rely on verbal conversations with other entrepreneurs I knew to help me figure things out since there was no web, no real books to read, and entrepreneurship still wasn’t a word being used regularly. When I reflect on it, independent of the modest economics, the experience changed the trajectory of my life in a very powerful and positive way, even though it was an extremely confusing time for me.

It 1993, I sold my first company, Feld Technologies, to a company called Sage Alerting Systems (which, after several name changes, became AmeriData Technologies.) It was a six month journey for me and my partner Dave Jilk which was at some points exciting, often stressful, and occasionally extremely confusing. It didn’t help that I was in the middle of a deep two year depression which I kept hidden from everyone in the world except Dave, Amy (who I was living with at the time before we got married), my parents, Eric von Hippel (my PhD advisor), and my therapist.

It started, like many things, completely randomly. When we installed a network for a client, we used a company called Allcom (run by two brothers – Jim Galvin and Mike Galvin.) They were great guys, easy to work with, and we sent some business back and forth. This was before WiFi networks so the cabling jobs, especially in downtown Boston, were never trivial, especially in the older buildings. One day, Jim called me and said something like, “Brad – we’ve been acquired and the chairman of the company wants to get together with you for lunch.” At the time I had no real idea what this meant, but figured, what the hell, I’ve got to eat.

I had lunch with Jim and Len Fassler at a restaurant near our office by South Station in downtown Boston. I can’t remember the name but it was a funky place I went to all the time. Jim and Len showed up a few minutes after me and we sat at a table. Len looked like a cross between a powerful New Yorker and Yoda – sharply dressed in his jacket and tie but short and with a friendly face weathered from experience. I was nervous. Very nervous.

We ordered and chatted for a little while. Len asked me softball questions about myself, Feld Technologies, what we did, how we did it, how many people we had, and what our backgrounds were. I can’t remember if Dave was there, but I don’t think he was. In the middle of lunch, Len said, “Jim speaks very highly of you. We’d like to buy your company.”

I was in the middle of a bowl of soup. I remember having to use all my self control so it didn’t get spit out all over the table. I wasn’t expecting this in any way, shape, or form.

We kept talking. I asked a bunch of naive questions, in the form of “What do you mean?” I remember feeling completely clueless and out of my depth. Len explained Sage Alerting Systems’ strategy, talked about how as a public company they were doing a rollup and growing quickly through acquisition, and said they were looking for a lot of small companies in the IT services business. They’d acquired a few companies so far and had LOIs out to a few more. They were really happy with Jim, Mike, and Allcom and wanted to buy more companies in Boston. I learned that they weren’t in New York, but were in Stamford, Connecticut, which I’d never been to.

Lunch ended and Len told me to think about it and call him if we were interested. I don’t really remember the next few conversations with Dave and my Dad (who was an advisory and co-owner) but I do remember a lot of vacillation on my part. Eventually Dave and I decided to go to Stamford to visit Len and his partner Jerry Poch.

We made the drive down on what I remember was a brilliantly sunny day. We didn’t really know what to expect, but when we got to Sage’s office, it was a mad-house of phone calls, people moving from room to room with stacks of paper, and rapid discussions. It was a small but lovely office overlooking the Stamford Canal (I think the address was 700 Canal Street). Len’s assistant Mildred, who I ended up getting to know pretty well over the years, greeted us and put us in the big conference room, which wasn’t very big. A new guy I hadn’t heard of yet named Jerry LeBow came in. Jerry, along with Len and Jerry Poch became a very close friend over time, but in this meeting we just sat and listened to him tell us about Sage Alerting Systems (which he was President of), the emergency warning system (which he knew more about than anyone else on the planet), and the technology he was working on. It was a one-way conversation and it became clear at some point that Lebow was filling up airtime while we were waiting for Len, but that was ok because it was interesting and we were nervous.

Eventually Len came in, apologized for keeping us waiting, and sat down to business. He’d asked us to bring our financing statements so he could look at them to come up with an offer. We gave them to him (no NDA required – we didn’t even know, or care, what an NDA was) and he started going through them. We always had very clean financials because we took it seriously so he quickly sized up our income statement and balance sheet. He asked us a few confirmatory questions, including how much salary we were each getting paid, separate from any distributions from the business, which was $100,000 / year each.

He turned over a piece of paper and scribbled an offer on it. It was 40,000 shares of Sage stock, options for another 40,000 shares of Sage stock, the cash and working capital on the balance sheet (which was about $250,000), salaries of 100k for year 1, 110k for year 2, and 120k for year 3, and 10% of the profits of our group going forward. I’m 99% sure that was the offer, although Dave might remember something different, so it’ll be interesting to see if he weighs in here and corrects us.

Len explained that was their formula for doing deals – 2x multiple of Net Income + balance sheet cash + a three year employment deal. At the time, Sage stock was around $6 / share so it was like a $500,000 offer for the business, half with cash that we’d already earned but had tied up in the business, but upside in the stock and the options. Len made the point that the stock and the options had a lot of upside.

