CASHING OUT: An Exitwise M&A Podcast

Jeff Ma is best known as a former member of the MIT Blackjack team who won millions in the mid 1990’s. Jeff's success was the basis of the main character of a New York Times bestselling book, “Bringing Down The House”, and the highly successful movie “21”. Because of his focus on data and analytics, Jeff's success at the blackjack table translated well into his prolific entrepreneurial career.

Today Jeff and I discuss how his experiences at the blackjack table helped him build valuable companies and how he knew when to pick up his chips, leave the table and cash out.

Show Notes

Today I have a special guest friend and former personal mentor, Jeff Ma.

Jeff is best known as a former member of the MIT Blackjack team who won millions in the mid 1990’s. Jeff's success was the basis of the main character of a New York Times bestselling book, “Bringing Down The House”, and the highly successful movie “21”. Because of his focus on data and analytics, Jeff's success at the blackjack table translated well into his prolific entrepreneurial career.

Jeff and his teams built and sold Circle Lending to Virgin, Citizen Sports to Yahoo, and finally, tenXer to Twitter.  Jeff has worked as a consultant to the San Francisco 49ers, the Portland Trail Blazers and a major sports apparel brand, helping them to make better decisions using data and analytics. His most recent book, "The House Advantage: Playing the Odds to Win Big in Business"​ was a business bestseller and draws on his unique experiences at the table and in the sports world creating a truly accessible work about business analytics. Jeff is passionate about how data and better visibility into one's performance can make people better.

In this week's episode Jeff discusses how his experiences at the blackjack table helped him build valuable companies and how he knew when to pick up his chips, leave the table and cash out.  A few highlights:
(10:00) ... losing $100K in 5 minutes at the blackjack table
(15:45) ... the analogy of blackjack to startup life and building a business - hanging around long enough to sell your company is no different than a card counter having enough chips to catch a hot streak.  
(27:00) ...  why getting congratulated at the beginning of a founder journey may be the wrong message to send.  Raising venture capital shouldn’t always be the celebratory moment it often is for entrepreneurs 
(43:00) ... acquisition values, and why they're often misreported and misunderstood in the media

I hope you enjoy my conversation with Jeff Ma.


This episode is brought to you by Exitwise:

Exitwise helps business owners create the exits they deserve by assembling the best teams of industry specific, M&A experts, who will help maximize the sale of each business.

How Does It Work:

1. Schedule A Call:  Schedule a call with one of our M&A Advisors and we'll walk you through the entire process of selling your business, from market valuations to M&A expert fees and from due diligence to the signing of your purchase agreement. We're here to answer any questions you may have.

On this call, we'll want to learn about the history of the business, your financial performance, your management team and listen to your thoughts and requirements for selling the business so we can make sure to find the best M&A experts to help maximize your exit.

2. Review Top Experts:  Once we've had a chance to process all your business information, we'll share with you, our top choices for investment bankers, M&A attorneys, and tax accountants to help maximize the sale of your business.

We’ll present each M&A expert’s transaction history, estimated valuation range for your business and their fee structures. Then we’ll talk through the pros and cons of each choice to help you prioritize and make the best decisions.

3. Negotiate & Hire:  Finally, when we've narrowed it down to your top choices, we'll negotiate your engagement letter with each M&A expert to make sure fees and terms are fair for everyone. We know what to look for and we know how to keep everyone incentivized for your optimal outcome.

Once your M&A experts have been selected and you’re ready to move forward, we’ll collect signatures and get everyone to work.

What is CASHING OUT: An Exitwise M&A Podcast?

Every exit has a story... and we're here to help tell them...

The Cashing Out podcast (brought to you by Exitwise) is an open dialogue with fellow founders and former business owners sharing real stories and offering honest advice around selling their companies to some of the top acquirers in the world.

However, beyond entertaining and educational exit stories, we're here to help demystify the Mergers & Acquisitions (M&A) process. For example:

- How much is my business worth?
- What is Net Working Capital?
- When should I get a Quality of Earnings analysis
- Should I hire an Investment Banker, M&A Advisor, or Business Broker?
- When do I talk to my Key Employees about a possible transaction?

We hope you enjoy... and learn a few things along the way!

Cashing Out Podcast | Episode 11 | “Bringing Down the House + 4 Exits | Jeff Ma

Todd: [00:00:00] Welcome to the Cashing Out Podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today I have a special guest friend and former personal mentor, Jeff Ma.

Jeff is best known as a former member of the MIT Blackjack team who won millions in the mid 1990’s. Jeff's success was the basis of the main character of a New York Times best selling book, “Bringing Down The House”, and the highly successful movie “21”. Because of his focus on data and analytics, Jeff's success at the blackjack table translated well into his prolific entrepreneurial career.

Jeff and his teams built and sold Circle Lending to Virgin, Citizen Sports to Yahoo, and finally, tenXer to Twitter. Today Jeff and I discuss how his experiences at the blackjack table helped him build valuable [00:01:00] companies and how he knew when to pick up his chips, leave the table and cash out. I hope you enjoy my conversation with Jeff Ma.

So Jeff, thank you for being here. I really appreciate your being here. Just given us some time, try to share some of your stories with our fellow founders. I know a lot of our listeners are already gonna be familiar with your work on the, the MIT blackjack card counting team and certainly gonna know best selling book.

