00:00hi everyone welcome to the ACNC podcast
00:02I'm sonal and I'm here today with Jamie
00:04McGuirk who runs our corporate
00:06development function James Loftus who is
00:09on Jamie's team and focuses on consumer
00:12side of corporate development and Tyson
00:14Clark who focuses on the enterprise side
00:17of corporate development welcome guys
00:19Thanks so the reason we're doing this
00:22podcast is because you know you guys
00:23wrote a post talking about why founders
00:25should engage with corporate development
00:27to kind of counter the meme out there
00:29that comes up every so often like oh
00:31don't waste your time engaging with
00:33corporate development and you know you
00:34can find that post on our website
00:35obviously but we thought it'd be great
00:37to talk it through because it really
00:39struck a chord with a lot of people and
00:40you guys got a lot of comments and
00:42questions on that so let's kick off by
00:44actually just talking about what
00:47corporate development is I know that's
00:49kind of a thing that comes up a lot sure
00:50yeah corpora development has a it's it's
00:52a it's a generic moniker I mean we have
00:54a corporate development function here
00:55and you don't usually associate that
00:57with a venture capital firm Courchevel
00:59means a lot of things it's they're
01:01focused on the inorganic growth
01:03opportunities for a company so whether
01:05that's investing in a company whether
01:10it's partnering with the company whether
01:11it's acquiring a company it's most known
01:12for the the acquisitions that they do
01:14but it it refers to all of the inorganic
01:16activities so the activities that come
01:18outside of a company through partnering
01:20acquisition or investment why we said
01:22about you know writing this post and
01:24doing this doing this podcast was we got
01:28a lot of questions from our portfolio
01:30companies of you know should we engage
01:31should we not engaged and you know the
01:33mean was out there that sonal mentioned
01:35that's you know don't engage in the Corp
01:38Devon and we agree with that at certain
01:39points in a company's life if you're
01:40less than a year old if you're really
01:43kind of pre product that we generally
01:47agree with that but engaging with
01:49corpora development is also about
01:50creating options and you know we just
01:52think that this is a you know it's a
01:55good discipline to have you know to pick
01:56up your head to create options as you go
01:59through your company's life it's not all
02:00about selling your company it's about
02:02partnering it's about understanding what
02:04you're you know big brethren competitors
02:07are doing it's not about you know
02:10for sale sign if you will so it's about
02:12creating options for the company so why
02:14does corporate development get such a
02:15bad rap I mean honestly I think that one
02:18of the challenges is is that the
02:20situations that corporate development
02:21Eames were involved in tend to be sort
02:24of very high-stress by a very high
02:25emotion and so sort of people have a lot
02:28of stories that bounce around the
02:30marketplace whether they go well or
02:31whether they go poorly there are always
02:33very intense times both for both for the
02:35the corporate entities but also
02:36especially for the the startup founders
02:38and so I think that the result is the
02:41anecdotal evidence sort of outweighs
02:43what actually happens because people
02:45sort of talk about the better stories
02:47more keep in mind also these are
02:49professional negotiators so you know the
02:51startup and they go through their life
02:53they may raise money you know a handful
02:55of times that they're doing very well
02:57maybe maybe several times they will
03:00probably and hopefully only be in an M&A
03:03negotiation I had a small handful of
03:05times and across several different
03:07companies corporate development teams do
03:09this for a living so they're constantly
03:11I'm in these negotiations so they're
03:12very sophisticated very very experienced
03:15and you know and there's as James said
03:19there's the anecdotes that come out
03:20every once in a while so what's the
03:22difference between enterprise and
03:23consumer corporate development this is a
03:25bit of a journal is a ssin right if you
03:27look at the corporate of element teams
03:29on the enterprise side and so I'm
03:31talking about Oracle and Cisco and
03:33VMware and those kind of companies they
03:36tend to be more M&A execution focused
03:38and and so you you hear a lot of times
03:41you know Corp that picks up the phone
03:42when they want to buy you and that's the
03:44only reason why they call that's not
03:45always true but it's more true for these
