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Finding the Middle Ground With an Acquirer

May 28, 2021 |  

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Shawn Finder built email marketing platform Autoklose to $1 million in revenue when a chance encounter at a conference led to an acquisition conversation with VanillaSoft. Finder thought his company was worth much more initially than VanillaSoft did – their valuations were quite far apart and both sides had to negotiate to ultimately meet in the middle.

In this episode, you’ll learn how to:

  • Finance your growth while hanging on to your equity.
  • Maximize your customer retention.
  • Keep your books if you want to get acquired.
  • Push an acquirer hard (without jeopardizing your deal).
  • Justify a higher valuation for your company.

Show Notes & Links

(02:26) Shawn Finder: “So it started first off, we had a company called Exchange Leads, which was a data company. Similar to the old Jigsaw, which was acquired by Data.com.”

(03:33) Shawn Finder: “actually with Exchange Leads, one of our first clients was Rogers.

(11:12) Shawn Finder: “the reason why we only have U.S. contacts in our database, we stayed away from CASL and we stayed away from GDPR.”

(12:55) Shawn Finder: “What happened was I was at the SaaS North Conference in Ottawa in 2019.”

(13:18) Shawn Finder: “We had our booth and about 20 feet away was a company called VanillaSoft.”

(18:19) Shawn Finder: “one thing I will tell the audience is, when you’re going through this whole process, you are going to have to do a lot of due diligence, get a lot of stuff that takes you away from your day-to-day business. So if you don’t have somebody that’s continuing to grow the business, it takes a lot of time.” – Do I Need a Broker to Sell My Business?

(21:56) Shawn Finder: “a book I read on negotiation Never Split the Difference is an amazing book.”

About Our Guest

Shawn Finder is an entrepreneur at heart. At age 24, Shawn entered the entrepreneurial world by importing packaging from Asia and selling to top cosmetic retailers in North America. By the age of 28, he already sold his first business.

In early 2017, Shawn parlayed his second venture ExchangeLeads into a sales automation platform called Autoklose. Autoklose & ExchangeLeads were both acquired in 2020 by VanillaSoft.

Connect with Shawn

Watch the interview

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Transcript

John Warrillow:

So when’s the last time you read a book on selling your company? My guess is you’ve never read a book on selling your company. Why bother when the only books out there read like textbooks filled with acronyms and terms you’ve never heard of written by people who make it their job to make themselves look and sound smarter than you. Why bother?

Well, The Art of Selling Your Business tries to do exactly the opposite. It features the stories of the founders I’ve listened to for the podcast. I’ve taken their best practices, their secret hacks, and bundled them into a storytelling format so that you can take away the key lessons, the action plan, the field guide without sifting through the boring textbook that is most books on the topic of selling your company. You can get it at BuiltToSell.com/Selling.

So what do you do when you get a low ball offer for your company? Do you walk away? Do you pound your fist on the table? Do you justify why you’re worth more? My next guest, Shawn Finder, experienced that situation firsthand, where he built a company and as you’ll hear thought it was worth much more than the original offer. Rather than walk away, he worked with the offer ultimately getting it up to a place that he was comfortable with, they were comfortable with, and they consummated a deal here to tell you the entire story is Shawn Finder.

Shawn Finder, welcome to Built to Sell Radio.

Shawn Finder:

Thanks for having me, John. I look forward to talking today.

John Warrillow:

Yeah. Autoklose. First of all, I love the name. And for folks listening it’s with a K. Tell me about this business. How did it start? What did you guys do?

Shawn Finder:

So it started first off, we had a company called Exchange Leads, which was a data company. Similar to the old Jigsaw, which was acquired by Data.com. And then what happens is we had all these data guys buying our data and we’re like, okay, well, why are we letting them go to another software to start emailing these data that we’re providing the data for? And that’s where Autoklose came from-

John Warrillow:

So, you sold email lists? You had like email lists like if I wanted to buy it from a third party email list, I could come be-

Shawn Finder:

Originally. It was a subscription model, but yes, it was email lists that we did before Autoklose was even born. And then we-

John Warrillow:

Got it. Okay. So in the old days I would buy a list from you. And I would upload it into whatever email platform, MailChimp, or Constant Contact, whatever I use. And you’re like, “Why are we sending everybody off platform to use the email? Why don’t we create a platform?” This sounds expensive. How do you go about building a platform? I mean, did you raise money or how did you kind of get this off the ground?