Seeing the movie 21 right, was really, really cool and uh, I certainly recognized you as the dealer in that movie that was, But I think what most people don't know is how you've taken that talent, the data, and your ability to understand and use analytics to make really great business decisions. So, I'd love to hear about your journey.

Using your skill set to build and sell companies. But before we get in that, I have to tell you, right? You're [00:02:00] a sports guy. I'm a sports guy. When you agreed to be on this podcast, I didn't think twice about bumping Mark Cuban from this spot. So thank you. Thank you for being here.

Jeff: Perfect. Perfect. So thanks for having me.

Yeah. I think it's interesting that you bring up analytics, because I do think that. Analytics and data are in many ways, often counter to being an entrepreneur. Um, because early on, um, you have very little data in analytics and you ultimately have to make some pretty, uh, interesting gut decisions. I think one of the things that, um, and I've been talking about data and analytics for, I don't know, 20 years now or something like that, like my speaking event that I ever did, um, you know, Billy Bean from the Oakland A’s was on the board of a company that I. You know, he was always really interested in the blackjack story because in his, um, [00:03:00] speeches that he talked about, he often used the comparison of card counters to what he did at the, you know, with the Oakland A, meaning, like making these like really important incremental decisions, um, where small edges make a big difference.

And he used the card counter analogy, the MIT card counter analogy, and then when we met for the first time, He was obviously very interested in meeting because he used to use that analogy. Um, and then he encouraged me to try to go do, you know, public speaking or paid speaking. Um, and I actually went with his agent at the same time and, and used his agent and got my first speaking engagement probably in like 2004 or something like that.

But, um, the point of it is that when you, when you do a lot of this speaking on data analytics, you start to evolve your own think. About it. And I think one of the most important things that, um, data analytics will tell you is it will help you think and make better decisions, not always [00:04:00] via data and analytics, but via a better framework to make decisions.

And that framework is really about, sort of dispassionate, um, decision making and an understanding of the cognitive biases that we all have that make us make bad decisions, right? Like the idea that we're all a averse to losing, which is called loss aversion. The idea that we place too much, um, you know, uh, probability on things that we can imagine, which is called the availability heuristic.
The fact that we tend to favor inaction over action when we think it may lead to loss. That's called omission bias. But these are all things that obviously if you have data analytics to make decisions, you can overcome these. But really just understanding these from a framework of what they are and how they color our, um, you know, decision making emotionally is something that I think that I've learned a lot, um, over the last few years.

Todd: Yeah, I guess for me, when you started that comment [00:05:00] around when you're an entrepreneur starting a company, right? You don't have a lot of data in front of you, and so it's really passion and your ability to see something that others don't see. To give you the motivation to go out and create something like that.

So maybe those things, at least early on are counterintuitive or don't necessarily inform each other. Before we go further, one of the things I like to do is say how we know each other. And so, um, I don't know if you remember it differently of how we met. So I had tried out for the San Jose Sharks, and so through that experience I got a phone call with Kevin Compton at one point.
Right. So he was one, one of the owners of the car Sharks. I don't know if he was at Kliner at the time or he had jumped to Radar.

Jeff: What year was it?

Todd: Probably that would've been ‘96, 1996.

Jeff: So he was still a Kliner in ‘96.

Todd: Okay. So I think somehow, you know, he was gracious enough to give me, you know, 30 minutes and I.

Maybe [00:06:00] it was a few years later when I made, it was definitely a few years later when I made the call, but he, I think he suggested, Oh, you gotta. Jeff mos, so you guys clearly knew each other, and then you agreed to meet, And I remember, because you know, I lived in San Francisco for only a few years, but the, It was the towns end cafe, right?

I think that was the first time we met.

Jeff: Yeah, I used to have a lot of meetings there. Yeah. Great, great. They make the greatest eggs in the world, but whatever.

Todd: Yeah, yeah, yeah. So yeah, that was our first time. And then what kind of struck me, Jeff, is that you were just willing to give time, advice, bounce ideas. For me, company after company.
Right. You were an advisor. Always giving me more credibility than probably deserved just being on that advisory sheet in, in pitch decks. So really appreciate that willingness to help and friendship throughout the year. So thank you for that.

Jeff: Yeah, no worries. And um, obviously it's a two-way street. I mean, I think working with.
Entrepreneurs as an advisor, it, it's a great way to sort of keep your mind sharp and also, [00:07:00] um, network and, you know, obviously you've had some great, you know, success and now are in a place where you can, you know, give back to those people That helped. I mean, I think the, the bearing, the lead on that whole idea of how we met is, is Kevin Compton, right?

Because Kevin is an incredible, um, vc, probably one of the. Investors over the last 30 years in Silicon Valley that not a lot of people know because of the fact that he is a little bit under the radar. I mean, you have, um, you talk to any real investor in Silicon Valley and you mentioned Kevin's name, and they're, you know, they're gonna be impressed that you know Kevin.

