We’ve seen several M&A deals collapse unexpectedly in the past two months. Each was at the signed LOI stage. There was no warning or evidence of an issue until the moment the CEO got the phone call from the acquirer saying the deal was off. In both cases, the explanation was vague.
I’ve also seen several financings fail to close recently. Two of them were late stage financings that were pulled by the investor at the last second. One of these investors is highly visible for doing late stage deals. The other was an investor I didn’t know much about. The explanation I heard from the founder in each case was again vague.
In contrast, we closed a deal in two weeks last month. The person on the other side was willing to give us a lower price in exchange for “deal certainty”, explicit words that she used. We are very pleased with the deal and the price and appreciated that our reputation for just getting it done resulting in a significantly lower price. Deal certainty has always been important to me and I expect it’ll become even more important in the next year.
You will be seeing a lot more deals that don’t get closed after the handshake, verbal agreement, or even a signed non-binding LOI. This is natural in this part of the cycle, when prices feel high to investors, there is a lot of competition for deals, and a goal of some investors and acquirers is to get an LOI or term sheet signed with an exclusivity period in order to give them time to make a decision.
There are also a lot of unsophisticated buyers and investors out there. They generally don’t value deal certainty, especially if they come from other industries where lots of deals fall apart.
At this stage, it’s very important that the founders, whether they are selling their company or raising money, know the experience of the buyer or investor. You need to know their process. You need to know their investors, especially if it’s a private company buying another private company. Understand the history of their deal execution. Ask about, and understand the process from LOI / term sheet to close.
Basically, don’t be naive. There are lots of investors and acquirers out there who have low to medium deal certainty. There are others how have high deal certainty. Do your work and know who you are dealing with before you engage in the process for real.
There’s an amazing amount of bad activity going on in the world of tech right now. It’s predictable – when things start going well the switch flips from fear back to greed and all sorts of craziness ensues. One of the things I see appear is a steady stream of crap aimed at innovators. Patent trolls are an easy one, but heavy handed regulatory activity by incumbents and random lawsuits around acquisitions are also part for the course.
I was going to write about how the FCC’s potential action on net neutrality could seriously jeopardize Internet innovation, but Fred Wilson beat me to it (he’s got an east coast time advantage over me) with a phenomenal post titled The Fast Lane, The Slow Lane, and The No Lane. I love the phrase “permissionless innovation” as well as the way Fred describes the issue:
“But that period of “permissionless innovation” is likely to come to an end soon if we all let it. The FCC has responded to a court ruling by proposing a convoluted set of rules that will allow fast lanes, slow lanes, and what’s even worse, no lanes. The FCC’s proposal will allow the telcos and cable companies that provide the last mile connection to your home or office to prioritize some bits over others. That’s how they create the fast lane and the slow lane. It also allows discrimination in which they can decide not to allow your bits through at all, creating a “no lane”.”
Go read Fred’s post The Fast Lane, The Slow Lane, and The No Lane and then hit the back button to continue here. I’ll wait.
If you wonder who is driving this, it’s the telcos and cable companies who control the last mile. Please don’t pretend that you are surprised.
But that’s just one category of bad activity that falls in the “incumbents trying to use government regulation to control their industry and suppress innovation.” Nothing new here – it’s been going on since the beginning of time.
A different version of this popped up last week. If you recall, a month or so ago Facebook announced that it was buying Oculus Rift for an eye popping $2 billion. Amazing and congrats to everyone involved in Oculus Rift. I’ve long been a John Carmack fanboy since I first played Doom and realized id Software was based in Mesquite, TX, near where I grew up. I’ve always loved his hacker spirit, amazing ability to do things no one else could envision, and willingness to open source a lot of his work to lead the way for others. So I thought it was pretty awesome when he went to be CTO of Oculus Rift to pursue the next generation of virtual reality software.
Now, I don’t know John, I’m not an investor in Oculus Rift, or Facebook, or Zenimax, but I wasn’t particularly surprised when Zenimax decided to assert that it owned part of Carmack’s brain. You can read an enormous amount of chatter about the situation, and form your own conclusion, but mine is that Zenimax is a bad actor here. Given that Zenimax wouldn’t let Carmack pursue any virtual reality work while at Zenimax resulted in the logical conclusion that he’d leave and do something else. Asserting that whatever was in his brain while employed at Zenimax belongs to Zenimax is nonsense. There’s a phrase for that: “intellectual slavery” and it’s not one I support.
If you are interested in this situation, here are some good links to understand what is going on and being asserted.
- Virtual reality nightmare: ZeniMax challenges Facebook, Oculus for Rift intellectual property
- Virtual Legality: Legal Letters Claim Oculus VR Made The Oculus Rift Using ZeniMax IP
- Virtual Legality 2: Oculus VR Responds Comprehensively To Zenimax Legal Letters
- Oculus denies John Carmack stole VR tech from his former employer
- Oculus says ZeniMax canceled Doom 3 VR support over equity demands
Now that I’ve been clear about what I think, I’m curious what you think.
When I saw this graph I was hooked. If you are a Twitter user and you don’t use Followerwonk, go try it now – I’ll be here when you return.
Yesterday, SEOmoz announced that it had acquired Followerwonk. The acquisition closed about six weeks ago and the Followerwonk product has been fully integrated into SEOmoz. And the Followerwonk team is now fully part of the SEOmoz team. And it’s awesome.
Rand Fishkin (SEOmoz’s CEO) blogs openly about how the deal happened. It’s instructive for anyone in a startup – either one that is acquiring someone else or being acquired.