Shawn Finder:

That’s a great question, and I think you’ll appreciate this one because we’re both from Toronto, actually with Exchange Leads, one of our first client was Rogers and having such-

John Warrillow:

Rogers Big Telco. For folks listening, it’s like that ATT wireless or something in the U.S.

Shawn Finder:

Yeah. And getting that contract with them in our first year and a half, we ended up using that money to develop Autoklose while we were running Exchange Leads. So instead of paying the Canadian government, we took the Rogers contract, we took the money, and reinvested in building the email platform. So as you said, it would have been very expensive to build, but getting that first, I guess, whale client right at the beginning really helped us.

John Warrillow:

I love it. I love it. Nothing like getting your customers to finance the growth of your business. So did you get them to pay up front? Or how did you get the cash? How did that work?

Shawn Finder:

It was paid every quarter. So it’s a quarterly contract for the data. But what we did was we ran Exchange Leads solely for about a year and a half, grew as much as we can, and then we reinvested all the money into the email side of things, which is our sales engagement platform Autoklose.

John Warrillow:

Great. So Autoklose, I’m familiar with, and I think most people listening to this would be familiar with again, a MailChimp, a Constant Contact, is that what Autoklose was? Or was it fancier than that?

Shawn Finder:

Great question. So the biggest difference between MailChimp and Autoklose is when you use MailChimp, you’re doing very marketing HTML, and you’re sending it to all the emails from MailChimp servers. However, with Autoklose, we actually go right into John’s email, connect to it, and allow you to send those emails from John to that prospect, rather than going from a MailChimp or Constant Contact to that prospect-

John Warrillow:

And why do people care? Why is that important?

Shawn Finder:

Great question. Deliverability. When you’re using a third party and you put a list into MailChimp and you get a high bounce rate, people aren’t valid, they don’t work there anymore, they’ll either a put you in a bucket where your emails would go into promotions folder, the marketing folder, but when the emails are actually going directly from John to Shawn, they all get delivered.

John Warrillow:

Got it, got it. So you had higher deliverability rates and who was the competitor? Like I’ve heard of, there’s a company called SalesLoft, would that do something similar or were they directly competitor?

Shawn Finder:

At the beginning, they were a direct competitor, SalesLoft and Outreach.io. Both are unicorns now, but obviously, what we did was instead of going after those high, large tech companies, we kept our focus on the SMB space, on those small and medium sized companies. So we would let them have the enterprise, but we tackle that SMB and really focused only on email, whereas the SalesLoft and Outreach focused on more of that, multi-channel where it could be email, phone, SMS.

John Warrillow:

Got it. So what was the business model? I mean, were you guys billing on a SaaS basis, people subscribe to this? Or how did that work?

Shawn Finder:

Yeah, we have a SaaS platform. So for the Autoklose email platform, it was you can do month to month, quarter to quarter, or annually. And then we had the data side of things. So, we parlayed our Exchange Leads database that we were selling the data for into Autoklose. So now not only can you use this for email, you can also buy lists, like you said. So there’s two different revenue streams, and the data was also an annual subscription overall.

John Warrillow:

Oh, that’s cool. So, it wasn’t just the shell that you had to fill with information.

Shawn Finder:

You got it.

John Warrillow:

You could also… That’s interesting. And so the target was small, medium sized businesses. Here’s the thing, I’ve heard. SMBs can be just a naturally higher churn rate relative to enterprise. They’re easier to win, but they’re less sticky because the contracts are… Well, for obvious reasons, there’s a lot more turnover. Did you guys experience the churn associated with SMB?

Shawn Finder:

We did. And I’ll tell you, one thing I learned from running a few businesses now is I get more headaches from a $49 deal than I got from a deal that was worth $100,000. Less headaches, I never heard from the $100,000 deal throughout the year, but the $49 deal was in my support every single day. So churn is a problem because they have less capital. If they don’t get an ROI right away, return on their investment, they’re moving to the next platform and they expect the best support for a $49 deal. So churn is definitely higher at the SMB space than it is at the enterprise space.