03:47enterprise companies and you know the
03:50the following idea there is that most
03:52most enterprise companies have GM's who
03:56run businesses and those GM's are
03:58actually the decision makers a lot of
04:00times in terms of who you know what
04:02companies to buy and in the core
04:04development team just executes to the
04:06transaction I think it's a bit different
04:07James from from what happens on the
04:09consumer side yeah I think I mean on the
04:11consumer side there are plenty of
04:13opportunities to be M&A execution focus
04:16but I think within consumer companies
04:18you also see the the general corporation
04:21looking to the corporate development
04:24to understand the overall strategic
04:26landscape because obviously in the
04:28consumer space you're more focused on
04:29building products that a lot of times
04:30are giving away for free in the tech
04:32space and you're you're making money
04:34other ways and so what you're really
04:35focused on is like what are the trends
04:36out of the marketplace what are
04:37start-ups doing what's moving around and
04:40and the companies relying on the
04:41corporate development team to understand
04:42what's going on outside the company and
04:44figure out ways that what's going on out
04:47there can be additive to their products
04:49whether it's through M&A or through
04:50other means and I know you guys often
04:52tell me that you don't like making
04:54generalizations because every case is
04:55different different that caveat said
04:58what are some of the things that are
05:00kind of the takeaways that you would
05:02want our founders and anyone else
05:04listening to this podcast to know
05:05because you guys are always saying like
05:06god I wish I wish people knew this it's
05:08so important to know yeah so I mean we
05:11always get the we always get the first
05:13question is should we engage and
05:15generally we say you know you should
05:16engage at the right time so I mean they
05:18you shouldn't have it be a constant
05:21cadence of meetings with corporate
05:22development themes you shouldn't it
05:23shouldn't be a time sync there shouldn't
05:25be meeting after meeting after meeting
05:26but generally yes you you you you should
05:29be on their radar they should be on
05:31yours and you should understand you know
05:32what they do and how you can engage with
05:34them so I think that's kind of number
05:35one so getting on the radar is a big
05:37part of getting on the radar isn't at
05:39the right time as I mentioned before
05:40yeah so there's definitely a time and a
05:43you know I think the one question is you
05:46know how how much should I tell them how
05:48much information should I give them
05:50they're always going to ask for more
05:51information and if you give it to them
05:52that's you know they love that you know
05:55you should treat that as the type of
05:58information that you would tell anyone
05:59that you would tell an investor that you
06:01would you know use on a sales call that
06:03you know frankly that you would tell a
06:05competitor so you don't want to give out
06:07the the very compliment confidential
06:09information you want to hold that back
06:11would you guys um when you guys were at
06:13Google I mean James you're at Google and
06:16Tyson you were at Oracle did you guys
06:18make founders that came to you sign an
06:20NDA so absolutely every time before we
06:23took an initial measure meeting so they
06:25would sign an NDA and it was a standard
06:26need that we had and we we tracked the
06:28changes that we departed on that
06:30standard in India and then how about you
06:32James yeah and by and large we would
06:34always have both both at Google and yeah
06:36we would have people sign NDA's and they
06:37came in and and quite frankly it's it's
06:40important I think as the person on the
06:43corporate development team it's
06:45important because I think you're
06:46bringing people on site and you're gonna
06:47be pretty open with them but I think
06:49it's also important because it sets a
06:50standard for the relationship as both
06:53parties are gonna share some information
06:54even if it's just in a half an hour or
06:56an hour long meeting you you have a
06:59document that sort of outlines like sort
07:01of what it means how you're gonna treat
07:03this information I'm on both sides and
07:06so I think that's the important thing is
07:07it does sort of because of the because
07:10of the the imbalance especially in size
07:12usually in these situations I think it's
07:14important to sort of lay out what that
07:16relationships gonna look like and how
07:18that information is gonna get treated
07:19and it's the one non corporate
07:21development person from my background