If you know me, or have worked with me, you’ll recognize this as a common part of my startup playbook. I think it’s incredibly powerful to accelerate the growth of a company via targeted acquisitions. Fred Wilson once referred to this as a “venture rollup” which, while many are allergic to the word “rollup”, is probably as good a label as any for this. Another recent example from my world just to see what I mean is Rally Software’s acquisition of Agile Advantage.
Doing this well is hard. I’ve been fortunate to work with several amazing CEOs who I’ve learned a lot about how to do this with, including Matt Blumberg (Return Path), Tim Miller (Rally), Mark Pincus (Zynga), and JB Holston (NewsGator). And I learned the basis of everything I know about acquisitions from Len Fassler and Jerry Poch, who acquired my first company. Each has used the strategy skillfully and effectively.
I think Rand, who is using this strategy as part of continuing to build out SEOmoz, is going to be a master at it. If you read his post carefully, you’ll see that he has immense respect for the people behind Followerwork. His behavior pre-deal is consistent with his values and signals his behavior post deal. The entire company embraced Followerwonk and made them part of the SEOmoz gang immediately. He, and the entire team extended trust up front, unambiguously, and without hesitation or reservation.
Peter, Marc, and Galen – welcome to the team!
Today on Brad Feld’s Amazing Deals you can get three months of SEOmoz PRO for only $99 dollars. Normally three months of PRO service is $198, so this deal saves you $99.
If you’ve been wondering about how to effectively manage your SEO and monitor your social media, today’s Amazing Deal will get you going and at low, low, price (ok – I couldn’t resist – I just love to say low, low price.)
Seriously, my experience as an investor in SEOmoz has been extraordinary so far. I love working with this gang and I’m psyched to be able to provide you a low cost way to give their PRO product a try.
Deal Co-op, the company that powers Brad Feld’s Amazing Deals, released their software last week as a self serve, SaaS product. This means anyone reading this post can go to dealcoop.com and create their own deal store like I did with Brad Feld’s Amazing Deals. This type of software works great for bloggers, entrepreneurs, publishers – basically anyone with an existing online presence looking to monetize their audience.
I was a lead mentor for Deal Co-op during TechStars Seattle 2010. Back then, the founders (and brothers) Nate and Mike Schmidt had already created a great white label software that powers daily deal and group buying sites. Now that their software is self serve, you can hop on their site, sign up, and start designing your store with an Interactive Store Designer tool. It’s fun and you can build a new business in seconds. On average, I make $555 for each deal I post and blog about. Not bad!
Nate and Mike have spent a bunch of time thinking about the long term sustainability of daily deals and group buying. Brad Feld’s Amazing Deals is a good example of Deal Co-op’s vision for the industry. Relevant offers to a targeted audience are the key – and you don’t have to make offers every day to be successful. To explain this with real numbers, they just put up an excellent blog post discussing the history of Brad Feld’s Amazing Deals.
But that’s not all. Don’t miss our deal this week, Learn How to Build iPhone Apps! Check it out – a $49 course that is normally $197. Yet another amazing deal brought to you by your favorite huckster.
If you are a running enthusiast you’re going to love today’s Brad Feld’s Amazing Deal. Today’s deal takes the barefoot running phenomena to its logical conclusion. Invisible Shoes, created by two former lead designers from Nike and Reebok, are the closest you will ever get to feeling barefoot, even if you aren’t. They’re perfect for running or walking or yoga. Did I mention that you put them together yourself for the perfect fit? Awesomely loving the DIY world.
At $16 (normally up to $35) these are definitely worth a look.
Last week on Brad Feld’s Amazing Deals we offered a huge discount on Ruby classes, and had one of our most successful offers ever. This week I asked my friends at Udemy to cook up another great deal on the course “Creating iPhone Games for Beginners”. They came up with an offer where $39 takes you through the process of building a complete iPhone game (normally $99).
Leave a comment and give me your pitch for a new iPhone game. The best idea by midnight tonight gets a free course.
Today on Brad Feld’s Amazing Deals you can purchase a $250 Ruby course from Udemy for only $49. The course, Learn Ruby Programming (In Ten Easy Steps) contains over 30 video lectures, written course materials, and additional discounts on Ruby literature.
With more and more companies making the move to Ruby on Rails, demand for Ruby developers has gone through the roof. If you are interested in giving Ruby a look, this is a great place to start.
Before we invested in MakerBot, we bought and assembled a Thing-O-Matic. When I say we, I mean me, Jason, and Ross. It took us about 20 hours (Jason and I did the first half; Jason and Ross did the second half) and was a blast – think of it as an adult lego project. Our Thing-O-Matic has been steadily printing stuff – you can play a game of chess with our Thing-O-Matic pieces. the next time you are in my office.
As part of the endless series of Amazing Deals I bring you from my deal site, today’s offer is a fully assembled Thing-O-Matic. If you want your own 3D printer, but you don’t want to assemble it, you can buy it fully assembled for $2,500. But, through the magic of daily deals, there are 20 available for a 20% discount ($2,000). This is a one time offer from my friends at MakerBot so grab ’em while they are available.
And finally, for all of you that have written asking for a “Convertible Debt Series” like our term sheet series, we’ve just started one on AsktheVC.com. The first post is up and introduces the series – we’ll be working through all of the terms in a convertible debt deal over the next few weeks.
These three courses contain over 9 hours of content and 60 talks from people like Eric Ries, Dave McClure, Steve Blank, Hiten Shah and many more. That’s a lot of knowledge for 67% off.
In addition to the courses, you get a hardcover copy of Eric Ries’ awesome new book The Lean Startup. Eric – congrats on converting all of that digital content to ink on dead trees!