John Warrillow:

What kind of churn rate did you guys have on an annual basis?

Shawn Finder:

So, when we started off, I would even believe we were more under small. So we were up 20%. We’re high, we’re at 20 to 25% churn. And we-

John Warrillow:

Per year or per month?

Shawn Finder:

We were doing per year, per month at the beginning. And then we slowly continue to decrease that. And now we sit about anywhere between six to 8%, but that was a big challenge in our second year was really decreasing that churn because of our clients. We’re are a lot smaller companies, solopreneurs, very, very small business at the beginning.

John Warrillow:

Got it. So in the beginning it was 25% monthly churn. And you’re now down at sort of six or eight per month.

Shawn Finder:

Yeah we’re about six to eight. Yeah.

John Warrillow:

Got it. And so what did you find to be the most important? Because a lot of people listening to this would either have a subscription model, or experimenting with a subscription model, or want to have one. What have you found to be the best ways to lower churn?

Shawn Finder:

Well, A, our number one thing was actually hiring a customer success person. That was a big game changer for us. So what happened was we had the 14 day trials and we had people on the platform, but as simple as we thought our platform was and how easy it was, our user interface is very easy. Some people didn’t find it easy but now that we have those customer success that literally hand-hold you on your first time, get you set up, et cetera. They spend 30 minutes with you and that’s all it takes, it has reduced our churn immensely. So that was the biggest thing we implemented in year two right… Actually, no, sorry, end of year one we did that, and we’ve been growing our customer success team because as we continue to onboard, every person gets that kind of white glove approach on their first time on the platform.

John Warrillow:

And the average price that people pay for Autoklose, what’s that?

Shawn Finder:

So our monthly’s for the subscription, we’ve started about $50. Annual’s go about 500 for the platform. And the data would be a separate cost. It’s about $3,000 a year for just access to our database. And our database has about 37 million U.S. contacts and they’re only B2B.

John Warrillow:

Got it. Got it. How did you think about the fatigue associated with the list? As you guys grew, clearly that database was being pinged a lot of times by your customers. How did you guys think through the associated fatigue that would set in with the list? What was your thinking there?

Shawn Finder:

So early on, we had to do a lot of purchasing new lists for ourselves, but what we implemented at Autoklose is, we actually validate every email real time now. So therefore, when our people are using our database and emailing people, they’re emailing our people at the same time when they’re emailing for us, we’re actually cleaning our database because we’re getting a reply back saying this email is valid, inbound, catch all, et cetera, marking with a timestamp in our database. So for example, if we’re sending about 60,000, 75,000 emails per day from Autoklose, we’re cleaning our database by that same amount every single day. That’s one way we do it. And we also have internal data team out of Eastern Europe that manually, having an internal Google Chrome plugin we built that validate the contacts every day as well.

John Warrillow:

Got it, got it. Okay. So, that’s super helpful. How did you guys get around all this spam stuff? There’s like, is it called GDPR in Europe?

Shawn Finder:

GDPR, yep.

John Warrillow:

And then there’s-

Shawn Finder:

Castle.

John Warrillow:

Castle, every country now has its own craziness. How did you guys get around all that stuff? Or not around, but how did you remain compliant to all that?

Shawn Finder:

Exactly what I said earlier, the reason why we only have U.S. contacts in our database, we stayed away from Castle and we stayed away from GDPR. So we only provided us contacts because in the U.S. you have canned spam, which you just need to put the stuff at the bottom, but you are still out to email. In Canada, you can’t email all and also with GDPR.

John Warrillow:

Got it. So your customers were American. They were emailing Americans. And they were on side from a-

Shawn Finder:

Yep. Or we have people in Europe that were emailing U.S. people but all our contacts were U.S.-based only inside the software.

John Warrillow:

Got it, got it. That’s a key distinction for sure. So, you have this data company and you’re like, “Why don’t we build an email?” How long did it take you from the decision to launch Autoklose to when you decided to sell Autoklose? What, what’s that period?

Shawn Finder:

So it took about, I would say, a year to build Autoklose when we’re running Exchange Leads, we’re building on the side. And then from there, we’re about a little under two years old when the acquisition happened, which-

John Warrillow:

Dude, that’s fast.

