The inside story of a founder who sold a startup: Selling the company
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Creative coworkers doing high five at start up office in the sunset. Photo Credit: Klaus Vedfelt / Getty Images Israel

Creative coworkers doing high five at start up office in the sunset. Photo Credit: Klaus Vedfelt / Getty Images Israel

Finally making the sale and the roller coaster that preceded it

“Through me the way into the suffering city,
through me the way to eternal pain,
through me the way that runs among the lost.
Abandon all hope, who enter here”
– (Inferno, Dante)

If you are not yourself bipolar, trust your startup to turn you into one. The entrepreneurial roller coaster always goes up and down, but sometimes it spins right out of control. I want to take you for a short journey through the highs and lows. And first – a warning: Kids, don’t try this at home.

After three years of hard work that began to yield results, FireBlade received its first significant venture capital investment. We moved into nice offices, started recruiting staff in earnest, and conducted daily meetings. To make a long story short, I became a big boss, a busy boss, a stressed out boss, an enthusiastic boss, and a worn-down boss. I was a big boss who enjoyed being the locomotive driver of the roller coaster. In the meantime, out there in the real world, the product sales were dwindling, we were bleeding cash, the new product was slow to leave the oven, and my Board became anxious. And that’s when the volcano erupted, in October 2013, during a board meeting and the shouting match that lasted into the night. I’ve already told you about that in the previous chapter, but what I did not tell you, is what happened next.

Several days after that meeting, we receive an acquisition offer. I received a phone call from the CEO of an American company, a person I chanced to meet in a New Orleans’ trade show one month earlier. He asked if by any chance we were interested in selling the company. This phone call quickly rolled into one on one meetings in Israel and the USA, and within about two months, the discussions matured into a concrete offer and a signed Term Sheet. The terms represented a relatively good profit to the investors and founders. The stress from the condition of the company was replaced with enormous hope, and naturally the Board let me work quietly again. Great, isn’t it? Yet that wasn’t the only thing that took place after that meeting. My wife at the time sent me a clear message. She indicated that the Board was not the only one who got tired of Mr. Big Boss and his performance. The point was made clear through an impressive display of fireworks that rocked my world, caught me unprepared, and put me on the fast track to a quick divorce. Sounds bad, right? While I faced the breakdown of my family and temporarily went back to live with my parents, the due diligence and negotiations continued. I was soon to become a well off man. I went through my divorce process in a dream-like state, with dollar signs in my mind, and the anticipation of being rid of financial worries in just a brief moment. Six weeks after I signed the divorce papers, the potential buyers abruptly announced they’re rescinding the acquisition offer. They slammed the doors shut, arguing that without the CDN technology, or the knowledge and plans to build it, FireBlade was of no use to them.

Our big hopes faded away. The temporary numbing that covered the pain of the break-up of my family as well as the smooth sailing with the Board faded as well. Do you want to know how I felt at that time? Imagine for a minute a giant banner stating “Our broadcast are interrupted due to a malfunction”, accompanied by an annoying and monotonous beep, and a horrific smell of scorched flesh. And now, imagine that is what was playing in my head every day for months. That’s the best description I can give you, and it lasted for a while. I would walk like a ghost in the office; I would stare at the screen for a few hours and leave quietly. I stuck to the brutally honesty strategy and notified to the Board that since their CEO was not functional, it would not be a bad idea if they found a replacement for me. Since this statement was only met with silence, I had to go on doing my job, finding some comfort in the forced routine. Erez, my partner in this journey, helped me a lot and took extreme measures to cover up for me and take charge during those days of poor performance.