And, you know, I'm, I've stayed in great touch with him over the years. I'm actually seeing him tomorrow for lunch. But, you know, for, for entrepreneurs, I think the lesson that I would learn from Kevin comes from sort of a rare interview, and I don't know if you can still find this on the, on the web, [00:08:00] but they, they have a, there's an interview which where he does with some small, um, college and they ask him a little bit about like VC as an asset class and how successful it.

And he makes a point like, Oh, you know, I can't tell you how successful it is as an asset class, but I can tell you, for us it's very help. It's very successful. And the reason is that we stick with the invest with the, with the entrepreneur. We fundamentally believe that the reason that companies fail is not because entrepreneurs aren't good or because the idea is not good or anything like that.
It's because they run outta money. And so we try to stay with them as long as we can, and he has really shown. And the two companies that he's invested in, um, that I've started, um, where he's been very, um, helpful and supportive along the way. Um, and, um, he's an incredible human, I think is really the biggest thing about Kevin.

Um, anyone that's had the chance to spend time with him, um, and, and have him, you know, help them, [00:09:00] we'll, we'll attest to sort of how amazing Kevin.

Todd: I mean, I don't, I clearly don't know Kevin, to the extent that you do. He was just gracious enough to take that first call to introduce you, and then I've touched base with him a couple times over the years, as you know, companies would start to form.

But yeah, he's always been incredibly supportive and available. Right? Yeah. Or many, many aren't. They're just too busy. So this podcast really is about. How do we educate our fellow founders around M&A? And so as much as I kind of want to jump into that, I don't wanna forget like the amazing things that you were doing before that and, and the story.

So I think maybe a good way to approach it is, is there, you know, a moment or a story when you were on that MIT team that you thought, wow, this is really, this is a startup, this is what I'm gonna bring to the business world. Is there some interesting moment that you can think.

Jeff: Yeah, I mean, I think, well, so there's like a couple things.

There's a seminal moment where I [00:10:00] talk about like losing, you know, a hundred thousand dollars on two hands of blackjack and like literally it was, you know, five minutes. And that was a really interesting, um, crisis of confidence, um, crisis of, of sort of everything, right? You think about giving up and you think about that, that gut punch.

That sort of, uh, stubbornness or stick-to-it-ness, that like led me to continue playing blackjack cuz that happened about eight or nine months into my time playing blackjack. And I had played for about seven years. So that moment is one that I think a lot about, sort of the, the level of fortitude that it took to continue to play.

And I think a lot about startups being an incredible difficult journey. Um, where there are many times that I think that people would think about giving up. Um, you know, they're not all the up and to the right or all, like the huge success stories. There's a. Of challenges, um, that come up along the way.
And [00:11:00] I, I think one important attribute of an entrepreneur is, is almost the stubbornness to want to continue to succeed and, and almost like this irrational confidence at some level. Like, you know, obviously now we see this like, you know, the, the, the interesting thing about the, you know, the FTX story and the, um, the, the woman, uh, Theranos.

No story. Yeah. The interesting thing about those stories is like, I think people from outside of the Silicon Valley world will look at that and be like, I mean, how could people be duped like this? How could, like people, how could people be so stupid? And of course they should have done in cases like this, more diligence.

And like you, you do put that a little bit on the investors, but the reality is that there is this myth, or there is this characteristic. Of entrepreneurs that is sort of this almost like irrational confidence or this irrational belief that is, [00:12:00] uh, and, and can border on the point of, um, I don't wanna say fraudulent, cuz that's not, that's not the, you know, obviously no one wants to be fraudulent.
But the idea that you are, um, so focused and you know, on a dream that many don't believe that you can, That's the sort of idea of what it is to be an entrepreneur. So I think, I think there's a fine line between, you know, a, uh, visionary entrepreneur and what ends up happening with like the WeWork and the Theranos and the FTX’s of the world.

Right. And, and I don't, I don't, I know that there, you may say fine line, there's, there's clear lines. You know, as an entrepreneur, I know what I would never have done. Right. And like, I know, you know, but, but you are trying to sell. You're trying to sell the dream of what you're building and sometimes you are probably overreaching on what you're selling, um, because you're trying very much to convince investors and people that this dream that you have is real.

[00:13:00] Um, so anyways, that's stubbornness. And then I think the other one that, that really for me is, you know, people have been asking me like, Oh, what are you gonna do next? And I'm like, I'm not sure, but I've been sort of identifying the main themes of what I want to do. And one of them is to just work with great people.

And work with people and, and I think ultimately that was one of the things that I missed when people used to ask like, Oh, do you miss the blackjack days? I would say like, Oh, I don't really miss playing blackjack, but I miss that comradery. And I think during Covid we've. We've lost a lot of that idea of like comradery cuz everyone's working remotely and I certainly do understand, like and believe in the ability to work remotely.

And I think that's a great, it's a great thing that it's unlocked for a lot of us. You have two young kids and the idea of like commuting every day right now with two young kids sounds terrible. But what I do think we've lost is a lot of that like camaraderie where, you know, you have four or five people sitting around in a room.

Like trying to get a startup to happen or trying to [00:14:00] get something to happen and that that, that stuff I think has sadly kind of been lost since Covid, and I hope it comes back.

Todd: Yeah, I think it, it can come back and it's certainly vital for some small teams. I know my companies, I never really built beyond 25 people, but today, right?

