Exits part 1: Private Lessons From Marc Simoncini, Alexandre Lebrun and Bruno Maisonnier
I have always been fascinated by startup exits, a secret world where information scarcity and rumors fuel legendary stories. As an entrepreneur, you negotiate all the financial outcomes of 10 years of hard work in a very short period of time. This moment is also very hard to manage as you don’t sell a lot of companies in a lifetime while buyers that you face often are much more experienced. A few days ago, we invited the founders of our portfolio to ask their questions to 3 entrepreneurs who successfully exited startups:
- Marc Simoncini is a partner at daphni. He founded iFrance that he sold to Vivendi in 2000 for €200m before starting Meetic which went to IPO in 2005 before being sold to Match.com in 2011.
- Bruno Maisonnier is the founder of Anotherbrain. He founded and sold Aldebaran Robotics (the company which created the robots Neo and Pepper) to Softbank in 2012.
- Alex Lebrun is the founder of Nabla, he has previously sold Virtuoz to Nuance and Wit.ai to Facebook.
Here are the key outcomes I learned from the conversation moderated by Thibaut Revel partner at Clipperton and involved in deals such as Webedia, Adotmob, Vodeclick.
Exiting Is A Personal Decision
As usual in the tech ecosystem, timing is everything. Yes … But how do you know that this is the right moment?
According to Marc Simoncini, the only rule to follow as a CEO is to trust your instinct. You are the one with the best level of information on your market, your competitors and the opportunities you have to develop the company, “just trust yourself!”. Bruno Maisonnier has exactly the same opinion “As a CEO, you have many advisors around you and the risk is to listen to them too much. I started to be successful when I started to trust myself”. You definitely need some good insights about the market but at the end of the day, you need to be the one making the choice.
Alexandre Lebrun highlights that your personal situation is also an important aspect to take into account. When he sold his first company, Virtuoz, he had the feeling that he really wanted a new challenge and it was the end of a cycle. In this context, he started to prepare the company to be sold. Marc Simoncini confirms that both for iFrance and Meetic he was in a situation where the exhaustion was growing and selling was not only a choice but also a necessity.
Bruno’s situation was a bit different as Softbank was already present as an investor for two years before acquiring the company. When Softbank invested, Bruno negotiated a very high level of independence that he actually had for 2 years. After the launch of the robot Pepper, the synergies with Softbank were higher and the product more critical for the company. In this context, Bruno had to manage with corporate processes and the inertia of a huge company. He felt he needed to change something and the solution ultimately found was to sell the company.
As an entrepreneur, money is not a unique variable to optimize in an exit process.
Preparing The Company For An Exit…
When it was clear for him that he wanted to sell Virtuoz, Alexandre Lebrun oriented the roadmap in order to be more strategical for potential acquirers. The key is to understand what they will need and what will be critical to them and to focus on the development of it. This strategy requires understanding both the market trends and the needs of the potential acquirers very well.
The relationship between Marc Simoncini and his future acquirer was a bit fresher. Barry Diller who was the CEO of Match.com at that time earned the self-explanatory nickname of “Barry Killer”. Marc explains that they had a talk every year about a potential exit, and each time the negotiations failed, the final sentence of Barry Diller was always “Ok so I will kill you”. For Marc, it was obvious that at some point he would have to sell the company to Match, but the real challenge was to put the company on the most favorable situation to have solid bargaining power.
The Final Step of A Long (Equity) Story
There is another aspect in the preparation of the exit which has to be done earlier in the life of the company. Marc underlines that the exit is the time when all the clauses of the legal documents previously negotiated in the lifetime of the company become very concrete. As an investor, he already had the case of a business angel blocking an exit several times with only 1% of the stakes of a company. The good way to avoid that is to put all the minority shareholders in a different shareholders agreement which protects their rights but does not allow them to block an exit.
There are many common elements between preparing a fundraising process and preparing the sale of your company. Meeting potential acquirers to understand their interests and expectations is part of it. Marc remembers meetings he had planned in London with Yahoo! and Match. To make the process more efficient, he did it at the same coffee. However, there was a mistake done with the time difference and they finally met all together at the same place and at the same time… This awkward moment (they obviously thought it was on purpose) didn’t eventually jeopardy the final exit.
