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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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Taylor Barada

Yahoo
Senior Director, Corporate Development
June 2009 – Present Strategic analysis/execution of acquisitions, divestitures, investments and other strategic relationships

List of Taylor'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: For us it's similar. We are very focused on cultural fit and alignment of vision. I think Yahoo over the last 15 years or so has developed its own culture and sense of what it's trying to do. And at times we've muddled our external articulation of that, but I think internally, it matters that people want to be there and that they think they can do more together with us than just going off and seeing it as an exit and a check. So I think very early on we're trying to get a feel for if we have a shared vision.
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: My working assumption is, in theory, our engineers could go do anything if you give them enough time, so I'm not talking to any company that we don't already assume gives us a speed to market advantage or provides something really unique. So they can just take that off the table and not worry about it. I think that the true secret sauce stuff that comes out in the code review can taint you, and that comes extraordinarily late in the process. We even use third parties for code scans and things like that so we truly aren’t tainted.
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 we see both. We do a lot of extra outreach in terms of just being out there, such as doing events, talking to different people, checking in with all the VC relationships we have, and seeing what they're talking about and what they have invested in. So introductions through people we know is always a good thing as part of the theory of social networks and what not. And I think certainly coming from product is also great, but I totally agree with Mike. We are trying to partner with our business leaders and product leaders to build the business. While in many ways we may be the people to get it done, often times in the early stages we act more as a concierge to make a connection, because you may or may not be at a point where you are actually even looking to exit and you’re just looking to establish that relationship. So I think that's another thing that we end up doing quite a bit of. In a big company like Yahoo, Google, and Facebook it's probably well on its way to getting that way too. People say, Hey, I'd like to talk to you about x, y, and z, but I just don't know who to go to, and I think with us being more externally focused out there and talking to people, it’s more than likely you know someone that we know, and you can just get connected into us. Then we can get you in touch with the product person if there's a product partnership you are looking to do in the short run. And then in the long run we're aware of you, that's a good thing too.
Q: How can founders go about getting more than one party interested in the deal to improve leverage? check all answers
A: The fact of the matter is that Google has tens of billions of dollars on their balance sheet. So if we jerked our head around every time we heard on the market they were looking at something and started chasing it on price ... frankly, if Larry and Sergey want it, they're going to get it. So I think we've taken a different approach and it goes back to a longer dialog and trying to find the right fit and trying to find people who think that truly it's not just about an exit and it's not just about the fact that they are going to get to keep doing what they are doing inside of us, but that there's something that we have, whether it be the reach of the network, the sales force or something that they look at and say, "You know what? Yes, I can get an exit but number two, I actually get to build a bigger business inside of Yahoo!" I think we fully realize the forcing function of getting to a decision on a rapid time line. If we're having someone else in the boat it totally matters, but I think you can't get to hung up on just chasing another offer for the sake of chasing another offer. I would just ask yourself whether or not it's fair. If you think it's fair and it's where you want to end up, you may be completely wasting your time if you're really really in with Amin and you want to end up in Google, calling us, trying to get a competing offer when he's already put a fair offer on the table. That's weird. You should know enough about the differences of the companies, their strategies and the people to understand which one is a good fit for your team and your product. And so I totally understand where Mike's coming from and, again, it's a capitalist country. And you should absolutely go for it and we're all fine with that. We're going to pay what we're willing to pay and you're going to sell for what you want to sell, and if those two things match we're going to get something done and we're fine with that. But remember that, fundamentally, a deal is a beginning, not an end.
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: We ask for what we think is enough time to get something done. We also have auto renewal clauses in there so we don't have to stop and renegotiate, and sometimes people have questions about that. I'm not aware of us ever having gone through a signed term sheet and not closing a deal. I am sure that someday it will happen because you'll find some gnarly, bad thing that will make you walk away. But in general, as these guys have said, we don't take it lightly. If you put a term sheet out there, it's because you're trying to get something done. And then from that point forward, you truly are partners in terms of getting all the information out there, working through the process, getting everyone bought off, and getting it done. And the biggest gating factor is that start ups are going through this for the first time, and often times they have been running their business as they should and don't have everything in a file cabinet ready to show us to prove that everything is in order. So it often takes longer then they imagined to get it all in order. So what I often do is talk about milestones and I basically say on the day that we present this, we'll give you our super-duper diligence list that has all the stuff that we're going to need. If you can get a fully populated data room inside of X date, I will commit to you that I will drive our forces harder than they've ever been driven to hit whatever that date is. So it's one of those things where you have to develop a trust factor to get a deal done. And it's a two-way street, so then if they miss that deadline, it's not that I'm not going to keep trying to move fast, but it's just that we're all on the same page around what's holding it up. And we'll work together to get it over the finish line.
Q: What's the right timing to consider an exit? Let's say you've proven the business model and you what to know whether to raise more money or talk to acquirers. In the case of Mixer Labs, why did you exit as early as you did? What signals do you look for? check all answers