I have two partners and the three of us, we get in the same room and we work through the day and, and being able to celebrate the successes and, and have a shoulder to lean on for those gut punches like you talked about. That's what entrepreneurship is, right. Balancing highs and lows that happen in the same day and trying to have, uh, the fortitude to go on.

That's a great, great analogy talking about the history of losing money, but you know, you're obviously sticking with a process, believed in the process. It's not a one day event, right? This is a marathon. So there are a lot of parallels there. I kind of think of great companies, and at least at the beginning, they've kind of hacked their way into some unfair competitive advantage.

And that feels a little bit like what [00:15:00] you guys were doing at the blackjack table that you, you created your own unfair advantage that no one else was really paying attention to, and you, and you rode that. Let me know what you think of this. Is going in every day to a startup, right? Where you know, you just, you've gotta make progress.

Two steps forward, one step back that's gonna happen. And my partner and I were thinking about this, is it like one hand to poker and you know, it's win or lose, but you're coming back. Over and over and over, and then eventually, Right? If you're sticking to a process, a process, so that that works and you're gaining more data and you're making better choices as you go, your opportunity for success grows.
Is it anything like that?

Jeff: Well, I mean, I think the, the, the analogy with blackjack or poker and the world of startups, um, I would say it's kind of the opposite, right? I would say like the idea is, Um, you wanna [00:16:00] give yourself the opportunities to succeed. And in, in blackjack, that's, that's many hands, that's many opportunities.

And with startups, right? You, you want to give your, your company a chance to succeed. So how do you create many opportunities for the startup? And so that's one of the, like from a financing perspective, right? I think that's one of the things that's very interesting, right? Because I was at a VC event, um, put on by Spider Capital, which is run by a guy by the named Michael Neril.

And, and, um, Michael's a good friend and they, one of the sessions, um, was talking a little bit about, um, the idea of, um, you know, how you're managing your finances or your investment in this downturn that we're going through right now. Right. And. One of the things that, you know, everyone was kind of talking about like layoffs and like, you know, reducing burn and all this kind of stuff.

And I, [00:17:00] and one of the things that occurred to me as I was hearing a lot of this was I was like, Listen, this is like not just in a downturn, right? This is like how you need to think about managing your finances as a CEO of a startup, period, right? It's, it's about financial responsibility. Fiscal responsibility.
Not every startup is that story, like I said, of up and to the right and and no hiccups. And the reality is that you raise money and you hope that you will be able to raise money again, but you may not be able to for a while and at the time, and so your goal is to make that money as long as you can.

Right. And, and really give yourself an opportunity to, you know, make, make that hand right. That's the analogy, right? Like you, you want to be around at that blackjack table when that good run comes and, and, and card counting. We kind of know when that good run's gonna come because we're, we're counting cards.

[00:18:00] But the reality is there's, there's still luck and variance involved in card counting. And if you don't have enough money, Um, to get yourself to the point where that variance becomes positive and you know that that expected value, um, gets realized, then, then you're gonna be bankrupt. And it's similarly with startups where you have to think very, uh, responsibly and, and frugally, um, as you think about, you know, raising money.

Todd: Yeah, that's a great analogy. So, yes, I, I was wrong . It was, it really is the opposite. And to me, in the early stage, there's a ton of financial risk, right? And you can mitigate that risk by funding these companies. Well, and we're talking about like really venture world or angel world, but there are a lot of businesses that go in, right?

They're self-funded and they've gotta get to profitability quickly and grow maybe more slowly, more responsibly, right? So when you say, you know, fiscal responsibility and you match that with venture [00:19:00] capital, We have clients that are backed by great venture capital firms that were told spend, spend, spend, spend.

And now in the downturn, they're not going to get more money from that venture firm. They're still doing a lot in sales, but they've just built up kind of an overhead. That is not sustainable. So now you see a lot of layoffs and you see this with the bigger firms in the news, but it's happening to a lot of these smaller firms.

And so there's some great assets, some, some really good companies that maybe shouldn't have grown the way Venture tends to push founders to grow. Maybe what we could jump into is, could you talk about the three companies that you built, maybe with whom you built them, at least the three that I more know about, like Circle Lending, Citizen Sports.

Jeff: Yeah, so Circle Lending was, was started, um, really primarily by a guy by the name Asheesh Advani, who now is the LEADS Junior Achievement, um, that program globally. Sure, sure. And, um, Asheesh was a consultant at Monitor Consulting [00:20:00] in, uh, in Cambridge. I don't know if you remember Monitor, but like, they were like management consulting.

Yep, yep. I do. Um, he had the idea of sort of democratizing. Financing. Right. And that was the, the original idea he had was, um, something called Be Your Own Bank, which was like one of the worst names ever. But it was, it was this, I, it sounded like a Swedish bank or something like that. Bjorn Bank or something.

But like, uh, The idea was around human capital and human capital and human equity, right? Like, could you actually invest in another human? And you, you've seen it now, like there's like some other sites that have been doing this or some other companies that have been doing this. But what ended up happening with that is was he really thought about microfinancing more and about like peer to peer lending.
And so what Circle lending became was a way to lend money or borrow money to someone you. To do a promissory note online and to [00:21:00] set up a payment schedule, um, you know, online that just was automated, right? Sounds very, very simple. Um, but in, in, I guess the late nineties, early two thousands, this was a novel concept, right?