Shawn Finder:

I was not looking to get it acquired.

John Warrillow:

Two years?

Shawn Finder:

We were growing. We were growing through COVID because people were focusing more on email.

John Warrillow:

Sure.

Shawn Finder:

I was not looking for an acquisition. My books and financials were not audited. Nothing was done. We were not prepared at all for even a company to look at us and it came literally out of nowhere.

John Warrillow:

Okay, so that’s interesting. So you’re just going about your business growing this company, and so what happened? When you say out of nowhere, did you get into cold email? Or what did you-

Shawn Finder:

No, I’m going to tell you – I mean, We got cold emails all the time, but I always thought it was automated. What happened was I was at the SaaS North Conference in Ottawa in 2019-

John Warrillow:

So, SaaS North for folks who don’t know that conference, is, is a Canadian, Ottawa-based for as the name suggests SaaS company owners. And it’s a great event. And so you’re there. Keep going.

Shawn Finder:

So, we’re a sponsor. We’re one of the sponsors. We had our booth and about 20 feet away was a company called VanillaSoft. They had their booth and their CMO at the time just walked over and said, “Oh, what do you guys do?” And I showed them a demo of the platform that was in our booth. He’s like, “I want my CEO to see this.” I’m like, “No problem. Tell him to come over tomorrow.” So the CEO came the next day. He looked at it now, for people that are listening, VanillaSoft focus their sales engagement in the same space, but they’re really focused on phone, SMS, and were a lot weaker on the email side, where we were just focused strictly on email. So he came over and he looked at the platform and he was just like, “Well are you guys looking to get acquired?” I’m like, “Well. I’m not really looking but there’s a price for everything. If you come with something that I can’t refuse, I’m more than happy to talk.”

John Warrillow:

And Shawn, are you 100% shareholder in the company at this point, or you and your partner have 50/50? Or how did that work?

Shawn Finder:

It was 45/45 and then there was some options. There were some employees and the lead developer, et cetera. So we were-

John Warrillow:

When you say you guys, were you and your partner at the SaaS North together?

Shawn Finder:

He wasn’t there. So, he is kind of more of a silent partner. Well, he’s involved, but he’s more non-involved in the day-to-day like I was. So even though I was half owner, I still was the one that could make any decision. Let’s just say the voting rights were all mine, et cetera, et cetera. But he was not there with me. So, he ended up meeting with me when we met with the CEO in Toronto, but at the conference, it was just me, my, at the time, CMO and my VP of sales, the three of us that were there.

John Warrillow:

So what was your reaction? Take me inside your head, maybe your inside voice, when the CEO of VanillaSoft says, “Are you guys looking to get acquired?”

Shawn Finder:

I mean, I’m one of those guys that I’m always willing to listen. Did I actually think at that point in time that this was actually going to happen? Because I showed him a five minute demo on a computer screen. He’s like, “Are you guys looking to get acquired?” And I didn’t know that they were looking to A, either acquire an email company like ours. Or B, build it themself, which would take 18 months to build, a lot of coding. So he said, “You know what? I’m going to give you a call next week and then we can discuss this further.” And I was not really thinking or looking and then let alone a week later, he goes, “I’m going to come down to Toronto. Could I meet with you and your partner?” We’re like, “Well, I guess we’ve got to get the finance, the accounting guy, and get these books in place and make sure everything’s in the right category here.” And that’s how it initially started. It was just through that conference.

John Warrillow:

That’s funny. Okay. So where does it go from there? Does he come to Toronto to visit you guys?

Shawn Finder:

Yeah. So he comes to Toronto.

John Warrillow:

What was that like?

Shawn Finder:

He’s a great guy. We had a good conversation. So, I come with a finance background, so I thought I was going to finance the numbers, but he came and is an extremely intelligent guy with all loan, accounting, and numbers. He’s all about, finance, auditing, et cetera. So we were going through the numbers, but as I said, we weren’t prepared. So, we had my car allowance in the wrong category. We had a little bit of marketing stuff in the sales category so.. Initially I told my partner, “We lost a little bit of leverage here because we just look like we’re not ready.” And I told them, honestly, I’m like, “We weren’t expecting, so the books aren’t audited by a big accounting firm, things were in the wrong category, every startup does a little thing where I’m paying a contractor this and where does this number come from?” So we weren’t really prepared.

