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From FBI Arrests to $160M Exit: What No One Tells You About Selling a Company | Ep 241 with Marc Stockli
00:26:01
Marc O. Stockli, a seasoned entrepreneur and board advisor, reveals what 200 board meetings have taught him about ego, trust, and building truly effective boards. From near-exits gone wrong to a $160M acquisition, he shares hard-won lessons every founder needs to hear.
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Transcript33 lines
- [00:00]
A
Foreign.
- [00:05]
B
So Mark, it's great to see you again. We met the first time in India at a retreat which was really nice. I had a great time out there. It seemed like you have some amazing knowledge around boards. I was having a conversation with the founder recently and they were just saying how they couldn't understand how it would even be possible for them as a, as a startup to, to have advisory, to have a board. But it's something that they wanted. So I really wanted to understand from your perspective around what is the benefit and how does a non publicly traded company, non large corporation even tap into what it, what it means to have a board.
- [00:47]
A
Thank you. I mean, and yes, I fully agree that January Bangalore, you know, getting to know you was, was a very special setting and beautiful. I've been very passionate about boards for a long time. It really started on a very infamous day 9 11. I had a crucial board meeting at the time at my former company. So that was really the starting point for my journey back. And ever since I've taken notes in every single board meeting. Thank you Daniel. And yes, that January catch up in Bangalore was amazing, a truly unique experience. I've been passionate about board work ever since very infamous day 9 11. I had a board meeting at the time that then was interrupted and we switched to the screens and followed that. But it was a very crucial board meeting and a very influential board meeting at the time and that really piqued my interest and I've taken notes ever since and I've been passionate board and that has accelerated in my time as global chair of yo where I ran a lot of board meetings in a, in a somewhat different context. And in essence what I observe with almost all of my entrepreneur friends is that most have a very critical view of their boards, some don't have a boards because everybody has a bad experience with it. And my fundamental thesis is it should not be this way. Many of us who need to have a board for size of the company reasons or we have external investors or family governance reasons, you know, when we have to do it, why not aim to do it well? And I think one fallacy many startups do is to start too late because it's like any other thing, it's not something that you will do well from the very start. It will take a warmer period, a training period to really practice boardroom dynamics, board preparation and all those things. So I really think better start a little bit early. And for me the main benefit, what I consider for me that the key role of a board at its Very shortest is support and challenge. And it will always be the case that the founders or the family business owners, the CEOs, they will always be more competent on the business. They're 24,7 on the business, in the business. They know all their clients, they know the business model, they know the product. Right? You, you'll never be as competent. But that more distance from the day to day can also be an advantage if and when used properly. That, you know, not seeing the forest for the trees, that perspective with more distance, with more objectivity, maybe with different type of patterns that, you know, that is the value a board can bring into. There's a lot of things that need to be in place for that to work. But when it works, it can be magic.
- [03:36]
B
You're talking about seeing the forest through the trees. And we all have egos. And I would imagine that the reason why people don't want to have that perspective is because, you know, we think we know everything. It's our company, it's our baby, it's, you know, you insulted. It's like insulting your child. But even though it might be constructive feedback, what do you think holds people back from, from getting that perspective?
- [04:02]
A
I think you hit the nail on the hat. And it's actually even one. One chapter in my forthcoming book really exactly deals with this. Keeping the ego in check, you know, leaving the ego, checking the ego at the door. Typically when you are in the boardroom, you probably have some degree of achievements in your life that most often comes along with a certain self confidence. And then, you know, there is a fine line from self confidence to ego. Now if you have too many egos in the boardroom, that's not going to be good. Right. I think what you require is really a willingness to listen, a willingness to accept that, you know, in some things I might know more than you, and then other things you might know more than me. But that combination of sparring each other, of challenging each other, that again is the magic. And I think kind of this ego question combined with what we in EO called the shoshin, the beginner's mind in Zen Buddhism, this childlike curiosity, those are crucial element to have healthy board dynamics. Give you an example. And we alluded to that, you know, as a say I'm a VC on a board of a tech company. Now if that company enters a transaction, quite likely as vc, I will know more because I've done so many transactions and the founder, it might be the first or second or third, but probably not the 25th. Right. So I might Say, okay, I know so much more, he needs to listen or she needs to listen to me. On the flip side, the same thinking might go through the CEO's head, founder head, and says, I know the business so much better. I know my product inside out. I mean how can they add value, right? But exactly that distance can add value. That neutral perspective that asking fresh questions that maybe I have not picked up. That is the beauty of having this sparring, this challenge. For that to work though, you need to bridge a pretty difficult thing, which I call the information asymmetry. Typically as a board member, I'm quite distant from the business. I need to have information flow so I have enough context to be able to support the challenge, to know enough that I truly can be of value to the people who are on the business, who run the business, the executive team, the CEO, the quarterly board pack. A quarterly meeting will never ever be enough. No matter how good that board pack is, no matter how smart the person is, it will not be sufficient. The information gap will be too large. So I, for example, I have a habit, for example, to bridge that gap more. I have a habit, I co locate. So I spend the day, two days a month on site of all the companies where I serve on the board just to feel the, you know, to feel the room, to have water cooler discussions, to have informal meetings, to, to, to, to feel the vibes. I also in, I chair the board every month, every week on Monday I get the list of all the birthdays, about 250 employees, birthdays and anniversaries and I just pick two or three and I call them during the week. They get recognition, they feel heard and I get, you know, I get the sense of what's going on and those are the things I need to do as a board member to be effective. If I'm not willing to put up that effort, better not serve on the board.
