As mentioned previously, I was on a hiatus for more than two years and didn’t update the world what I was up to in that period. A week ago, I met my school friends after a long time and they also didn’t know about my whereabouts. I shared some of the details with them but thought I should share it with the larger audience — specifically not only what happened but also how it happened and what lessons I learned from that experience.
Two years ago, in March 2013, my co-founder Manish and I sold our two years old startup Shopalize, Inc to [24]7 Inc. It took four months to sell a two people company with a series of activities like talking on hour-long phone calls with advisors and lawyers, writing carefully worded emails, passing technical due-diligence hurdles, and negotiating tedious legal terms.
The tl;dr
Every time someone learns that we sold our startup, the first question they ask is — “how did that happen?”. And most of the times, my answer is — “I got lucky!”.
The beginning
Shopalize was started four years ago as a Social Marketing platform for eCommerce retailers. For the first year, I self-financed the company using my savings and working out of my home. I didn’t have the proper experience of building Web software applications, so learned it on the go while building it. Few friends helped me in the part-time, but it took me almost 9 months to launch the beta version of the product. My plan was to launch it in 6 months.
Once I had the beta version to show to people, I started getting more interest from potential co-founders, advisors, potential customers, etc. As they say — a picture is worth a thousand words, and a prototype is worth a thousand pictures. With the beta version ready, I was still searching for co-founders who could join me full-time. I met Kris (now a friend) in a startup meetup, who joined me full-time as a co-founder to help on the sales side. He helped to get the first customer and taught me how to run sales operations. With that first customer, we were officially launched.
Post launch, we got a dozen customers in the first couple months, but we still had not proved the product actually works and delivers the value as promised. The product lacked many things from the functionality, stability, and capability perspective. In fact, it was broken for a large set of users. There were many incidents where I was embarrassed as I didn’t know how to fix those issues and had to figure it out on the go.
Then almost a year into the business, Manish joined us as a third co-founder to accelerate the product development efforts so that Kris can focus on sales activities and I can focus on both customer success and product development activities.
The grind
With the team of 3 people, product in the beta stage, and few customers on board, we decided to raise an angel round. Our advisors invested some money and kicked off our fundraising. With that little financial help, we hired few contractors in India to help us accelerate the product development efforts.
Over the next few months, the product started getting better, we started showing results and ROI to our customers, and we started getting confidence in our product. Kris and I started closing more partnership opportunities, Sales leads, and overall we started seeing our customer base was growing. We had started making some revenue to cover our operations and contractors costs, but we were still not paying ourselves.
Meanwhile, we started seeing many competitors popped up in that space with seed funding raised. We were worried about growing competition and were struggling to get good attention for our fundraising efforts. We believed in what we were doing, but we didn’t have strong growth or product market fit yet, or substantial revenue to prove that we were onto something big that was in high demand.
We discussed other options and decided to halt the fundraising efforts and continue building the business by being scrappy and nimble. We decided to grow monthly revenue to $10K-$15K before raising a seed round. We knew that achieving that kind of revenue with small size customers was a long grind, so we decided to focus on mid-sized enterprises with the bigger deal size. We started getting good interest from few mid-size companies. We thought if we could get few such customers then we could bootstrap our business and could survive for some time.
But selling to mid-large enterprises means you have to invest more in product and technology from functionality, scalability, stability, and security perspective. We thought it was the right thing to do and worked even harder to make our product and platform better. On the other hand, it was taking a lot longer to close the enterprise deals and we were getting impatient as we were running out of money.
Meanwhile, Kris decided to pursue some other opportunity. It was a big loss both mentally and physically. We struggled for some time but eventually managed to get back on the track. I took the responsibility for sales and Manish took the responsibility for product development.
The introduction
Sometime in November 2012, I received an email from our legal counsel that he wanted to meet me. He tried to understand what our business do in detail and then he suggested to introduce me to a CEO of [24]7 Inc to discuss some strategic opportunity. Apparently our legal counsel was also a legal counsel of [24]7 as well and he thought we could be a good fit into [24]7’s vision.
In general strategic opportunity always sounds exciting as it could be an acquisition offer or a partnership opportunity. But since I had not heard about this company before, I wasn’t sure what to expect out of this meeting. I looked at their website, read press releases and tried to understand what they do. I did not think that it could be an acquisition opportunity so ruled out that option. Now for partnership opportunities, in theory, a successful partnership with a larger company could help your company get more customers, but in reality, partnerships are rarely a real thing as either large company is buying your technology to sell to their customers or you are buying their distribution channel. But more importantly, in early days of startup, these things eat up your time and energy. So I wasn’t really sure what would be the outcome of that meeting, but I was looking forward to meeting and learning.
The offer
I met with the CEO and after quick initial introductions, the first thing he asked me was — “Do you know <one of our competitor’s name>?”. I said — “Yes”. Then he asked me — “How are you different?”. Normally, if this would have been a potential customer, I would have answered with my typical differentiation points, but I somehow I didn’t think this was about them buying our solution for their usage, so I responded — “Product wise, we’ve pretty much very similar offering. Company wise, they’re much larger, and we’re just 2 people company.”. He responded — “Ok, if you have a similar offering, then we would like to acquire you.”.
