Getting Acquired by the Big Guys

Jason Lemkin - SaaStrDavid Ulevitch, VP Security Business Group - Cisco

December 17, 2015

Q. How does getting acquired help you to focus on what really moves the needle?

• It allows you to sit down with decision-makers fromlarge organizations you wouldn’t normally have access to as a small, independent company.

• Gives you the resources and the clout to focus onmeeting with people and doing things that reallygrow the company.

• Frees up time to allow me to focus on making sureintegration is successful and we’re getting revenuegrowth.

“I'm a believer that revenue growth solves all problems

no matter what stage you're in.”

Q. Have you dealt with customer anxiety that you’re still a startup even 10 years into your business?

• Before being acquired, yes. They have anxiety about the company, not the product.

• When you haven’t gone public, customers are very curious what your plans are.

• If you’re trying to do business with a majorcompany, they can be worried you mightget acquired by a company they don’t wantto do business with.

• All of that adds friction to the selling cycleand created ambiguity. Questions will comeup in conversations with prospects.

“If they're worried that you might get acquired by a company that they

don't want to do business with, that could be a problem.”

Q. What’s going on with the state of unicorns andwhether to go public or sell?

• Ever since we went to the Goldman Sachs conference, we had the opportunity to raise probably a billion or better valuation, but for me the question is, "OK, tell me what's next. What is the endgame?”

• When you sell your company, you get immediate liquidity, and all of your employees get immediate liquidity. When you go public, you get almost no liquidity.

• The things I want to accomplish became somuch easier to achieve with an exit to Cisco than it would be by going public.

“We had the opportunity to raise probably a billion or better valuation,

but for me the question is, ‘OK, tell me what's next. What is the endgame?’”

Q. When you have an investor, how active are they? What's the impact of a corporate investment?

• I think it's up to the portfolio company, themselves. We did have a board observer, and

I think even with a board observer, it's still up to the company to decide how much interactionthey want to have with a strategic investor.

• They had all that visibility, and they saw the growth of our revenue numbers and it made

the acquisition conversations much easier.

“We ended up partnering with lots of other security companies, and not with Cisco, which turned out to be smart. They were able to see the success of our other partnerships with other security vendors.”

If you're a founder getting inbounds from corporate development, what's your advice on those meetings?

• You have to have someone on your team that takes them, depending on the size of your company.

• All these different people, we spent the time with them, to get to know these people, even if it was just to send them an update once a year saying, "Hey, we're doing this stuff. You think it fits? If not, I'll talk to you next year.”

• The reason we did that was so there's some familiarity.

“There's other companies like CheckPoint, we did a partnership,

meet in the channel, product integration.”

Q. Now that you’ve sold, looking back, what would you do differently?

• There were certainly some things that I wastotally focused on, that I thought were really important, but turned out not to be really important.

• We did focus a ton of energy on the compensation, and people and retention packages, and that turned out to be really important.

• Here's one thing that we would do differently. It turned out that Cisco and us had the same counsel, and not just the same law firm, but actually our lawyer turned out to be somebody who had done a bunch of Cisco M&A, and we never even really knew that.

“I definitely feel like this is the right decision we made. No second‑guessing,

no questioning it.”

Q. How do companies prevent acquisition deals falling apart unexpectedly?

• When I've learned the details of deals that fell apart, it's usually because the company being acquired didn't have their house in order.

• You can never misstate your numbers, but you can posture things in certain ways, and you can talk about things that you think will happen, but when it comes to corporate development and

due diligence, just the facts, especially when it

comes to sending over models and spreadsheets.

• You need to make sure that there is full support from the acquirer, that the board has signed off, that they're able to write the check size, but then I think that the company being acquired, you've got to have your house in order.

“It was because things had been picked in early parts of the

conversation that then turned out to not be a totally accurate

reflection of reality.”

Q. What are the best hacks for reducing post‑verbal order close times for big deals?

• Those things happen less and less as you move up‑market, but I think that especially in the SaaS business, if you can get the customer using your product prior to buying it, it starts to get harder and harder to do that.

• We've learned early on that if we're only talking to one person inside the company, that's generally a bad sign. That means that they might be off on their own.

• There's often gatekeepers, but once you get past the gatekeeper, they might open up to other

people.

“The networking people, the security

people, their boss will sit in on a call, or they'll introduce you to

procurement. If you're not getting introduced to procurement, there's something wrong.”

Q. Being a single founder, how did you handle sales & technology at the same time?

• I had a very strong executive team, and it wasn't always the same executive team, but it was always very strong.

• My CMO was like a COO, he actually owned everything from product, to marketing, to customer success support. The only thing that he didn't have was sales, so he had basically the whole customer life cycle they came up to him.

• That allowed me to expand the service. Once we hit about a hundred people, we had a great executive team, and I was on the road.

“It took me a while, but I had a great leadership team, and

they helped me focus on being the leader.”

Q. How do you organize upsell on the post-sales relationship?

• If customers feel like you're treating them right in all the renewals, and you've treated them right on their service, then those referrals more than make up for the lack of extracting those last few pennies out of them.

• We don't let our sales reps upsell existing customers. They don't get to mine that vein, they have to go out and hunt new fields. As executive, I know that my renewals team can go and do that, but the sales team and the VP of Sales can't go do that.

“The best lead you get is from a customer referral.”

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