There wasn't really PayPal, there wasn't, um, the idea that you could just do ACH transactions, like that was new. There's no social graph. Um, and it was a very interesting concept and, you know, my role was, I was the founding CTO and built out all of the initial tech, um, made all sort of the product decisions on what we were doing and, um, you know, we ended up selling that company to Richard Branson at Virgin.

Um, I was long gone when we sold, um, and Asheesh really drove the company from, you know, sort of. Peer to peer lending network to be something that actually was really around reverse mortgages and was something that really was used to run reverse mortgages. And I think [00:22:00] that the greatest lesson that I had from Circle Lending was, was really around the idea of just, of just, you know, really being willing to sort of pivot.

Um, we had like a very general, um, concept, which was peer to peer lending and eventually over time she's. Really a way to sort of leverage a specific lending, um, you know, lending scenario, which is reverse mortgages. And, um, and again, like the company had like a reasonable brand at the time, and Asheesh is, you know, is very smart and very well connected.

And, um, yeah, I give almost, you know, 99.9% of the credit to him in that like I was there early and helped him build out like the early products and the early te. . Um, but you know what's funny is that was like my first real, like, you know, I'd had a job before in a, in a golf instructional startup that called Golf [00:23:00] Span.

So you didn't, you didn't mention that one, but that was probably the first. Startup that I was very formative in, where we had like 15 of the top 100 golf instructors and seven of the top 15 signed up to provide exclusive. So like, this was like back in the day, you know, Jim McClain, Hank Haney, Jimmy Ballard, Chuck Cook, all the big names.

Um, and uh, again, like this startup was a, you know, a lot of the videos, a lot of the instruction were video based. And in the late 90. Video was super expensive. I don't know if you remember, And it was really hard to monetize, which is really incredible to think about now. Um, but that company ended up, the assets were sold to Demand Media and they, they used it to sort of like launch a lot of their, you know, golf brands and golf, golf instruction brands and things like that.

Um, the, the next couple of companies, one was a company called, um, Pro Trade, which is originally a way where we're trying to create a way for people [00:24:00] to trade athletes like stocks. And there's a company out there right now I think called MOJO that's sort of doing something similar to this, taking advantage of the sports betting world, um, and trying to launch this for real.

And then, um, and then we eventually pivoted that company, something called Citizen Sports, right. Which we were lucky enough to, to sell to Yahoo. And then finally I started a company called tenXer, which was in the developer productivity analytics space.

Um, that I was lucky enough to sell to Twitter and sort of leverage that opportunity to run, um, data science and analytics at Twitter for three and a half years.

Todd: That's great. Yeah. I remember pro trade and I think that's when Kevin had introduced us. And then you had made that pivot. Right? So you obviously learned the pivot from Circle Lending.
And that's a skill set right, of great entrepreneurs to figure out, hey, if it's not plan A, is it B or is it C or is it D? And, and get through [00:25:00] a process to figure out what is actually gonna work as quickly as possible. And then, uh, yeah, I remember seeing you at a, at a trade show right after you had sold Citizen Sports to Yahoo.

That was, that was pretty exciting moment. Cause I think they even announced it on stage or whoever was speaking at.

Jeff: I think Carol Bartz, who was CEO of Twitter at the time Yeah. Announced it at, it was at like the sports business journal, like World Congress of Sports or something. It was, it was a big deal, right?
Yeah. And like, what's funny is it was a really small, I mean, in the grand scheme of things, it was a very small deal for Carol Bartz to be announcing. Um, but what's interesting is the, the main person who did that deal for Yahoo was Jimmy Pitaro. Jimmy now runs ESPN, so it sort of gives you a good sense of like where, where things are.

Todd: Sure. So you have those two exits and I think what I'd love to dive into, if it's good with you, is what prompted your decision to sell these businesses, right? What did you [00:26:00] see on the on the table that make you decide. Hey, this is time. And the reason I ask is we get so many calls every week of, Hey, I have somebody interested in buying our business.

Is this the right time to do it? Yeah. And for us, you know, we're not the investment banker, we're just building the best M&A team for a founder. So our first step is, Hey, let's figure out if this is truly the right thing for not only for your business and your stakeholders, but for you personally.
What is this outcome gonna look like. But yeah, love to hear your decision process on those two, on the, on the last two.

Jeff: Yeah. So I, I think, um, it's interesting because one of the things I always talk about and, you know, knowing I was coming onto this podcast, you know, I, it brought back a lot of the memories I have or a lot of thoughts I have around, around M&A or around exits, right?

Which is ultimately, You never, I think that anyone that's been an entrepreneur probably understands this better [00:27:00] than people that haven't been. But there's two moments in time that people will always compliment you or will always like congratulate you as a, as a founder, right? They'll congratulate you when they see that you've raised a round of financing.

And it's always funny because it's. There's nothing, I mean, I guess some congratulations are in, in line, but it's like it doesn't really mean anything. And actually, like, that just means like the hard work is, is starting right.

Todd: External validation maybe?