The journey Photo Credit: Ascent Xmedia / Getty Images Israel

Several months later, my partner led the launch of the new product. Just before the launch, it was clear to everyone that despite cutting back on staff, we didn’t have enough cash on hand to keep the company afloat until we reached significant sales. This cash crisis required immediate attention and is what finally kicked me out the narcissistic gloomy coma I was indulging in. I re-joined the sales efforts, and for the first time, managed to prove the possibility of signing product distribution partnerships. I began a round of conversations with the company’s principal investors and convinced them to inject enough cash to give us approximately six more months – the time we needed to promote the new product in the market. I promised that during the eight months of activity the company will have after it received this investment, we will sign at least eight reseller deals, and at least one of those will be with a large and significant player. I also presented certain sales goals. At the very last minute before signing the bridge investment, I was informed it will be a 2-phase investment; half will be received immediately and the other half only four months later. The transfer of the second half shall be at the investors’ discretion and had no pre-determined criteria. That was a frog I had to swallow. It was also agreed that during the following four months, I will try and find other potential buyers for the company.

I did indeed keep looking and found several potential buyers for the company. We received only one concrete offer, from an Israeli entity. This offer was so bad that the Board and the company rejected it in a blink of an eye. The four months ended on November 2014. We conducted a Board meeting in which I presented the progress we’ve made. We had signed distribution agreements with six small to medium distributors, and these already started to generate sales and lift up the sales chart. Due to several technical challenges, however, the pace was slower than forecasted. I also presented we were in an advanced stage of negotiations with a giant Asian distributor. I expressed my assessment: we have a good chance of reaching a strategic joint venture agreement and it would take additional 4-6 weeks. I explained the importance of the deal but also its risks, and concluded with that. The investors thought this over, and decided it was ‘too little, too late’. They backed off from the company and refused to inject the second half of the investment. In order to extend the company’s life from two to four months, I had to immediately terminate half of the employees (11, to be exact). During this time, I tried to use every possible lever on the potential buyers and also gave full power to the negotiation with the Asian company, which conducted a fair but tough and meticulous negotiation.

In February 2015, the company was left with just enough cash for one month of activity. The long negotiation with the Asian partners reached its final phase and was hinging on the last of the tedious legalese. At that time, one of our investors notified me that the Israeli potential buyer we recently rejected had been conducting direct negotiations with him. My investor notified me he agreed on a selling price for the company, had agreed on a draft Term Sheet, had already presented the Term Sheet to the Board and it was accepted by everyone. To make a long story short, the company was sold without even talking to me and I was only asked to sign on the dotted line. I immediately called the acquiring company and asked its COO and CEO for their motive for acquisition, what use they expected to make of the technology, the future of our company’s staff and the terms of our employment. While they refused to give me any direct answers, they’ve sent me an indirect message indicating that the CEO of that acquiring company was speaking directly to my investors and was not interested in having any direct dialog with me. That was, of course, first class stupidity. Go check with any lion in the jungle if the right thing to do is scare the prey before making the leap towards the kill.

At short distances the lioness can easily pounce a zebra foal Photo Credit: Manoj Shah/ Getty Images Israel

I became the prey and didn’t like it. The lawyer in me arose from under the wraps and I decided to cook up a stew: I called the Asian company, and pressured them in every possible way to finalize the agreement immediately. The financial terms would allow FireBlade to continue to operate for about a year while promoting this partnership. Two days later I received the draft agreement from the Asian partner. I also got the Term Sheet from the Israeli acquiring company, which included an offer to buy FireBlade’s assets under very bad terms. The Board asked to conduct an urgent phone meeting in which it voted in favor of signing the agreement with the Israeli acquiring company immediately. Immediately? Not before a legal review, of course. I forwarded the Term Sheet to our attorney and asked them to meticulously search for anything that may not be legally admissible. To my satisfaction, a few hours later they notified me that the contract indeed breaches an agreement we had with the Chief Scientist and that in order to make it legally admissible, we must change a few items in it. I explained that issue to the acquiring company and while they proceeded to correct the legal phrasing I had some time on my hand to season my dish. I called the legal department of the Asian company and explained that it is a customary practice to incorporate into such JV agreements a clause that will protect them from a scenario of the acquisition of the company’s assets by any entity. I helped them understand how such clause should be phrased and they naturally thanked me for this courteous and unexpected step in the negotiation. I was promised that they will send back an amended draft agreement. In the meantime, I received an angry phone call from the investor who cooked up the deal. He threatened that if I don’t immediately sign the Term Sheet, I’m risking legal action. Fine. The following morning we had two new agreements: the amended Term Sheet, and a strategic JV agreement with the Asian company, incorporating a clause that does not allow going through with an acquisition of the company’s assets under the conditions set by the Israeli acquiring company. This move is called ‘contract poisoning’. So sue me.