07:23having been on the other side of the
07:24table more often and being on the
07:26corporate development side of the table
07:27and in this trio I would say that the
07:32one key thing that's often overlooked is
07:35having a non solicit so a non
07:37solicitation of employees in that
07:39document not only for your peace of mind
07:41as a founder like they're not going to
07:43come after your team it's going to
07:44prevent them from from from hiring
07:47anyone away not to me not to say that
07:48you should put that in there and then
07:49expose your entire team but you should
07:52make sure that that's a standard part of
07:53any indie right to protect yourself but
07:55then also at the same time don't
07:56necessarily trot out every single person
07:58your company towards them either it's
08:00also a time-saving thing as well it's
08:02not only a time-saving thing but it's
08:03yeah that's just great
08:05hygiene yeah yeah I think I think
08:07practic because you guys I think it's
08:09important to sort of practically have a
08:11non solicit in place and that you're
08:13protecting or you're shielding your
08:14employees and then also try and get it
08:15baked into the legal document so what
08:17are some of the other pitfalls that
08:18founders should avoid when they are
08:19talking to corporate development I think
08:21Jimmy made a good point earlier which is
08:23around how much information you give so
08:26the co-operative element team will
08:27typically asked for as much information
08:29as they can get upfront and that can be
08:32a bit of a time sink I think the
08:33frustration that a lot of founders
08:35experience in engaging with Corp dev may
08:37be part of the bad rap is just from how
08:39how long and dragged out that process is
08:41before they sort of have any indication
08:43of interest and I think the advice I
08:45give to founders is manage that process
08:47you know the let sometimes
08:49in most cases less information is better
08:52and and sort of a related point is
08:56around you know why you should engage
08:57with Corp Devas you can get information
08:58actually about your space about how they
09:01think about your space about how you
09:02would partner with them about their
09:04technology stack and how your stack
09:06interacts with their stack understanding
09:08their stack tells you a lot about
09:09there's a lot about how your competitors
09:11might interact with them so give you a
09:12lot of information and in order to get
09:14that information you have to give a
09:15little bit of information and so the
09:16paradigm that I think about is give them
09:18as low information as you can but keep
09:21them engaged right so you can you can
09:23learn about their you know their company
09:25in the way anything by your space but
09:26why wouldn't you do any of that they're
09:28just a standard sales process like to
09:30get that information like why like what
09:32is the I mean I guess I'm still quite
09:33not getting why really I'm really
09:35pushing hard on this is why engage
09:37corporate development like it'll be more
09:39about why you guys make that case
09:40they're you know they're typically not
09:41the customer you know so these are these
09:43are companies that are strategically
09:45important to you that you're there
09:48they're not necessarily your customer so
09:50you wouldn't necessarily engage with
09:52other parts of the organization and then
09:54secondly I think for what you're trying
09:55to achieve so if it's I think a
09:58byproduct is information sometimes
10:00that's the goal but you know whether
10:02it's a partnership whether it's an
10:04investment whether it's a you know an
10:05acquisition and that could be an
10:06acquisition two years down the road that
10:08you're just developing a relationship
10:10for it's again to my earlier point
10:11creating options for yourself the this
10:14would naturally be the the team to do it
10:16with it wouldn't be a you know this
10:19these types of opportunities wouldn't
10:20fall out of a sales mushroom if you
10:22think about a corporate development team
10:23they're doing transactions across the
10:25whole company and so there are there are
10:27very few places within a large
10:28organization where you can go to a
10:30single point of contact that has access
10:32to multiple executives doing different
10:35jobs and different functions and so you
10:38know I think you know knowing the
10:40corporate development team at Google
10:41knowing the corporate elemina team of
10:42Yahoo probably very much so the
10:44corporate Dell on the team at Oracle
10:45these people are you sort of one-stop
10:48shopping if you want to to know and be
10:50connected in two different parts of the