Jeff: Well, and also like, you know, if you wanna run the business, but like, it's not, it isn't to me, A milestone that should be like celebrated with any kind of anything beyond like, let's just go get dinner and celebrate the fact that we're gonna have jobs for a while.

Right? The other moment is, is m and a. Right? And I think it's similarly, often a bittersweet moment, and I think people don't realize that because [00:28:00] if you start a company with the idea of selling, You're in my mind, a soulless entrepreneur, right? Like, that's not, that's not why, And people do this all the time.

Like, you see people talk about like, Oh, I'm gonna start this company. And like, you know, I know like I used to work for say, Microsoft and I know that this is a, an area they're deficient in. So I think in the worst they'll, you know, be a soft landing. And like, I think that's a weird way to think about when you start a company.

I mean, I think M&A happens and it happens. In many different scenarios, right? Like I was once talking to Kevin Systrom and it was, you know, Kevin was the founder of Instagram, and I was talking to him maybe, I don't know, six months after he had sold Instagram to Facebook. And um, I remember we were having like a drink and he said to me, he goes, You know, I didn't start my company to sell it.

But if someone offers me a billion dollars for sort of 18 months of work, like it's kind of hard for me [00:29:00] not to, to look very hard at that. Right? And so, um, I think financial, like, security and like an outcome that just really makes sense for you financially, um, that's one reason to do it. Right? And, and like no one.

No one, You know, like people follow golf right now. Like there's all these guys taking financial security to go play in the LIV tour, right? And you can't fault them because there is a certain amount of, in life, like financial security is very, very important. And especially, you know, once that whole calculus changes when you have children, which is like something that I have now, like I have children now and it's like a different sort of financial picture.

So, I think on the top is this, is this a life changing event for me? That that really financially, you know, sets me up? If that's true, that there's a different calculus that you probably want to go through, the less easy decision really comes [00:30:00] down to more of like, is it this, is, is this a good strategic move for me?

And, and the company and strategic means a lot of different things, right? In this case, like strategic could mean like, Oh, I'm aligning with a really good, uh, company that will help me sort of like, you know, better realize like what I'm trying to do. Right? And strategic could also be like, in the case of, so in the case of Citizen Sports, it was strategic to sell to Yahoo because it was 2008.

There was a really global economic meltdown that was happening and we needed to raise more money. And, you know, the, the outcome of selling to Yahoo was going to be a reasonable outcome for both our investors and our employees. And so with the macro environment and the options around us, the idea of selling to Yahoo was the best option, [00:31:00] right?

In the case of tenXer. Similarly, we realized that we needed to sell, um, our product into the enterprise. And we were not an enterprise sales company. No one in our team knew how to do that. Um, one of my key employees told me that he, um, had just found out his wife was pregnant with their first kid. And he was a guy that like would just grind every day and I was like, I can't make you grind every day when we have this opportunity to go join Twitter and, and really have a great work life balance.
What's funny is he, he's, he's basically been a Twitter since then because it's just been such a great work life balance and, and a great, you know, situation for him. Um, and me as a ceo, I'm making that decision because I care deeply about the people that work for me. And wanna make the right decision for them.

Todd: All right. That's awesome. [00:32:00] Yeah. I think that the people that we talk to, there are a lot of different scenarios, and one that we're dealing with right now is that this company has grown. It's got a lot of potential, but for example, they have never had a sales team. The CEO has done it the whole time. And to find a strategic acquirer or partner that has that sales team that's used to selling, To the same customer will accelerate the growth of this company dramatically.

And the way the founder sees it is, this is my life changing. Not personally life changing, but the company is changing lives of people and he wants to have as much impact as he possibly can. Right. So when you talk about the soulless entrepreneurs building it just for the exit. I tend to agree in that the reason we go into this is to build something incredible and amazing, and that's really fulfilling and that you're bringing people along for that journey and you're not really thinking about, Oh yeah, there's a financial outcome in the end, right?

You kind of know [00:33:00] your financial situation will. Well, you're hoping that it will be better, but it's, that's not necessarily the goal. So with this particular client that we have, it's enabling his company to impact more people, which he's really passionate about. And then on the flip side, the other thing that you mentioned, we see a lot of people where you can literally change your life today.

You can solidify the financial security of yourself and your family. And maybe that's an important, you're at an inflection point like you said. People having families, maybe you're a little bit burned out. Maybe you see something on the horizon that is gonna introduce more risk into your business and industry.
And so it's time to take chips off the table. So we see just a full range of why people decide, hey, this is time to sell. And frankly, one of the third ones is those investors. We see a bit of that, of like, Hey, we've been investing in this for seven to 10 years and it's time for a liquidity. And so those founders are kind of encouraged, right?

To look [00:34:00] for those outcomes. So in selling those two businesses, was there anything that like really surprised you about the M&A process?

Something that like our fellow founders would never know about until they actually sit there and go to sell their business where the light bulb went on saying, I didn't know that would actually happen.
Jeff: I mean, I think there's a few things, right? Like I think when you get acquired by a company that's bigger than you and you think a little bit about the the role that you're gonna take in that next company.
I think that's something that you should think a little bit about. Like in the case of, um, when we sold our company to Yahoo, I didn't really have a role or see a role there, and so I actually like had a double trigger. And so if people don't really know what double triggers are, they're essentially like something that can be written into your like [00:35:00] founder's agreement.