John Warrillow:

Think of you guys at this point, give us a sense in terms of revenue or number of employees or some proxy for size.

Shawn Finder:

Yeah. So, at that point we’re close to a million dollars when we initially started talking.

John Warrillow:

A million dollars top line revenue?

Shawn Finder:

Yeah.

John Warrillow:

Got it. Okay.

Shawn Finder:

But we’re profitable. We are profit-.. I had this company profitable in six weeks. So we were profitable right from the beginning. We’re bootstrapped and profitable. I ran it very lean and hired a huge team out in Eastern Europe because my partner was actually from Serbia and we grow our entire team with our lead developer, support, customer success, everything out of Serbia.

John Warrillow:

That’s interesting. And by the way, what was VanillaSoft’s reaction to learn that all of your key people, your developers, your customer success, were A) on contract, B) in Serbia? What was their reaction?

Shawn Finder:

Yeah. So, initially, I mean, he took it in and then he thought about it, and he was like, “This is a great opportunity.” Because they already had at that time 65 employees and he’s like, “Well, you know what? For the price we’re paying people in Eastern Europe, we can probably get three people for the same price we’re paying somebody in Toronto.” And I’ll tell you from my own personal experience, a developer here in north America and a developer in Serbia, I will still take the development Serbia every day of the week. They are very knowledgeable, great work ethic, coachable, great team people. So we had a great time. They’re still working with us today.

John Warrillow:

That’s awesome. So, okay, the CEO of VanillaSoft is pouring through your books and starting to-

Shawn Finder:

Ripping it apart.

John Warrillow:

Yeah, sort of pick them apart. So what happens next?

Shawn Finder:

So he comes in and then after a day he looks at us and I’m like, “Okay, well, before we waste each other’s time-” because one thing I will tell the audience is, when you’re going through this whole process, you are going to have to do a lot of due diligence, get a lot of stuff that takes you away from your day-to-day business. So if you don’t have somebody that’s continuing to grow the business, it takes a lot of time. Before we did that, I said, “well, give us an offer. Give us what you think our approximate of what it’s going to be valued at.” And at the time he gave us the first number. And I don’t want to say the number, but let’s just say it was about one and a half… One and a half to two X.

John Warrillow:

X what?

Shawn Finder:

Of our revenue.

John Warrillow:

Of your revenue? Okay.

Shawn Finder:

So at that point, I knew there was no way I was going to settle for that just because we were growing, I love the team, we’re profitable, continue doing what I’m doing. But at least, I always say in my head, you got to get the floor. So I got the floor, now it’s my turn to do the ceiling. So what happened was I said, “Okay, thank you so much.” Didn’t even comment on it, looked at it. And then I said, “Okay, well, I’m going to come back with what I believe we’re valued at.” And that’s when I spent two weeks building out exactly what I thought we were evaluated and obviously came with my ceiling of what I’d be looking for.

John Warrillow:

What did you think you were valued at? How did you, in terms of multiple, you don’t have to show…. And I’d be curious to know A) what you thought your company was worth and B) where you got that number from?

Shawn Finder:

Great. Great. That’s an amazing question. So a lot of people just look at revenue and say, “Okay, well, you’re worth this.” But that’s not how I valued my company. I valued my company as A) my team, B) the code and how much it would be to take you to build that same code that I’ve spent three, four years building, C) the product. So all three of those things were valued. So I didn’t value it based on only my revenue. My revenue is one thing with the projected growth rate, et cetera, et cetera, but my team and my product have a value. And I thought my product… so when I actually came back with the ceiling, I said, “My product is worth this because I have 250,000 lines at this cost per line for a developer. I’ve paid $800,000 in development costs. I’ve paid this much to build my team. My team is valued at this. My revenue is going to be this in three years, et cetera, et cetera.”

So, I mean, I went a little bit higher than… I came in, I think it was about seven to eight X from that. So there was a huge gap. But at the same time, that was my goal in the negotiation because as I said, it’s all in negotiation. So whatever the first number the seller’s going to say and the buyer’s going to say, you’re never going to be there. You’re going to have to meet somewhere on somebody’s side in the middle.