10:51organization and so I think
10:53understanding what you want to get from
10:55the organization is probably the key
10:56thing to going into that that meeting
10:59and is and that's the first thing you've
11:01to ask yourself is I know what they want
11:03like what do I want from them and that's
11:05I think where you can start to organize
11:07yourself around being affected there's
11:09two other things that I would say are
11:10the the primary questions that we get or
11:13the advice that we give when just kind
11:15of making the decision whether to engage
11:16or not and that is you know each one of
11:18our portfolio companies has you know the
11:20two three four strategics that are
11:23important to them that are in early
11:25stage they want to avoid them you know
11:27that a mid to later stage maybe they
11:29want to engage in some fashion where
11:30there's for that investment partnership
11:31or longer-term acquisition and by
11:34strategic you mean they like the large
11:35corporate investors that come in later
11:37the the large large corporate so yeah as
11:40we've been referencing you know the
11:42Oracles in the MCS the VMware's the
11:44Yahoo's Google's etc the the two things
11:47that I would say one is if you have the
11:50two three four you know if you're
11:52talking to one I mean you should have a
11:54plan in place and not to put a time sink
11:57into it but you should be thorough about
11:58it no not it's not 10 but it's not 1 so
12:02it's it's picking that you know to the
12:04top of the top top group that you're
12:06most interested in if it's 3 you know
12:09the 3 or 4 or whatever it is and
12:11developing those relationships
12:12concurrently so what's the advantage of
12:13having that sort of optimal number like
12:15why not one if the whole purpose is to I
12:17mean besides building the relationships
12:18obviously to avoid wasting time because
12:20that is the number one priority for a
12:22founder is not to have that time sink
12:23why that why that number of even
12:25absolutely so it's because that one
12:28might not be the best fit and you won't
12:30know that until you know the second and
12:32the third and again you know we're not
12:34advocating you know wasting a lot of
12:36time but if you're going to make the
12:38decision to do with one it does make
12:39sense to do it with multiples and I'd
12:41say the other thing that I would say is
12:42that it depends on life stage and we
12:45always make the comparison of coke
12:46versus Pepsi so if you are a if you're a
12:50startup and you are going to do whether
12:53it's an investment or strategic
12:55partnership with Pepsi while cokes never
12:57going to talk to you again so you have
12:59to make the decision that you're at the
13:01stage of your life or maybe you're not
13:02in the type of industry where you have
13:04that competitive dynamic but we
13:06certainly see it in storage so between
13:08HP Dell and EMC etc what
13:12you know if you have to be where where
13:15they rely more on you than you do on
13:17them so it's not going to preclude you
13:19from doing similar deals with their
13:22competitors but in other cases it can
13:24actually create like a sort of a I've
13:27seen companies die over it literally yep
13:29so doing a deal with Verizon and you
13:32could never do another too early and of
13:34a stage you know not being able to then
13:37do a deal with AT&T or Sprint or anyone
13:39else how confounders kind of get around
13:41I mean besides engaging the number of
13:42people like how do they know who to
13:43engage when yeah so it's it's it's
13:46making sure you're at the stage so
13:47you're not at it's typically not at the
13:49series a and B stage and we get that
13:50question a lot as it comes to strategic
13:52investors so should we include a
13:54strategic in our a round should we
13:55include our strategic and a B round
13:57generally the answer is no there has to
14:00be a very good reason and it depends on
14:02what industry they're in and who that
14:03strategic is because it's just the fear
14:07of conflicting you out of an opportunity
14:09down the road that we want to avoid and
14:10so generally the answer is later stage
14:13and every situation is different so you
14:15don't know exactly when that is but it's
14:17usually not at the formative stages you
14:20have to be at you know at the type of
14:21scale out in market with the you know
14:24the right scale of customers where it's
14:26not going to preclude you one way or the
14:28and then for you guys coming out of
14:29Google Yahoo and Oracle just as examples
14:32how did you guys sort of address like
14:34how did you guys kind of treat that on
14:36the flip side like to kind of ensure
14:38that you were getting the sort of an
