First of all, we probably (umm definitely) engaged our SaaS investment bankers a bit late. But here’s how that process went down and how we made our decision…
How We Didn’t Hire SaaS Investment Bankers
Like just about everyone in the martech space, we entertained a steady stream of truffle-hunting VCs, bankers, private equity firms and strategics. My typical week would include more than a few introductory calls. Most of those calls were with entry-level associates dutifully checking off boxes and categorizing us as ready, early or never. Those calls were as formulaic as it gets, with an exchange of high-level overviews and very little of substance actually shared. I would provide only enough to frame our current state without divulging anything specific enough to be used against us in the future. (I learned quickly that associates take meticulous notes, so if you say it out loud, they will say it back to you on a follow-up a year later.)
When the Inquiries Evolved
About 18 months prior to our exit those inquiries changed. They became more serious and the players changed from note-taking associates to smart and thoughtful partners and executives operating under NDAs. (In hindsight, that was my cue to hire bankers, but I didn’t.) More than a few of those more serious inquiries visited in person with one taking me to lunch and declaring emphatically that he was going to “buy my company”. It didn’t seem to matter that my company wasn’t for sale. This was my second clear signal to hire investment bankers, but I didn’t.
My co-founders and I chatted each week about the inbound interest, but generally treated it as entertaining flattery. We stayed focused on running our company right up until the PE/strategic who said he was going to buy our company actually gave us an LOI—basically out of the clear blue sky. This was definitely the time to hire bankers, but we didn’t. We thought the price was fair and the buyer painted the process as easy, so we figured we had it well in hand, so why pay a banker? We signed the LOI and promptly swung open the gates of hell (at least for me).
Prepared but Not Ready
I feel like I need to frame my company’s condition a bit. We were organized and process driven—far beyond our scale. We were audited and had done things the right way at every turn. We were meticulous with revenue recognition. In short, we were clean and well prepared for diligence. That said, I was the one on point for a 900+ item diligence list—without bankers. Needless to say, that was an epic distraction. The buyer was dishonest and unscrupulous. The process was protracted and grueling. Ultimately, they tried to re-trade the deal for no good reason. We declined.
During our LOI period we were exclusive, meaning we couldn’t and didn’t entertain other buyers. We did however, keep a list. And when the exclusive expired, we had a decent queue of serious potential buyers. Despite the fact that we were still NOT FOR SALE.
I would characterize my solo attempt at selling my company as costly. Yes, there was a hard cost connected to hiring bankers, but the soft costs of NOT hiring bankers was much higher. I spent months distracted from building enterprise value. At this point, I finally decided to get professional help.
How We Chose our SaaS Investment Bankers
We all think we have the best company in the world and that it will command a premium valuation. Once we decided to hire bankers, we took referrals from people we trusted. Some of those bankers had been prospecting us, some of them I initiated. But all of them supported our hypothesis that we had the best company in the world that would command a premium valuation. Needless to say, they really know how to play to the CEO ego.
And why not believe them? They only get paid if we get paid. If they’re not successful, they get nothing. And their minimums seem trivial in the scheme of potential outcomes.
I need to go back in time to give a bit of important context. Many years ago we had hired bankers (for an entirely different business) and it went very badly, with us bailing on the deal without even going to market. That relationship left a sour taste and a healthy distrust of the breed. Prior to hiring any of our contender bankers this go round, I remembered that sour taste and took another tack—wondering why none of them would engage with me about the potential downsides in the business. I even setup an additional round of calls just to prod on that specific point. Nope. Everything was rainbows and puppy dogs.
Non-Valley, Non-Ego, Non-Bullshit
These were all well known west coast bankers. Big tombstones. Big reputations. Big egos. It was down to the final three and my co-founders had left the decision to me. That day I received the latest edition of an email newsletter I absolutely loved, from a banker I had never heard of, in a state not bordered by an ocean.
I wasn’t comfortable inking one of the final three that day, so I called the newsletter banker. The first call went great. He seemed to better understand our business and have a more realistic view of the market. We exchanged some data and had a second call. I posed the same downsides questions and got back thoughtful reflections on our specific condition—only possible because of real investment he’d made in the REALITY of our business.
When I made the decision to engage a banker from Birmingham Alabama instead of the Valley or New York, my co-founders may have thought I cracked, but they trusted the decision. It was not the ego-stroking choice, nor was it the most or least expensive. It was the most real. They had provided a timeline that rang true; a fact-based valuation range; upsides that made sense; and most credibly for me, potential challenges that I was relieved to see acknowledged.
In the end, our SaaS investment bankers did everything they said they were going to do. They actually delivered and ran a complete, cohesive process from book to bank. They understood SaaS, worked through models and were tireless in diligence and through closing. I couldn’t have done it without them. My only regret is that I didn’t hire them a couple of years prior.
For more on this topic, read Anna’s 4 Lessons Learned from Hiring Investment Bankers.