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On December 9th, Venture Archetypes and Greenberg Traurig pulled together a panel of some of the top entrepreneurs and most active acquirers in Silicon Valley to answer your questions about start-up M&A. So whether you’d like to know what the serious players are looking for or how to position your start-up for a healthy acquisition, you’ll find the wisdom right here!. Read the rules.
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Amin Zoufonoun

Google
Director, Corporate Development
Google, Inc. 2003 — Present. Mergers & Acquisitions and Investments.

List of Amin 's answers

Q: Give us an overview of the M&A process at your company. What happens when you are acquiring a start up, what teams are involved, how long does it take? How does it work at your company? check all answers
A: So the process is not standard by any means. I would say that depends on the particular start-up, why we're looking at it and who is looking at it within Google. So the average time we quote is a couple of months, or a month. It could be a month. Actually, the bigger deals tend to go much quicker and smaller deals tend to take longer and we can talk about why that is. Generally, we get to know the team, we get to know the technology, we get to know whatever we can before we go to our executives and seek approval for the deal and get consensus from the various teams. And then what happens is, you as a start up would see a much bigger team of professionals than I think most people expect. It includes my team, which leads an integration team, a finance team, a legal team, HR for getting people offers and getting them Google badges and to conduct due diligence and get the deal through. So that's a typical process for the most part.
Q: How can founders go about getting more than one party interested in the deal to improve leverage? check all answers
A: I keep going back to: Why are we doing the deal? Where are we in the process of doing the deal? Because if we're at the point where we're issuing the term sheet, and we're the same way when we issue a term sheet, it will be a no shop clause. We feel like we're dedicated at that point, and we hope that you're dedicated as well. We've assessed it on both sides, so at that point if you actually take our term sheet and go shop it, that would be upsetting for us, quite frankly. And it depends on the kind of deal. If it's DoubleClick, which was owned by a private equity firm, one could argue that it's purely a financial incentive for the private equity firm to run an auction process and try to maximize valuation. It's not about team fit and that kind of thing. But if it's a team fit kind of acquisition and you've gone to Facebook or Google 10 times and you know you've had various dialogs with engineering managers and product managers on what you're going to do, how you're going to fit into the organization, then there's this trust that's been building. If we get to the point that we're issuing a term sheet and then you turn around and shop that, I think that's inappropriate. So it depends on where you are and what you're seeking to do.
Q: Can we talk about the diligence and information? For example, worries about your becoming a competitor. You know, what information is disclosed in the process and when? check all answers
A: Absolutely. That's a good question. And as paranoid as start ups and entrepreneurs are with respect to their confidential information, as they should be, we, as a big company who pride ourselves on doing things "right and good" and "not evil," are very paranoid. And I think I can speak for most of the companies up here about actually being tainted with third party confidential information. So we are very careful to only receive just enough to make decisions to get to the next step. It's a kind of pyramid process: as you get deeper, you sign a term sheet, and you're close to a merger agreement, we would exchange a deeper kind of confidential information. So we don't want to know your secret sauce before we get to that stage, actually. We get a good idea of things and we try to agree on what the deal terms would look like. Once we sign a term sheet and go through the process of diligence, and we get closer to a definitive agreement, you would typically see us do things like code reviews and such.
Q: How does an entrepreneur get on your radar? Is it better to go in through a business unit or a product unit than to go in to Corp. development? How do they start talking to corporate development folks? check all answers
A: I think it's pretty much what my colleagues here said. I would just add that I would also go back to why we looked to acquire. If it's for engineering prowess, obviously having an engineering team within the company that supports that and feels there's a need for a team with that kind of expertise is something that's more determinative, as Mike mentioned, through the engineering and products teams than it is through Corp Dev. But we acquire for other reasons as well. We acquire products or technologies which we feel give us time to market advantage and help us achieve some goal that we're trying to achieve faster or better. Other times we acquire for what I would call "big bets." Android is a good example of that. And we also acquire things that have some kind of leadership position, market leadership and technology leadership, and we can think of all the big deals that Google has done that are good examples of those.
Q: What about the diligence period? What should founders try to push for here and what impacts this time period from the standpoint of Corp Dev? check all answers
A: It depends because you could front-load a lot of these things. So if it's a purely team acquisition, you would probably want to see resumes, right? You probably want to see some kind of review of the skill of the team, the makeup of the team, and you'd probably want to see that before you actually make a go/no-go decision as the corporate acquirer. But again, if it is a secret sauce which is ancillary, if it checks out somewhere down the process, but you anticipate that process taking 30, 45, or 60 days, what have you. There's a range, and it depends on the size of the company and the complexity. I was just going to add diligence is a two way street. What we find is the smaller companies that are not VC funded, for example, tend not to have their books in order. They tend not to have somebody who can run the business and deal with the disruption.
Q: What are some of the most common reasons deals fall apart? How can start ups avoid pitfalls that could cause a deal to derail? check all answers
A: In our case, the few that have were because we had some key assumptions regarding why we were doing the deal. So, if we're doing the deal based on the strength of the technology to do X, Y, and Z, and we go in and actually do diligence and see that it's snake oil? That could fall apart. Or if you’re considering a team that you think is strong at doing X, Y, Z, and you go through the interviews and find out that's not the case, it could fall apart. But if you're acquiring a small technology, and that's why you're doing it, whether their balance sheet showed $200k in debt, and in diligence you somehow find out it's $300k, at least for a company like Google, is not going to be dispositive of whether do the deal.
Q: How common is it for an acquisition to start out as some sort partnership or strategic joint venture? What percentage of the time is there a preexisting business relationship? check all answers
A: I would say that almost all of the deals that we do tend to be, at least from our standpoint, very broadly viewed. If an acquisition makes the most sense, then that’s the route we go.
Q: How do you establish a valuation for an early stage company in the absence of Comps. with early revenue or perhaps even pre-revenue? check all answers
A: We have a magnetic dart board. But seriously, for a private company that is small and with a small team, maybe unproven technology, and no revenue yet, it's difficult. We have one luxury which is: we're a comp. maker in the Valley so we can look back at our previous deals. We also use advisers and lawyers who give us an idea of the other deals that are happening in the Valley so we have a pretty good idea of what is happening in the market and through our VC network in terms of valuation. But again, for those types of situations, where you can't do a DCF and you can't do traditional comp. analysis in a public market, it is really a negotiated valuation. You look at what you did in the past that had similar size, similar build time, and a similar size team. You consider who the VCs are, what kind of returns they expect, and how much money has gone into the company. And then you do your best to come up with something that's a win-win and reflects the market, and then it's negotiated.
Q: How many deals do you expect to do in 2011? What types of deals are they? Also, who else is going to be a very active acquirer in 2011 beyond you guys? Is Apple going to pick it up? Is Amazon? eBay? check all answers
A: I would also add that it just doesn't necessarily work that way when we set out to do X number of deals. They're very opportunistic and based on if it falls into those various reasons why we do deals. Given that we're probably the king of the wacky companies, sorry to dethrone you, Mike. We have crazy cars that drive around that you've seen or heard about, and we're in mobile and social and email and communication and search. Personally, I can't speak for Google. I don't necessarily always find the information I need on Google.com, so I think even search is in the 2nd or 3rd inning. Advertising is still evolving, mobile's evolving, cloud computing's evolving. We tend to be in all these areas, including robotics and green tech and all kinds of other things. So, I think we're going to be busy as our CEO's implied.


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