I was shocked. I wasn’t prepared for him to let the cat out of the bag so quickly. He hadn’t even looked at our product demo. On the other hand, I was impressed with the fact that he didn’t waste anytime in any irrelevant discussions and jumped on the main point straight away. He asked if we would be interested in selling the company. I said we would be open to offers but weren’t not actively looking to sell the company. Given that we were just getting started with the enterprise customers, we thought we had a revenue making potential ahead of us and there was no need to sell.
But I tried to understand in detail why they wanted to acquire us, what exactly they wanted to do with our product & technology, how did they see we fit into their company, etc. He explained everything and I was impressed with their vision and plans for using our technology. He also asked me about our future product plans, fundraising plans, etc. and asked us to demo the product to their larger team in the following week.
The demo
We were invited to demo our product to key execs from Product, Engineering, and Data Sciences departments. By this time in our business, I had given many product demos to potential customers, but this time though, it wasn’t only about selling the product, but it was also about selling the company, the people, the vision — pretty much everything.
Meanwhile, our advisors and investors coached and mentored me on how to present, what to emphasize, how to connect with executives, etc. It was a huge help. This shows the importance of having the right advisors on your board.
When we walked into the room, there were around 10 execs to hear it. A 30-minute demo turned into an hour or two hours discussion. During discussion, I kept questioning myself why the heck a 500+ people company wanted to acquire a 2 people company, and why they couldn’t build what we built in-house.
But based on their questions during the product demo, I realized that we were experts in our domain. We had data about our product, our customer engagement, what had worked, why it had worked, etc. They didn’t know all of that. And they didn’t want to waste their time in learning that from scratch.
In the end, I thought they were impressed with our product, our knowledge, and realized that we were also impressed with what they do and were excited about the future.
The negotiation
Post successful demo, I was invited in a following week to hear the financial details of an offer. The first offer was extremely low, so I pretty much declined right there without taking it to discuss with my advisors or co-founder. I had a certain range in my mind, so was not ready to sell Shopalize anything below that range.
After a few days, we got another revised offer, but it still wasn’t in the expected range, plus it also had some clauses. After few back and forth negotiations, we agreed on the financial terms and signed what’s known as a term sheet with the intent to purchase. Once a term sheet is signed, a deal is happening unless something horrible happens during due diligence.
The due diligence
[24]7’s team sent over a list of hundreds of technical, legal, and business questions that we needed to answer for the deal to go through. What type of technology, libraries, database had we used? Had we used any open source softwares? Did we have IP assignments from every contractor who touched our code? How did our billing system work? How did we make money?
Tracking down document after document was really tedious work. And during this time, we had to keep our business running as normal, and keep the whole thing a secret from our contractors, friends, etc.
On the technology due diligence side, we had to integrate our product with their technology stack to prove that it could be easily integrated and deployed to their clients as it is with minimal changes once we come onboard. So we had to make quite a few changes on our side to make that happen. Luckily, we were smart enough to do only changes that we thought were anyways needed for us to make our product ready for the enterprise-grade customers, and we pushed back on all the changes that we thought were custom requirements for [24]7’s specific environment.
On the legal due diligence side, we had to do lot of negotiations on various different clauses, but after series of negotiations, heated exchanges, and counters, [24]7’s team was satisfied with our asks and we were satisfied with the terms of the deal and their plans post-acquisition.
The closing
In the end, our lawyers conferred with their lawyers. It was agreed that after months of due diligence, we had signed all required documents and all closing conditions had finally been met. Then money was officially transferred to our accounts and we were part of [24]7 Inc.
Overall, it was actually a great outcome for all of us involved in Shopalize. Specially for my co-founder and me it was a life-changing event. The financial rewards were great, and if I ever want to start another company, every piece of that process will be easier. Also, we had received a jump in our professional career in terms of roles and responsibilities. If we would have continued the same employment path instead of taking the leap in entrepreneurial journey, we would have never achieved what we’ve achieved today. My co-founder joined [24]7 as a Director of Engineering and I joined as a Director of Product Management.
The thanking
Post acquisition, the one thing that I’d been planning for more than few weeks was how to announce the acquisition on Facebook with my friends and family members. I wanted to share with them that there is a hope in taking this crazy entrepreneurship route if you work hard (and get lucky), you can make your mark in the Silicon Valley’s startup stories. While writing it, more than announcing the outcome, I ended up thanking every single person who helped me in this journey starting from wife, co-founder, part-time helpers, advisors, etc. Without their support, guidance and trust, we would have not accomplished this outcome.
The hope
By no means, we had the greatest outcome compared to other Silicon Valley’s success stories. But my hope in sharing this story is that at least people who know me and follow my blog can relate themselves with me personally, and can believe that if I can do this, then they certainly can. With that belief, I hope more people will take the leap of faith to start more great companies and in the process they’ll become great leaders.
Originally published at aditya.kothadiya.com on March 1, 2015.
Aditya Kothadiya 