The Story behind My Fifth Investment, Exitround
At the start of 2013, as I was trying to get individuals to invest in my fund, I made a special trip to San Francisco from Palo Alto, just to meet one person. I usually try to be efficient and stack a few meetings, but for this person, I was happy to make the special trip, as I was hoping to have him in the fund. Unfortunately, he shared with me that he was precluded from future investing and focusing on his next thing. He couldn’t share what that was just yet. A few days later, the news that he and his business partner were forming a larger fund leaked. Primack scooped up the news around Homebrew, and Satya kept a good secret. In that conversation, Satya encouraged me to look at a new startup by my friend, Jacob, since I love marketplaces so much. The recommendation was, “You should talk to him.” That was all I needed.
I knew Jacob before and we have many mutual friends in common, so that part was easy. I had to dig into the marketplace a bit more. The idea for his company was to harness both the Internet and his rolodex to better match startups with the M&A departments in larger technology companies. For anyone who has been around early-stage startups and seen first-hand how laborious and drawn-out the acquisition process is, the appeal of Jacob’s solution is immediately evident. On top of this, the bankers who are hired to broker these transactions often lack the relevant context to communicate the most salient aspects of a startup’s technology and team, not to mention the fit within a larger corporation.
Jacob and I made some time to meet up, and I already knew I wanted to be involved. I only had to ask two questions.
One, could this become a larger vision than just an M&A marketplace for startups? Jacob had a great answer, explaining how Exitround could lay the foundation for a different kind of financial entity, and that is exciting. Not only was that a creative lens to apply to the problem, he showed a great deal of care and caution about setting up the company with the right privacy controls since so much of the signaling in the M&A dance can affect deal terms and prices.
Two, I needed to understand how long-term this business could be. The rate of startup formation (and capital to support it) is extremely high. How long would this last? Is this cyclical, or the new normal. I don’t know the right answer, but I had to make sure Jacob and I thought about this the same way — that is, that I do believe the economy overall and the technology sector specifically have undergone fundamental, structural changes that present a “new normal.” When I posed the question this way, Jacob immediately responded with: “Structural.” And, then after a night of sleeping on it, I requested to invest in the company. Jacob graciously invited me to do so.
Since then, quietly, Jacob and his team have been laying the groundwork for what will be an exciting 2014. There are 500+ buyers on the platform, ranging from growth-stage private companies and startups, all the way to over 25 companies on the Fortune 500 list. There are hundreds of seller companies in the marketplace, multiple transactions have occurred through Exitround, where 6% of the seller companies (and growing) have over $1M in revenue, which demonstrates the platform’s ability to move more broadly from acqui-hires. This is a chaotic time in the rate of new company formation, and with Exitround, Jacob and company are providing a much-needed service for different parts of the ecosystem, and I fully expect the company to be part of the fabric of things moving forward for many years to come.