Getting Deals Done
In the 18 years that I've been doing venture capital investing, I've probably been very involved in over 250 deals. I've probably been tangentially involved in another 500 to 1000. I don't just mean venture investments. I mean mergers, acquisitions, IPOs, strategic investments, joint ventures, venture fund formations, employment contracts, severance/termination agreements, and a whole lot more.
And I have to say that getting a "deal" done is one of the hardest things that you have to do in business. It's easy to come to an agreement on the business terms of a deal. But then you've got to sell it to the other constituents, then you've got to paper over it, and then you've got to close it.
It seems like its getting harder to get deals done these days. That's not a comment on the desire to do deals, I think that's been on the rise for the past 18 months. I am talking about what it actually takes to get through all the steps to actually close a deal.
Some of this is probably due to the increased scrutiny that everyone is under post Sarbanes Oxley/Enron/Adelphia/WorldCom/etc. Lawyers are more cautious and more empowered to be naysayers. Accountants are more cautious and more empowered to be naysayers. Boards are more cautious and more empowered to be naysayers.
I guess this is good in many ways and a natural reaction to the excesses of the late 90s. But it's also a drag on the risk taking nature of our free markets/capitalistic/entrepreneurial business climate here in the US, and that's not a good thing.
It takes at least one and in many cases all of the following three things to get a deal done in this world we find ourselves in:
1) A familiarity and trust among the participants in the deal. Familiarity and trust greases the skids, makes things easier, and is a great foundation for any deal.
2) A competitive dynamic and a deadline. If a deal is hotly contested and has a deadline that can't be pushed out, then getting a deal done is a lot easier. That's always been the case, but these factors are more important than ever. I think using a public offering or an auction process in order to bring a buyer to the table quickly is the best way to sell a company these days.
3) Intense focus and effort. Unfortunately, there's a cost to this approach. If the CEO and/or his team has to focus intently on getting a deal done, everything else is going to take a back seat. And in the end, there's a big cost to that.
So what do I think we should all do about this? We should think long and hard before we jump into a deal, recognizing the costs associated with deal doing and the risks of actually getting to a close. Once we've made the decision to jump in, we should look for trust and familiarity if at all possible, create a process that produces the right competitive dynamic and urgency, and we should commit ourselves to getting it done.
Because deals are what business is all about. And plus, I love doing deals.