John Warrillow:

So, I’ve got so many questions. So, when they came with an offer of one and a half times revenue, or one and a half to two, something like that.

Shawn Finder:

I think it was two.

John Warrillow:

Okay. So, closer to two, a lot of people would have been like, “You know what? I’m not interested. This is so low.” Again, for people listening, by the way, I should say, two times revenue for a lot of industries would be astronomical. Right?

Shawn Finder:

Yes.

John Warrillow:

It would be over the top. But in SaaS, it’s a very different kind of valuation. So this software as a service that generally gets higher multiple. So your reaction to two was like, “It’s not enough.” But a lot of people, I think, would have just blown off the acquirer and said, “Next.” Why did you think there was more on the table?

Shawn Finder:

Well, first off, a book I read on negotiation Never Split the Difference is an amazing book on negotiation.

John Warrillow:

Chris Voss, right?

Shawn Finder:

Yeah. Yeah. And I did that and I took negotiations during my MBA as well when I was in school. So I knew you’re never going to give your best offer. You’re going to give your lowest offer. And the other person will give the highest and then you have to fight for where you have to be. So when he first said it, I said, “Okay, well, I’m not going to settle for that. I know that.” And I knew when I gave them up my offer, the initial reaction would probably be like, “Well, I can’t get that approved from the board and it’s way too high. It’s just not going to work.” I knew that in my head, but that’s the reason why I did it. And that’s exactly what happened.

Shawn Finder:

I got a call a week later said, “It’s way too high. I’ll never get that approved. I saw your evaluation. I saw how you came up with the numbers, but it just something that just won’t happen.” And this was at the beginning of COVID. So it was like even though we were growing, it was like, “I just won’t get that approved. Maybe we should discuss this another time.” And I said, “No problem.” And we actually stopped talking for a bit.

John Warrillow:

What was going through your mind at that point?

Shawn Finder:

He’s going to call me back in a month.

John Warrillow:

Come on. You were that cocky and confident? Really? Like at that point, a lot of people would be like, “Oh man. I’ve just blown my shot.”

Shawn Finder:

It wasn’t that. I know the category that we’re in and how quick things are going. They’re going very quick. And we were already talking for five, six months. His options were A) acquire us, pay a little bit of a premium maybe, or build it yourself. It’s going to take you 18 months and you’re going to be 18 months behind your competition.

John Warrillow:

But there are other email companies that he could have acquired, no?

Shawn Finder:

I mean, there were, but then again, is any SaaS company north of a million dollars going to sell their SaaS for two X when they’re two years in? That’s like the perfect growth stage where you can really start to elevate. So I don’t think… I mean, you could have, yeah. But I think knowing that they were in Ottawa, they were coming out of Ottawa. It’s a Canadian company. He’s four hours away, an hour flight away from meeting us in person throughout the renegotiation. He knows us personally because he met us at the conference, a lot of different things. And I truly believe we did have, we still do, we have an amazing email platform, even though SalesLoft and Outreach are unicorns, we still get clients that say our user interface, our ease of use is way better than our competitors.

John Warrillow:

Hmm. Hmm. So, okay, you throw out seven. He says, “No way, board’s never going to approve it. Thanks. Good luck. Keep in touch.”

Shawn Finder:

Yep.

John Warrillow:

Then what?

Shawn Finder:

And then about eight weeks later, six weeks later, he called again and we started talking again.

John Warrillow:

What was the re-entry point? What did he say?

Shawn Finder:

He was just saying, “I’d like to make things work, but maybe we can look at different options like a payout structure or an equity cash deal, only equity… Different options that we can look at.” Because they’re about 10 times our size at the time. And for me I was all about, I wanted cash. The only reason why is young… You’re from Toronto, John. You know the real estate here in Toronto.

John Warrillow:

It’s crazy.

Shawn Finder:

You need the cash and especially at my age, it was like the cash will help. And one of the reasons which I’d love to tell the audience was, I also said to myself, the stock market just took a huge hit because of COVID. And can I double my business in a year, or can I double my money in the market in a year? And with my finance background, I felt that we were at the bottom of the market. I can make a lot more money in the stock market than I could by running my business for eight more months.

