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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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Michael Brown

Facebook
Manager, Corporate Development
April 2009 - Present Corporate Development manager at Facebook.

List of Michael's answers

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: Maybe 15 acquisitions. They will be a mix of talent acquisitions, where we're looking for people to run important parts of our product who have a really strong vision. I'll give you some examples. Maybe it's social commerce, maybe it's HTML5 stuff that we're interested in for mobile. Maybe it's around local, so that when someone walks into a store we can identify that they are there without any hardware, so it's a software-based system to either check someone in if they're using Facebook Places, or you can send them a coupon, or a deal, or something. So those are a couple of examples. If you can see where we are innovating as a company, those are probably the areas where we're likely to acquire because we're hungry for new ideas and leadership. As for who else will get involved, we're on a mission and we're just so focused on what we're doing and we have so many ideas and so much yet to do, that’s all we're thinking about. There is a saying in the company: We're 1% finished. And I really believe that because there's so much of the Facebook story which is still to be written, right? Our business model isn't totally clear. What verticals we are going into, if any, isn't clear; what our platform becomes isn't clear. So it's a really wacky and fascinating place to be because there's so much that we don't know yet and so we're just focused on that. And we wish all the other companies all the best.
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: Some US President once said that plans are meaningless or useless. Planning is everything. And so for us, the people who build the products are probably more important than the products themselves. And so our diligence is really going to focus on the small number of people who brought that product to life to make sure that we're excited about them. And that they have good technical jobs and lot of vision. And so, I would kind of double undermine the valuation of the small people in your company as being the most important step in that process. Then after that it's very smooth.
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: Facebook's an engineering company. Engineers rule. So the best way to get on our radar is through the engineering side of the organization. You can come to me and say, "Hey Mike, we're thinking of our strategic options," or whatever parlance people use. And I'll certainly do my best to be helpful. I will make the right introductions to the right people inside the company. But ultimately if you can get a product or an engineering leader at Facebook excited about what you are doing, especially if they know you, if you have known them from prior work experiences, that's really the best way create momentum. Then my job actually gets a lot easier. And the process goes smoother because when I sit in front of our CEO, Mark Zuckerberg, and he looks at me and says, "Mike, you don't know how to code your way out of a box," which is true. I can say, "Yeah, but so and so really thinks these guys are good." When we have that kind of support to get a project done, meaning an acquisition consummated, it really is the most compelling thing for Facebook and it gets us excited to move faster and to make it happen.
Q: How can founders go about getting more than one party interested in the deal to improve leverage? check all answers
A: Listen, you are all very smart, and to tell you anything other than the truth would be stupid. Get multiple offers and get a bidding war going, right? If I were in your shoes, that's what I would try to do. There's not a lot of rocket science to that aspect of it. Of course, we're going to tell you we want to be the only home for you. We think we're the right home, we're going to be your best friend, blah, blah, blah. We do think we have a good company and we're happy with what we're doing but, you know, yes, let's talk money for a minute because this is life-changing stuff for many of you. So, get multiple bidders, manage your process, and don't sign a term sheet until you are really sure you want to do the deal. We don't give term sheets unless we want to buy your company. It's not a kind of a joke or a second date for us. It means we really want to buy your company. And by the same token, when you sign a term sheet, a term sheet from us and most companies usually has a "no shop" clause in it. For those of you who don't know what that is, it means that you can't try to get a better deal or a comparable deal. You have kind of said, I'm hitching my horse to this wagon. So don't do that unless you're really sure. Until then, do it a lot and hustle. Hustle because you owe it to yourselves and the people who presumably work for you to get them the best deal that you can.
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: With some companies we're talking to now -- and for at least one acquisition we've made -- we had some sort of previous business arrangement. With little companies, because we're bigger, we feel like if we do a partnership, we are going to make them big and successful, which is good. It's great that companies become big and successful when working with us, but if it then puts us in a position where we could become held hostage to that company, or we can't control our destiny, or things may not go the way we anticipate in the future, it can become challenging. So we try to cut that off at the pass and say, Listen, it's probably better for our interests to try to acquire this company now so that we can build value together, rather than have more of an arms length relationship where in the future, if there's conflict, it's going to be more challenging for both sides. There are some circumstances where that happens and it makes more sense to acquire now rather than partner with the company so that they grow. Then you have to think about what to do down the road.
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: I think Elad's point is really good. I think he's right. I'll just add one additional piece: One thing that goes into our consideration is managing the esprit de corps of the Facebook engineering team. I think this was mentioned a little bit, but we can't just spread extra frosting all over these new engineers that are coming in because for folks who have joined us through the front door it's pretty frustrating. It's kind of a shady thing to do, when you look at the guy to your right, or the woman to your left, and you say, Wait a minute, why did this person get a significantly better deal than I did? We face that and we take it seriously. I was in an engineering meeting recently with directors talking about buying a company for about $20 million dollars of Facebook stock, and we got a significant amount of push back from some of the engineering directors. They said, Well, wait a minute. Do we really value these people that much? Because we can take 10 superstar engineers from Google -- just kidding -- that we really admire and we could provide each of those 10 superstars with a $2 million dollar bonus, right? People take those alternatives very seriously, in terms of how we're using our company's money. I think our engineers will listen if we hire someone who is a reputed superstar, and someone will say, Yeah, OK, I get it. That person maybe got paid better than I did because they're a superstar and I am just a normal star, or whatever. And I think that doesn't disrupt the spirit of the company that much. But managing an engineering culture, and scaling it where you are trying to keep hundreds, or maybe someday Facebook will have thousands of engineers. Certainly, these companies do because they're bigger and successful. It's hard to manage those competing interests. I am the deal guy so I want to do lots of deals because doing deals is fun, and buying companies is fun, and it's very exciting. But at the same time we need to manage the engineering culture because ultimately those people have to work together, hopefully for years to come.


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