14:39exclusive opportunity from a founder I
14:40mean so by and large I think the way
14:43corporate development teams approach
14:45different spaces in the marketplace from
14:47the consumer side is they're usually
14:49given you know generally broad directive
14:52to say look let's focus on X and so say
14:55it's Gmail or its mobile apps for Yahoo
14:58and and you focus you sort of drive down
15:00and learn as much as you can about that
15:02space I think that's another interesting
15:03opportunity on the startup side is that
15:05you like in meeting with corporate
15:07development as they're learning about
15:08different spaces as they're focusing on
15:10that you have the ability to shape the
15:11narrative as they turn it back in inside
15:13but but I think a lot of times that's
15:15what they're doing they're going out
15:16there meeting with a lot of companies
15:18that are doing things in a similar space
15:19whether it's companies that they think
15:22they could acquire companies they think
15:23they could partner with companies that
15:25they can invest in and and I think to
15:28Jamie's point when you think about
15:29investing look part of what you're
15:30looking at is an opportunity to either
15:33or have have an ability to acquire the
15:35company later or to create a situation
15:38where you're encouraging that company to
15:41to sort of focus on your platform and I
15:44think that piece is even more important
15:46to investing on the on the enterprise
15:47side yes I mean I say you know in terms
15:51of so we we did a number strategic
15:53investments at Oracle and you know I
15:55think the way the mechanisms that we use
15:58to keep our competitors at bay with the
16:02comes that we're investing in are our
16:03mechanisms like you know board seats or
16:06we'll ask them to provide financials on
16:09a quarterly basis or give us you know
16:11first right of notification in an
16:13acquisition scenario so so there's
16:15there's sort of these mechanisms that
16:17you can use to sort of you know give you
16:20a leg up on on people who would the
16:22comes out to be competitors all things
16:24that we advise our portfolio companies
16:26generally speaking against absence so
16:28there's a balance there so it's not
16:30those are not things that are
16:31automatically granted because they're
16:33asked for and and sometimes the right
16:36answer is you know you won't do the deal
16:38under those circumstances those are
16:40definitely some of those are
16:40deal-breakers we talked before about
16:42pitfalls I think one thing that that's
16:44that's interesting too and then we
16:46mentioned in the post has sort of this
16:47the the point that big companies have
16:50more time to do meetings then start then
16:52family to do especially there's just
16:53meetings are a thing people have a lot
16:55of time to do it and I think one thing
16:57that you that you can do as a as a
17:00founder is you can you can force the the
17:04corporate development team to be more
17:05efficient if they think that they're
17:07going to need to bring in a product
17:08person later or if they're gonna if
17:11there's other people at the company
17:12they're gonna be interested in meeting
17:13as a follow up to the meeting ask that I
17:15think you can say hey and they're gonna
17:17be other people that might be interested
17:18in this like I'd much rather do that
17:20than like meet with Cork dev and then
17:21have another meeting a week later with
17:25the VP of product and the VP of
17:27engineering that are gonna be important
17:28so I think thinking ahead and trying to
17:31to force the corporate development
17:33person to sort of be inefficient when it
17:36comes to the number of meeting
17:37the number of contacts you have can be
17:38really important it can actually make
17:40the interaction a lot more efficient for
17:41everybody as well so what are the many
17:43other flag red flags to look for in this
17:45in these conversations I mean I think
17:47lastly when it comes to it when it comes
17:49to a term sheet you know there I think
17:51there's a lot of a lot of different
17:54issues that you know points of
17:56indemnification are always high in the
17:58list so companies will always want you
18:00to indemnify them against all things you
18:03know everything that they can think of
18:05and with unlimited caps on it and that
18:08that's certainly one thing to be very
18:10cautious of another is how how the
18:13company is going to to be incorporated
18:17post acquisition so how's it going to be
18:19integrated so I mean that's what's the
18:21role of the senior management team how
18:23much authority and discretion are they
18:26going to have over decision-making what
18:27are the budgets and that gets into a