A: I was on a panel with these guys in the summer and I said there was no time too early. Feel free to reach out to us at any point. And we did get quite a few people reaching out there very early. But, that said, it's really sort of true. You don't need a big agenda. You should have a general sense of the different parts of our business and how you might fit in. But if you think there's a realistic way that it might fit in, feel free to reach out and then we can get a conversation going. It doesn't need to be: Hey, I'm ready to sell. And all those kinds of things. I think if you have something to show, meaning a product in market that's gaining traction and that gives people more to talk about. But other than that, I think it's perfectly fine to have an early dialogue. It takes time to get to know people across the company and to set that stage. Again, the theme of this night is thinking about your exit and I think there are usually a few places that are going to be a home. And as I said earlier, we focus a lot on fit, and frankly, you should too because you are going to be working there for years afterwards except in really extreme instances. The more time you have to get to know people without the pressure of trying to get the deal done will make you more confident when you get to the point of looking at different options. The one that feels right ... you can be sure is not just emotion of the moment, but that it’s had time to settle. So I think it’s good to go ahead to get started, and to know a bunch of people. Not just the Corp. Dev. people in the business.
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: By the time you get to a term sheet, so much work has been front loaded that it's extraordinarily rare for something to fall apart. I think when things fall apart before that oftentimes it's people trying to be too cute or cagey. At some point, you lose that trust. You are not selling us a used car, right? We're trying to put something together. It is an acquisition, but it is fundamentally a partnership trying to get started. And it’s not just with the deal lead or that you guys would have to build that trust; it's also with the business sponsor, the technology lead and all that stuff. And the things that lead things of course are when people aren't forthcoming. You know, it's a lot better to say, Look, I've got a great team, this guy's great, this guy is doing OK, he’s serving a purpose now and I think he has some upside. But realistically, if you call it like it is then you develop creditability. We have all seen a lot, whether it is technology or people or market risk or whatever. You should absolutely position yourself in the best light that you would want us to perceive you in. And that's fine, and we're comfortable with that. But you should also do that with a full set of facts. Perhaps the worst thing you could possibly do is try to duck and dive, and think that we're not going to find something. Because by the time we're done with diligence, we’ll have found pretty much everything. It's better to just get it off there early and then we'll work through it together and see if we can get something done.
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: We have these meetings during which you're trying to sort through what could we do together, and then sometimes you say, Wait a second. This really only makes sense if we are going to do the acquisition. In terms of the other side of the question, for the people who are existing partners and then leading to acquisitions, you're sort of pulling a number out of thin air. Maybe 50% of the time there's some sort of business relationship already in place.
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: The other thing to do is to twist the question a bit. I think we fundamentally view an M&A transaction as a collaborative beginning to a relationship that we are going to have. With two deals we've done this year, the Citizen Sports and the Dapper deal, the leadership team in both of those has come in and taken bigger roles beyond just the business they were running pretty quickly. And frankly, we're looking to get a feel for when that can happen and when they can do it. So, in order to put together a deal, my assumption is, yes, companies are bought, not sold, and I definitely understand that. But on the flip side, I can't make anyone sell who doesn't want to sell, and I can’t make them take a price, so I don't even try. I think we focus very much on trying to pay a fair price for a business that we both believe we can make bigger together. So one of the rules that we have is, we won't put an offer out without seeing the cap table and understanding the dynamics of what you're facing. Frankly, sometimes that helps you a lot because we realize that, due to the natures of the venture world, sometimes we need to stretch a little bit more just to keep all the stakeholders happy. And it's one of those things where within a realm of reason, sometimes you can do those things. It's in everyone's interest to get the facts on the table and understand what the real dynamics are that are going on in the boardroom when you’re having these discussions.
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: Well, as a public company, I'll leave the prognosticating on the number of deals to Tim and Carol. But the short answer is, we are going to do as many as make sense that we can get done. There’s no quota. We're trying to find things that will help our business and our business leadership, that will grow the business faster, and that are new and interesting that we couldn't do on our own. And so we want to do as many of those as we possibly can. We want to do deals that put us in a better spot in 2012 than we are here leading into 2011. In terms of where we're focused, we've continued to focus on what Carol ended up calling the four Os [which confused us at first]: mobile, local, social and video. Basically, I think those are major horizontal themes that the Internet is dealing with, and Yahoo, being a big cross section of the Internet, is absolutely dealing with that. We continue to see a bunch of innovations in ad tech and we believe that we have something of a lead and an advantage there, and we want to make sure that we continue to move as fast as the industry is going. Something that came out of the Dapper deal that we just did a few months ago is those guys started out on a content play and ended morphing into being able to ingest content from websites and target ads in a dynamic fashion. I think that's interesting and unique because when we stepped back and looked at it, we realized that in many ways the ad part of the world has gotten more personalized than the content experience part of the world, and I think things that Facebook and others are doing are fascinating in terms of curating content. Twitter's doing it as well with your social network and I think clearly, in the future, just like ads are targeted algorithmically and based on what we know about you, I think that is another interesting area that we're watching -- how to make the Web more personally relevant to you.


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