Whose Money Should You Accept?
The selling process is also a very dangerous phase in the life of the company since you open a lot of information to a company that is potentially a direct competitor. Many acquisition processes are eventually aborted so you need to trust your potential acquirer. Also, you have to collaborate with the potential acquirer as they often don’t accept you to leave the company just after selling it.
In this case, also, all our protagonists explain that your entrepreneurial instinct is your best friend. Bruno had a very good feeling with Masayoshi Son and decided to trust his feeling (as you will see, the exit negotiations show that he was right!). Alexandre also insists on the reputation of the seller. For instance, Facebook achieves a lot of startup acquisitions (sometimes very competitive) which are almost part of its product strategy. You know that you can trust them even more as they have a lot to lose in terms of reputation. A serious VC could also be of serious help on the negotiation: an acquirer doesn’t want to fool someone they could have to deal with regularly.
Let’s Talk About The Serious Part: How To Negotiate?
You never have two identical negotiations, so let’s present different examples:
Since he had Softbank as an investor, Bruno’s situation was a bit unusual. After two years, when he felt he had not the same liberty and independence as a CEO of Aldebaran, Bruno tried to find a solution. Ultimately, the solution was an exit. The negotiation with Softbank CEO, Masayoshi Son, was quite unusual since he heard during the negotiation “ give me your price, I will not negotiate”. You can imagine all the feelings that overwhelm your mind in such a situation… This negotiation, which could have a decent place in a Hollywood movie, demonstrates that you should have an idea about what to expect. Masayoshi eventually respected his words.
Alexandre evoked another aspect of the negotiations, the earn-out. According to Alexandre, as a founder, you should only consider as part of the price what you receive in the 12 first months (he received several champagne bottles from people who were grateful for this precious advice). He loved his 4 years at Facebook AI Lab but he knows that you never know how you will feel when you will be part of a new organization as you will lose control over many aspects in the company.
Call it instinct or chance, a negotiation that looks like a terrible failure can be the most profitable of your life. Marc remembers a meeting he had with Barry Diller who already wanted to acquire the company a few years before the actual exit. The CEO of Match wrote a price on a post-it and when Marc opened it, he read the number 50 on it, meaning 50 million. “Even if I was quite happy with the price, I thought it was strange not to negociate so I wrote 60 on the post-it before giving it to Barry”. The answer from Barry was immediate ‘No, I will kill you”. A few years later, Barry finally acquired the company…
Do I need an intermediary to help?
Here, feelings are different among the protagonists. Marc felt that his team was super involved in the process and he didn’t feel the need the help of an intermediary (actually the situation was specific since they were discussing for years). Alexandre says that assistance could have been very useful for one of his exits, but agrees that it is not always needed. For instance, he mentions that he got a lot of help from his VC investors, as they were very involved in the process.
The Cultural Gap You Shouldn’t Ignore
As a seller or as a buyer, our successful entrepreneurs insist on the substantial importance of the culture when you talk about negotiation. Without drawing caricatural clichés, you still need to be aware of the local specificities. Bruno learned that in Japan, processes are very deeply established into the culture. If it could slow down some acquisition processes since you cannot skip any steps, this is also sometimes super powerful when you know how to use it. For instance, it makes Japan super-efficient in the hardware industry where you need to be extremely rigorous. In China, you need to know each other and this is more important than anything else. Marc has this story where they negotiated everything about an acquisition for weeks and finally signed the contract. He generously celebrated this step in the evening, but in the early morning, the Chinese company called saying that “everything is good except the price”. Even in the European Union, the cultural gap can be huge! After hard weeks of negotiations for acquiring a company, the founders finally called one of our speakers saying that the company had to pay for the cost of the stamp.
What if I want to know more about it?
Bruno Maisonnier advises us to read la logique de l’honneur which is super helpful to understand how people work and think according to their culture. Marc Simoncini’s biography is also very rich in tips and memories to understand the situations and balance of powers. Also, I really like the magic box paradigm (kudos to Sylvain Zimmer for the advice) which details the importance of the momentum and the sponsor in the selling process.