18:30whole nother set of issues on the
18:32structure of if it is an acquisition
18:35what is the structure of that
18:36acquisition so if there are notes
18:37involved do you have control over those
18:39are announced again you know it's it's
18:42bring your advisors in for a lot of this
18:44because they these are these are too
18:47complicated to go through and you know
18:48at a very high in general level advisors
18:51you mean lawyers only or do you mean
18:53like just like board yeah always
18:55yeah your board members your investors
18:58you know head injuries and horowitz that
19:00that's our team here but definitely have
19:04legal advice and the point there I think
19:08is a you know for those who aren't as
19:11involved in an M&A process is around the
19:14difference between the term sheet and
19:15the definitive agreement or the merger
19:16agreement and so the term sheet is sort
19:20of the initial step it might be also
19:21known as a letter of intent but in
19:23either case it's it's really the first
19:26step in the diligence process and an
19:29important thing to note is that
19:30oftentimes the terms in a term sheet
19:33aren't binding and can change and
19:35ultimately through diligence the the
19:39matura store the content of the
19:40definitive agreements actually was
19:41what's binding it was final so I think
19:44it's an important thing to keep in mind
19:45as you as you negotiate the term sheet I
19:47mean I think a larger point to is
19:50if you're engaging with a corporate
19:52development team and it is sort of
19:54specifically to talk about M&A or
19:56investment and there's just a
19:57transaction at the end and I think a lot
19:59of times people just don't ask like so
20:01what is like what's the process because
20:03look each of the companies I've worked
20:04at I know Oracle a lot of the companies
20:06we talked to everyone has a sometimes
20:09slightly and sometimes like
20:10significantly different process
20:12how much diligence are gonna do pre term
20:14sheet how much diligence to do after
20:15term sheet do you issue a term sheet is
20:17the term sheet 12 pages long is it two
20:20and I think the understanding with who
20:21are the people that are gonna have to
20:22sign off on this along the way and
20:23understanding all that is I think really
20:25important to sort of be aligned on
20:28timing and sort of what kind of
20:30information gonna need to go forward and
20:32how the whole thing's going to work and
20:34I think a lot of times like they in the
20:35rush of moving things forward
20:38especially the entrepreneurs don't take
20:40a step back to say like okay I want you
20:41to walk me through every step of the way
20:44like if we're going to go down this path
20:45what happens and and I mean I found when
20:48I was sitting on the other side of the
20:49table I was always happy to be really
20:50open about that because I think it's
20:51it's important for people to understand
20:53the milestones and who's involved and
20:55what needs to happen but that's the to
20:57me like that's the a number one question
20:58because it is it is not been the same at
21:00any place I've worked at you know I've
21:02talked to Tyson I don't think it's this
21:03you know it's always different at
21:04different places because you know big
21:06companies have different internal
21:07organizations watching this space and
21:11observing the space one of the things
21:12that we think about a lot is it seems
21:15like only companies that are not doing
21:17very well um are the ones that are
21:19really seeking corporate development
21:20like why would you in this day and age
21:22when you're trying to grow a big company
21:23so like how would you kind of respond to
21:25that yeah and there's a there's the meme
21:28of companies get get bought not sold but
21:31you know my answer to that is you know
21:33strategics don't buy companies they'd
21:35never they've never met so you know it's
21:38all about creating options for the
21:40company so whether that's staying
21:42independent that's one option but you
21:44also have to you know it's John
21:45O'Farrell 70 now you have to know where
21:47the exits are so it's it's understanding
21:50what those options are creating some of
21:52those options getting on the radar and
21:53giving larger op strategics an
21:56opportunity to preemptively come in and
22:00and with an acquisition offer not to say
22:02that you have to take that not to say
22:04that that's the route the only route
22:06that you're building towards but it's
22:07creating an option for for you okay
22:09awesome so that's another episode of the
22:11ACNC podcast Thank You Jamie James and
22:13Tyson thanks a lot thanks guys
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