A Slippery Slope
Vanguard's first year was one of huge revenue growth, strong investor
interest and even modest profitability. Unfortunately, we found ourselves
short of funds in May of 2001. The Internet bubble had burst and our
fast-track funding had fallen through. Looking at our dwindling reserves, we gave
ourselves until September to either arrange significant financing or pursue
The summer of 2001 was challenging. Our inability to secure funding had
shaken our resellers' confidence, and it seemed that many companies were
giving up on the whole concept of e-commerce. We had few sales leads coming
in, most pending Internet projects were being put on hold, and Exodus
communications, one of our largest resellers, was spiraling into bankruptcy.
Potential customers repeatedly confirmed that they considered Mojo to be the
best product available, but it was clear to them that Vanguard was having
financial difficulties, and no one wants to buy an expensive software
solution from a company that may not be around next year.
By September things had gotten hard. Although the market had rebounded
somewhat, and we were almost covering expenses again, morale was low.
Technology companies were dropping like flies, and all our employees could
see that Vanguard had stopped growing and was now just treading water.
We had a fantastic product, but it was one with a limited market window and
one which we clearly lacked the resources to properly bring to market. With
external funding now out of the question, an acquisition seemed our best
bet, so I took out a personal loan that would see the company through until
the end of 2001.
The Art of the Deal
A lot of mystique surrounds corporate acquisitions, but selling a company is remarkably similar to selling anything else. I compiled a list of a dozen likely suitors and arranged introductions. Initial conversations narrowed the field to seven.
I approached each of these companies with a detailed presentation on why the future of their firm depended upon them buying Vanguard. The reasons were quite different for each company, but all were reasonably accurate. The amount of research and planning that went into these presentations was tremendous, but when asking someone for several million dollars, it pays to do your homework.
By mid-October we had reached informal agreements on approximate valuations and conditions with several firms, but time was working against us. While a few companies may have been trying to prolong negotiations for tactical reasons, the simple fact of the matter was that three months is simply not enough time for most firms, and certainly not public Japanese firms, to complete the due diligence required for a corporate acquisition. Most companies told us that a deal was "simply impossible."
I spent the next six weeks crafting and re-crafting proposals until we arrived at deals that each of these companies felt comfortable with, and by December 15th Vanguard had four radically different offers on the table. We accepted the one which was clearly the best. Digital Garage, a well established public company, offered to buy Vanguard's Mojo division and some related intellectual property.
After twelve weeks of living on adrenaline and instant coffee, the finalization of the deal was notable only in its banality. On December 18th, in less than one minute, Digital Garage's Board of Directors voted unanimously on the proposal and moved onto the next order of business.
It's been four months since the contracts were signed. Vanguard continues in a greatly reduced, but far more profitable form. The integration of the Mojo division into Digital Garage has proceeded far more smoothly than I expected, and not a single person lost their job in the process. The deal is considered a huge success by almost everyone.
On a personal note, I find myself looking forward to payday again, and I now view my weekends as a time to relax rather than "the only time I can get any real work done." I've noticed that I enjoy music again, a simple pleasure I had not realized I had lost.
At this point, few things would make me happier than to sum up the whole experience with a closing bon mot or a piece of sage advice. Unfortunately, there was no single specific lesson learned. However, perhaps the fact most surprising to those who have not been in this situation is that the line between success and failure is impossibly thin.
Vanguard spent months dancing on that line, usually unsure as to which side we were on. We ended on the successful side, but if a few seemingly irrelevant events had transpired slightly differently, we would have gone down in flames. Conversely, if a few minor bad breaks had not occurred, Vanguard would be a far larger and more profitable company than it is today. All these events were largely beyond our control.
The oddity, however, is not the breadth of the line itself, but the fact that no one outside knows or cares about its existence. All that matters is which side you end up on. The actions you take and decisions you make along the way are judged not by the conditions under which they occur, but by whether you wind up a success several years later.
An inch to the right and you are a hero. A financial genius who has paid his dues, deserves the money he's earned, and will command top dollar to write and lecture on the secret of his success. An inch to the left and you are a failure. A neophyte who has squandered your backers' money on a crackpot idea and wasteful spending, and who should now be looking for "real work."
This situation is neither good nor bad. It's just the way it works.