By this point I think Len could have offered us $1 for the business and we would have taken it. We were both totally burned out running the company, had never really thought about the business, were excited about the idea of being able to sell it, and entranced by what was going on around us. Remember that I was very depressed (although I used up all my energy not showing it) and I’m sure Dave was totally worn out from dealing with me. I knew I liked Len from lunch and fell in love with him in that meeting, a love which endures to this day.

Len didn’t propose this as a “bid/ask” type offer – it was a very soft, straightforward “take it or leave it” offer – and it was clear that they were doing lots and lots of transactions and if we weren’t interested, that was fine and they’d quickly move on.

Suddenly Jerry Poch came in the room. In contrast to Len’s calm fatherly approach, Jerry was awesomely full of fire, power, and energy. He was loud, aggressive, and enthusiastic. He knew about us, even though we hadn’t met yet, told us how excited he was to be talking to us, and mentioned how the Galvin’s thought we were great and hoped we could do a deal together. And, before I knew it, he was gone, off to the next thing.

I remember meekly telling Len to send us an offer. I remember shaking hands and vaguely felt like we’d just agreed to a deal. We said our goodbyes, Dave and I left the office, and went to our car for the three hour drive back to Boston.

to be continued…

  • To Be Continued??? You are killing me here!

    • HAH! There’s a lot more and only so much that I could write today…

    • Sachin Patel

      Agreed! That was beautifully written. Looking forward to the next post.

  • josh

    you would’ve made a greater writer for LOST… excited to read part2! did you research all the other companies they were buying to see what your upside actually was?

    • No. I was painfully naive at the time about how to even think about any of this stuff. I did talk to a few of the other company founders (who I mostly liked) and read all the public filings, which I generally understood but didn’t have a ton of information in them.

      • josh

        i think generally everybody’s painfully naive at the beginning of a journey, sounds like you followed your intuition and continually improved. thanks for great posts, looking forward to p2

      • I hope one of the future posts will be about things you learned from the deal that the wiser more experience Brad would have wished he’d done or at least considered doing.

  • DaveJ

    I was not at the first lunch.

    So I still have the deal books, and I also have my tax returns from those years so I can infer some prices and such. 40,000 unregistered shares is correct. The earnout options totaled 45,000 shares, 15,000 each year; they were subject to meeting profit targets which we did for at least the first year ($320K yr 1, 400K yr 2, $480K yr 3). The working capital cash distribution was about $350K. I don’t think there was a 10% profit spiff but you might have negotiated that after I left.

    I did some sort of fancy “sell against the box” or something in Feb 1994 and the stock price at that time was about $15. I sold the rest of my holdings after they were registered and became Ameridata the following spring and summer and it looks like the stock was at $20 then.

    Counting the stock price increases the total deal value went over a million, though I don’t know when you sold your stock.

    You have our salaries right. I don’t know if you remember, but the salaries had been agreed to early on, and had been the same through I don’t know how many revs of the deal docs. Then when we showed up at the closing in Stamford, trusting Dave was checking all the documents and somehow the salary numbers had magically changed – downward. They fixed them… but it sure affected my view of things.

    By the way, you probably remember that David Hendren was our deal attorney. I’m FB friends with him, I’ll tag this on his page.

    • Amazing that you still have the deal docs. At some point I’d love to page through them.

  • Rick

    Good post.

  • Mauricio Korbman

    Great to read about this after so many years. Always wondered how the sale had gone about. Thanks for making me remember many great times at FT.

    • Thx for everything you did to help us build the company! More storytelling in upcoming posts.

  • One of your best recent posts Brad — love it when you go all Storyteller. More, please!

    • Thanks. More coming!

  • Cecelia Feld

    The stuff movies are made of! Remember who named the company Feld Technologies?

    • I’m with Dave now and he said we were going to call it Paradigm Software, but then there was a whole renegotiation of everything and dad convinced me to keep the name. But it was already called Feld Technologies then – what was the backstory of that, do you remember? I’m guessing you were involved!

      • Cecelia Feld

        As I recall I came up with the name.

        • Then you have the credit!

        • Then you have the credit!

  • edwarddomain

    TO BE CONTINUED???? Brad, continue it, please, STAT. Great stuff

  • Dave Linhardt

    Brad – This is so helpful and timely for me. I’m trying to sell my business right now. It’s incredibly awesome to hear this story from someone who is now a venture God.

  • Drew

    Great story…. Want to hear the rest!!

    BTW, I looked up Len Fassler on Google. Yes, he is a cross between Yoda and a New Yawrker.

  • Amen to everyone’s plea for the rest of the story!

  • Been one of the hidden users following FeldThoughts as we build our start-up and slowly try to conquer the world. But it was finally time to start commenting and ask for PART 2 🙂

    • Yes – Part 2 coming soon.