Um, And the two things, cuz it's double trigger are change of control. So any sort of M&A event and constructive termination. And so constructive termination essentially means that they can't give you the exact same job that you had at your company. And so constructive termination almost always can be, it's subjective and usually it's like, I think the board that kind of makes this decision.

But ultimately you can almost always say that there's constructive termination because they can't make you the CEO of that company or can't make you the whatever of that company right now, during the process, you may be deemed like a key person for the deal and then you doing a double trigger will ultimately like kill the deal.

So you have to be thoughtful on that. But in the Yahoo situation, you know, because there was two of us that founded the company. One was a guy by the name of Mike Kerns and Mike now runs TCG, you know, gone on the turn, turn his digital group gone on to do amazing, amazing stuff. And it's just way [00:36:00] above, you know, my, where I've gone in my life.

And it's just incredible to think about what Mike's done. There was Mike and there was myself, and Mike was sort of the key person. He was the CEO I was at that time. Not even like, it was something that people probably didn't understand what they should do with me. Like I was, you know, smart kid, relatively smart kid who'd, you know, had some technical chops having built and been CTO of a couple companies.

Had some product chops, but no real formal product chops at that time. Like I hadn't really been a product manager. I'd been like an early stage CTO making product decisions and so, you know, product management is a, is a fascinating thing because it's probably the skillset that I think I have the best now, but it's taken years of like refining that skill set and like talking to people about it and reading for me to feel confident to say like, Oh, I know how to do product management at scale. Um, but anyway, so I was, [00:37:00] I wasn't really, like, I had had no idea what I was gonna do at Yahoo. And so I executed the double trigger and like I remember I actually went to Kevin Compton to talk about this cuz Kevin was the early first investor in Citizen Sports and Pro Trade.

And I remember having like, feeling very reluctant to have this conversation with him because I thought he was gonna tell me I should go work Yahoo. And he actually told me the opposite. He's like, I don't think you really have anything to learn there. And so I took a year off and, and um, you know, just traveled a bit.

Wrote, you know, I had written a book and, and was promoting the book and the movie “21” was coming out. So I was like, kind of like doing the movie stuff and like, or it had just come out. So, you know, I'd had this kind of like fun run and eventually led me to, to start what became tenXer.
Todd: Thank you for that story.

I think in a lot of the m and a transactions that we see, the CEO who we're working with and the top management team, they're often deemed what you called key employees, right? And those key employees [00:38:00] can affect the outcome of M&A. So to have a key founder be able to have a way to back out not sacrificing not only the deal but maybe kind of some of the financial elements of the deal.

That's great that you're able to kind of traverse that cuz that's tricky land, but it feels like, uh, that was obviously the right decision for you and, and the company.

Jeff: For sure. I think if you join these companies, it's important to see yourself.

Like again, like you talk about the different, um, you know, people always ask you when you sell to a bigger company, they're like, Oh, how long do you have to stick around? Like, people always say that. And you know, when I was at, um, Twitter, it was actually the opposite. Like when I got there. The first couple months.

It was a weird place because when I sold my company it was $52, and then as the stock was $52 at Twitter, and then when, you know, maybe three months later, the stock had dropped to like $16. Right? And so that was a very [00:39:00] challenging time at Twitter. And it was, it was a tough time to be there and think about, you know, selling my company and all this kind of stuff to them.

Um, but I, I eventually like, loved working at Twitter and I, I remember. One of the reasons that I was interested in selling to Twitter is because I looked at the company and was interested in it. It was, and I thought like, Hey, this is a time now for me to take a job at like a really interesting company.
And so like, I, I took the job and, um, stayed there for, for quite some time and, and, you know, could have stayed a lot longer if it weren't for other things that sort of like transpired. But like, it, it was a great place to work.

Todd: I think of, we tell a lot of entrepreneurs, you know, selling a business is like putting a win on the board, right?

As entrepreneurs, I tend to think of entrepreneurship as a career path, not like getting up to the plate and trying to hit a grand slam. So you're probably gonna do this multiple times and selling a company is. Putting a win on the board, getting to work at Twitter in, you know, in a, in an important role is also putting a win on the board.

You're [00:40:00] educating yourself, you're seeing what it's like to manage from small company to, you know, more people. Yeah. There's a ton of learning that goes on and absolutely entrepreneurs to understand if, if you're gonna sell your business and go work somewhere, what does that environment really gonna be like for you?

Can you tell us about tenXer?

Jeff: Yeah, so tenXer was, It's interesting because, you know, the lesson that I really would take away from tenXer to entrepreneurs is like, don't ever start a company just because you think you wanna start a company. And that's kind of what tenXer was. tenXer was like my, I had, um, started companies before with other people where it largely was their ideas and I sort of helped them make it work.

tenXer was me saying like, Oh, I want to go start something on my own, which is my idea, and blah, blah, blah. And so the concept was really, there was a guy by name Niel Robertson, and Niel is a very successful entrepreneur. Um, good friend of mine. He kind of brought this idea to [00:41:00] me that he had had, and he wasn't a very, he didn't wanna really be operational anymore.

