All Options Are Equal But Some are More Equal than Others
Years ago when WatchMojo was effectively insolvent and running on fumes, I mentioned to a fellow entrepreneur and investor that I was exploring/entertaining some corporate development “options.” We were having pizza, but my statement must have been so off-putting, that he put up his hand, interrupted me, threw down his pizza down… and asked me “what are these… ‘options?'”
As I ran down some of the conversations I was having, he looked down… only to look back up, disgusted, and stated:
"Those aren't options, those are conversations. If none of these people have given you an offer, you know... a term sheet, an LOI, then it's just talk. You have nothing."
He proceeded to scarf down his pizza as I rambled on to expand and clarify. As a masochist, I liked his candor… and it served as a wake up call.
When I look back at WatchMojo’s fifteen year history, for better or worse I’ve held hundreds of conversations. As the quintessential entrepreneur, I love our independence; but given my finance background, I always love to discuss M&A, which leads me down interesting conversations.
Today as I pay it forward and help the next generation of entrepreneurs, I find myself in my old friend’s shoes, throwing down my slice in disgust as entrepreneurs ramble on about their own “options.” Since I find myself repeating this, I figured an article made sense – since a link is worth a thousand-word email.
Of the 100 conversations I’ve had with various parties, they ultimately fall under three phases through the following funnel:
Out of courtesy and to respect the spirit of all NDAs, I’ll limit myself to examples I referenced on my 3rd book the 10-Year Overnight Success which ends in 2016…
- Interest: kicking the tires and intrigued but not sure there’s much of a fit, let alone desire and capacity to close. An example could be a convo I had with TheStreet in 2006/07 after they missed out on Wallstrip (which got acquired by CBS). I would say I had over 100+ such convos.
- Intent: indicates a desire to explore a strategic partnership or investment, where the interested party proceeds to conduct some due diligence and explores deal structure, culture fits and so on… but stops short of submitting a formal offer. An example would be my 2012 conversations with MSNBC, which I alluded to before. As the funnel winds down, we’re talking about 10-20 conversations.
- Action: submittal of letter of intent (LOI), term sheet and eventually Final Definitive Documents that consummate the matter. An example would be Belo, who submitted an LOI on April 1 2013 (those talks died when Belo itself got acquired by Gannett, right as WatchMojo was blasting off on YouTube). Over the years, I would say this is less than 10, of which half the time I balked and the other half there was some kind of externality out of my control. Suffice to say, if an interested party gets to this stage, they are pretty motivated to consummate the deal, so if you balk, be careful not to hurt any feelings or wound anyone’s ego – unless of course the deal terms are changed on you at the last second, in which case don’t just walk away, run.
For more on this kind of stuff, read Lies Entrepreneur Tell.