John Warrillow:

Wow. So this is sort of March, April timeframe, 2020.

Shawn Finder:

Exactly.

John Warrillow:

And that’s when the stock market really took a dive. Okay. Got it. And so he comes back and says…. But I’d be curious to know, did he say, “I’ve reflected on our conversations and I’d love to just make it work.” Or, “I met with my board.” What was his reason for reaching out?

Shawn Finder:

He met with the board and he’s going to give us another offer.

John Warrillow:

Got it. Okay.

Shawn Finder:

So he came back with another offer and it was closer to between the two. So, let’s just say it was in the three to three and a half, just say that.

John Warrillow:

Got it, times top line?

Shawn Finder:

Top line. So then what happens, I go back and I come back at about five and a half, six, and then we keep moving lower. That’s kind of how the negotiation happened. And then I obviously wanted more cash in the deal. He initially wanted a split between cash and equity, but as I said, it had nothing to do with the company or the equity. It was just, I wanted the cash to be able to enjoy it now, rather than equity in a company that it could be amazing. It’s going to be amazing. But at the same time, if I’m selling my company I want the cash to get out now so I have that to, as I said, purchase some nice real estate here in Toronto.

John Warrillow:

Yeah. Yeah. For sure. So, where did you guys net out? I’d be curious to know where you… Here’s the thing. I think a lot of people listening to this going into the first negotiation are going to be like, “How will I know that I pushed the acquirer as far as I can push them? That pushing them any further will risk the deal.” How did you know that the gig was up?

Shawn Finder:

So I knew because I knew their product and they really did need the email side. They needed our platform, they needed our people, they didn’t have the email experts like we do on our team. But at the same time, I wasn’t trying to be greedy. I truly believed our company was what I valued it at. I put a number towards everything. I did a full calculation on why. But at the same time when we started to get close, it ended up being we’re a few hundred thousand dollars off at the end and that wasn’t a big deal. So we ended up working that out with some equity and obviously, for me it was, I wanted to also give some money to my team members. I wanted to give money to my CMO, my VP of sales, even though they had no options, I was… I wanted to give to my partner. I felt like we were a full team. So we met in the middle and we ended up about four and a half, five. Five X.

John Warrillow:

Got it, got it. Well, congratulations. I mean, I think for a two year old company with a million dollars in revenue, it’s unbelievable. That’s fantastic. So, how did you structure the deal? Because a lot of deals in smaller, younger, newer stage companies are heavily weighted on the back end like an earn-out. How did you guys structure the deal?

Shawn Finder:

So, initially we were offered… And don’t get me wrong, when we were going through the negotiations, the CEO of VanillaSoft, which is why I’m still with them now, he was just an amazing person to work with.

John Warrillow:

That’s great.

Shawn Finder:

It was great to work with him. But what we ended up doing is, he gave us options. We can do an earn-out, we can do equity. Initially, they tried the earn-out, but I didn’t want the earn-out A) because I don’t believe I have to perform for somebody to make numbers when I’m the one that built my company and I’ve grown it to where it is today. There was also COVID but even though we never took a hit, we grew, I wasn’t going to take a risk and say, “Okay, well, I’ll do an earn-out in probably the worst year of the economy in who knows how long because of COVID.”

So we have no earn out but he went through all the numbers, he did his due diligence, he spoke to our clients, he did a lot of stuff that he should have done. So we didn’t do an earn out. We ended up doing… It was an equity cash split, more on the cash side because that’s what’s more attractive to us. And then the equity is obviously just like it would be. That’s over a certain period that I and my other co-founder have to stay with VanillaSoft a minimum. But now that we have equity, who knows what’s next.

John Warrillow:

Yeah. And now you’ve got portion of the proceeds, a minority, but a significant portion was paid in equity in VanillaSoft. Now is VanillaSoft a publicly traded company? I don’t know.

Shawn Finder:

Not right now. No. They’re not their own private company. Potentially in the next few years, they’re looking at it though.

John Warrillow:

Do you have any rights to sell that equity or do you have to hold until they’re public?