In the morning of February 17, a festive signing ceremony took place in our offices. Present were our senior staff, a document scanner and a few bottles of beer. First, I signed the strategic JV agreement and sent it to the Asian partner. I asked them to countersign it immediately and indeed received the signed agreement within a couple of hours. Only then, and according to the Board’s decision, I sent the signed Term Sheet to the miserable Israeli acquiring company. In addition, I sent them the signed agreement with the Asian partner and mentioned that this was the first item they should look into as part of their due diligence. The deal with the Israeli acquiring company fell through immediately. In contrast, our partnership with the Asian company is still active and it provided FireBlade a year of time to work. During that year, and despite the fact we were only 10 employees, we were more focused and more productive than ever. It was clear that now the company’s destiny rested solely in the hands of its employees. No more hand wrestling.

The Asian adventure

In the summer of 2015, during one of my flights to our Asian partner’s offices, I was invited to an amazing dinner I’ll never forget. During the dinner, our partners praised our work. After the dinner, the CEO took me out on a short cigarette break and discretely informed me that our partnership is considered by them as a pilot for full-blown collaborative work, and that if things keep on going the way they have been, in precisely three months they will make us “an interesting strategic offer.” In light of the fact they were super-ethical in their conduct and extremely careful with their statements, we had many reasons for being optimistic. The only thing I was concerned with was this: how we can get a more interesting offer than the one we previously got in Israel. We were an easy prey. I returned and doubled down on my efforts to find a buyer for the company if only to improve our bargaining position when the moment of truth arrived. I scouted one such interested party, a large public company. They seemed serious and I began to conduct negotiations with their highest levels. At the same time, some New York investment bankers connected us to another potential buyer, a company by the name of StackPath, who we had never heard of before. Three months had gone by and the VP of our Asian partner notified me that he would like to come to Israel and talk with me ‘one on one’. I began fantasizing of a life split between Israel and colorful culinary feasts in Asia.

It is commonly known that in the Asian culture, saying “no” or any other direct conflict, are out of bounds. The manner of speech tends to be indirect and very respectful, the opposite of what you imagine when thinking on the Israeli culture. It may be that, and not my deaf ears was the reason it took me about eight hours to understand the VP’s message. To make a long story short, he told me that due to various internal political issues and budget issues in their organization and their parent company, they will not be able to acquire us now. He only came to Israel out of respect, to tell me that face to face. Do you get that? So here we are on the highway again, with the last drops of gas in the tank. What more can be done? I quick-stepped the negotiation with the other two companies and hoped for the best. Finally, it worked. We had a complex negotiation, under pressure and with countless small and unexpected twists. But all that isn’t important anymore. We were bought out and became StackPath Israel. We kept all the remaining staff. We pocketed an amount that certainly did not change our status in life, but for sure allowed us to lay back for a short while. We received very generous employment terms and bonuses. And me? After six months, I left the comfortable job with the outrageous salary. That’s not for me. I am a roller-coaster locomotive driver. And even if I’ve learned nothing from the previous round and all my conclusions will do no good, at least my skin is not that thin anymore.

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Shay Rapaport

About Shay Rapaport

I am a tech geek and product enthusiast. Co-founder of Fireblade (aqcuired by StackPath) and of SmartMove internet solutions. A lawyer by education with some background in journalism.

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