And his idea was really around like game mechanics, driving better motivation systems within a company, right? Like, so how do you use game mechanics and you know, like incentive structures to get people to do stuff. And I was also like fascinated in the concept of just like Moneyball for, um, employees, this idea of like using data analytics to help, um, employees better understand like their own performance or in the case of managers understand their, the people that work for them performance.
Um, and so I, um, you know, like the, the idea of tenXer was sort of marrying the two of them. The idea that there was, uh, data being stored in many different cloud-based services like Salesforce or GitHub, and if you could get access to that data and analyze it, you could learn a lot about in your employees and that.

Very general premise. And so we [00:42:00] launched it, um, and, and really we're thinking like, Oh, could we do a multi-purpose platform to do this? And then eventually we thought like, Oh, can we center this around? Um, really around like, uh, engineers and um, you know, developers and can we use GitHub and Pivotal Tracker and Jira to be the main data sources and whatnot.

I mean, that's what we did and we eventually, um, you know, brought it to the market and there were a lot of people that liked it and were interested in it, but ultimately we found that the real sales opportunity was to bigger enterprises, bigger organizations that really wanted to know what their engineers were doing.

Todd: Okay. So you sold that business and sold it to Twitter. Can you describe that exit? Was there any learnings on that one that really jumped out at you?

Jeff: Yeah, I mean, I think again, The numbers that were reported, like you wrote this sort of number like of of under $50 million and like, or just around $50 million.

It, like grossly over report. Right? Like it was like a, and and the funny part about it was, [00:43:00] I, I dunno if I've ever told this story publicly, but like, you know, we do this sale and it was fine. It was a, it was a, it was a reasonable result. Right? And, um, the day that they announced the deal, um, Ingrid Lunden from TechCrunch called me and she said, Hey Jeff, you know, and I, I was like walking to go, It was like 5:30 AM they had, you know, Twitter just kind of announced it.

I was like walking to go do TRX like a workout on Polk Street in San Francisco. And my phone rings and I see it's, see Ingrid. And I'm like, okay. Um, you know, she's like, Hey, I just saw this, um, you know, wanna report correctly. I know you can't tell me the numbers, but can you sort of gimme directionally the right numbers?

And I'm like, I just tell, ask me something and I'll tell you if it's true or not. And she's like, It's been reported that it's under $50 million. And I was like, Yes, it's under $50 million . I didn't wanna say like, Well, well, well under [00:44:00] $50. Yeah. And she said, Okay, great. And I think I said something like, Ingrid, I wouldn't let you write something that wasn't true.

And she's like, Okay, so it's under $50 million. And then Mashable like rehashed her article and wrote, It's just under $50 million. Yeah. Which became like this sort of like moniker. Like people were like, Wow, yeah, Jeff sold this company for just under $50 million. And there's like, there's just numbers out there about it.

And so it's, it's just hilarious how those things happen. And then all of a sudden people are, Oh my God, this is this unbelievable outcome for Jeff. You get wealth managers calling you left and right. It's, it's just a $1 is just under $50 is under $50 million too

Todd: Okay, well, thank you. Yeah, that was a copy paste on, on, uh, on my part.

Jeff: No, no, I wasn't, I wasn't giving you crap.

I was just, I was giving the world crap about how little people actually understand about when, when these transactions happen, what's actually happening. Like, the writers will write things cuz they wanna [00:45:00] write things and.

Todd: Everybody is looking for the headline, right? We had a, we had a guest on that talked about how entrepreneurship is really celebrated in this country, and we're trying to celebrate the biggest win we possibly can.

So the stories tend to outpace the reality. But Jeff, thank you for doing this. I really appreciate it. I want to end with what is the one takeaway, if there is one for, you know, founders that are thinking, Hey, you know, somebody's knocking on my door, or It's getting to be that time and I'm gonna have to sell.
Or I'm, I'm gonna wanna sell the business. What's that one piece of advice you think makes sense for them to know?

Jeff: I mean, I think you, you have to look at it in totality, and there's no one that can actually give you like the silver bullet answer to whether you should do it. I mean, there's your own lifestyle.
There's, um, like what you might be doing if you sold the company to someone. It's how much do you want to hunker down and keep going. It's, it's, think a lot about your team and what your team, I [00:46:00] mean, that'd probably be the one advice is really think a lot about your team because that's ultimately, like, you know, your team is everyone.

Your team is your investors, your team is your family, your team is the people that work for you, like they are all the team. Um, and you know, your, your, your team's family, right? Like this is just the whole thing. It's like really think about your team and how it might impact them. And then make the best, you know, ultimately financial decision.

Right. And by by what I mean by financial decision, you would think, Oh, Jeff's just saying you should sell for the most money. No, no. What I mean is the financial decision ultimately is where the biggest upside is, period. Right. And, and, and you know, all those other factors that we talked about, like work life, balance, culture, family, that should figure into sort of the financial decision at some level.
But like it will come down to, at some level, finances.

Todd: Oh, that's awesome, Jeff. Thank you. I really appreciate the time, man.

Jeff: Thanks for having me.

Todd: Thanks again for listening to the Caching Out [00:47:00] podcast. For more Founder Exit stories, please subscribe to the Caching Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts.

And please remember, exit and the Caching Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.