Shawn Finder:

Great question. Something I actually reached out to my lawyer recently just to find out, because I didn’t know how exactly it worked. But we’re getting their shares over the 18 months that we’re working. And then from there, I think if they go IPO or they raise a round…. There’s some different options in there, but I think they have to raise funds or go IPO and then you could liquidate with it. But if there’s not, I do not believe so.

John Warrillow:

Got it. And how did you get comfortable with that? They refer to it as reverse due diligence, effectively, where you’re actually doing diligence on your acquirer to say like, “Hey, is this company legit? Are they going to be around? Am I going to be able to get this equity and make it liquid at some point? What kind of reverse due diligence did you do?

Shawn Finder:

Well, one thing is they’ve been around for 18 years, so they’ve been there for a while. I met a lot of the people that are currently in the company. We did that, went through all their legal bills for these acquisitions can be costly. So we went through all the different equity agreements, shareholder agreements. And, and I think speaking to them, it came down to you could go through everything, but it came down to trust and, and I see where the direction they’re going with the acquisition. And I think it’s something that I don’t think they’re looking to continue to grow small for the next 20 years. I think they want to make a big push, raise money in the next 48 months, 24 to 48 months and take the next step. So, hopefully it is liquid at some point because I always say cash is king.

John Warrillow:

Yeah. Yeah. For sure. So did you buy yourself a trophy? What did you do with the cash?

Shawn Finder:

Yeah, well invest a lot of it in the stock market, which I said. And then the other bit is actually going in two weeks, I’m moving into a new house about-

John Warrillow:

Congratulations,

Shawn Finder:

Two and a half times the size of my current one.

John Warrillow:

That’s awesome.

Shawn Finder:

So going to have a lot more room and we’re moving June 1st to the area that I would like to live in, in Toronto. So a lot of the money went to that. And then, I’m still investing in some other startups and doing some angel stuff, which I’ve always done, and dabble a little bit in crypto a little bit. So doing a little bit of everything.

John Warrillow:

That’s great. Well, you’ve probably done well with the stock market because obviously the market has improved a lot since April of 2020.

Shawn Finder:

I have. Tech’s taken a bit of a hit lately-

John Warrillow:

Oh, that’s true.

Shawn Finder:

But I would dig in oil and oil is do it really well with people start driving again and airplanes start going. So I’ve done okay. And I took a little bit. I gave half of it to the professionals because I couldn’t keep up with the day-to-day stuff, but it’s been a pretty good year. Yeah.

John Warrillow:

That’s good. Well, that’s great. And tell people where they can find Autoklose because a lot of small businesses listen to this show, so maybe we can send a few of them your way if they want an email provider. So, what’s the best way to reach you or what’s the website for them to check?

Shawn Finder:

Autoklose.com and that’s A-U-T-O-K-L-O-S-E. And that’s klose with a K. And for people asking why it’s a K and not a C, and it’s a great story for this is, when I started with the idea with the company, I looked at Autoclose with a C and they wanted $22,000 for the domain and with a K they wanted $9.99 cents. As a bootstrap startup, I chose the K. So that’s the whole reason why it’s K and don’t get me wrong, I look back now. I’d probably should have spent the money because a lot of people mistake us with cars in Europe, with the klose and the Auto in the email. So that’s it. But autoklose.com, email me, Shawn, S-H-A-W-N @autoklose.com. And I’m very active on LinkedIn. Always talking about different email strategies as well.

John Warrillow:

Well, Shawn Finder, thanks for doing this.

Shawn Finder:

Thanks so much, John.

John Warrillow:

Hey, if you liked today’s episode, you’re going to love my new book, The Art of Selling Your Business. The book was inspired by the cohort of my guests over the years, who’ve been able to negotiate an exit far better than the benchmark in their industry. Sometimes two or three times more than I would have expected. I was curious to understand the tactics and strategies of these entrepreneurs and what they do differently from average performers. The result is a playbook for punching above your weight when it comes to selling your business. To learn more, go to BuiltToSell.com/Selling, where we put together a collection of gifts for listeners who ordered the book, just go to BuiltToSell.com/Selling.

Built to Sell Radio is produced by Haley Parkhill. Our audio and video engineer is Denis Labattaglia. if like what you’ve just heard. Subscribe to get a new episode delivered to your inbox each week, just go to BuiltToSell.com.

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