- [07:12]
B
If somebody was like, I don't even know. Mark, what does it even really mean to have a board? Because I think there isn't. Yeah, I've never seen a clearly defined or clear definition of what that even means.
- [07:24]
A
There's two facets to it. There's the legal obligations and those vary by jurisdiction. But in the most cases in most jurisdictions that come to mind, clearly the ultimate responsibility for the business lies with the board of directors. So there is a serious legal obligation responsibility for the well running of the company for not having fraud. So clearly there's some really supervision duties that are part of the governance that is the more formalistic Part that is not the part I so much focus on because that is quite well established and there's enough literature on governance on that part. What I really focus on is more the soft part of what, what does it take for a board to truly operate kind of what type of board behavior, what type of board dynamism, boardroom ambiance do you need to create, to be aligned, to have a healthy challenge, a healthy support system, a healthy checks and balance that is constructive, that advances the agenda and not becomes a nuisance and kind of an obstacle and hurdle.
- [08:33]
B
So let's say I'm somebody who maybe new to business or been in it for a little bit, but I've never had a big exit, never had an ipo. I've never achieved certain amount of successes. So I want to go someone, I want to go to someone like you who's had a lot of different successes and been through a lot of experiences. But what, how do I entice someone like yourself or these types of people and say, hey, I want you to be on my board of directors, but who am I?
- [09:02]
A
I think again, there's probably two, two sides to the coin to, to make that work. One is kind of the, you know, monetary incentive and the other one is the more intrinsic one. Starting on the intrinsic one. I think most people are either motivated by the people and, or by the offering, by the value proposition, product or service that you bring to the market. Right. Ideally it's both. Right. That they fast meet me, that I think we're going to have fun. It should be fun to work with. It shouldn't be kind of a bird neither. There should be chemistry, there should be complementarity, a feeling of, okay, my skill set is of value to you, it's impactful and vice versa. On the monetary side, typically in an early stage setting, a board member would not expect to be paid in dollars in cash, but you would be willing to share some upside. There's some established kind of formulas. Depending a little bit on what stage your company is, it can be anything from say 0.2% to maybe 0.75% of equity per year of service on the board.
- [10:13]
B
Ah, amazing. Okay, so the equity. So the longer you serve, the more equity as possible to the person.
- [10:20]
A
Yes. And, and you know, the earlier you start, the smaller the company, the higher the percentage might be and then it might decrease kind of where, where, where in the life cycle are you. Yes.
- [10:30]
B
And with the equity only really turn into dollars or currency if there is some sort of like acquisition or ipo. Or are they going to get like a yearly percentage of profits?
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A
No, I mean again, I mean depends a bit what companies we talk. But if we talk like venture backed and kind of fast companies oftentimes they don't really make profit, create profits for quite a while. Right. They usually kind of extra fund it for quite a while. If they make profits already, we're a different ball game. Then they also can pay in cash. So in the more venture backed tech setting the expectation is really basically you're treated as an employee. You're typically part of an esop. You know, you have vesting periods. You really accumulate stock options that only become valuable basically if some or all of the equity becomes valuable in a sale, in a ipo, in a grand scale, in a trade sale of the company or, or possibly in a large round later stage where some secondary, where private equity company might take some older shareholders out and be willing to pay out some, some long standing shareholders.
- [11:38]
B
When you look back to the exit that you had, I believe you had one in 2021. A lot of people talk about the excitement around what happened. Obviously it's a great monetary benefit I'd imagine for most people. But I don't hear a lot about the challenges, the tough times of the process of the exit. How was that for you?
- [12:01]
A
Again you really hit was the third time that we negotiated the exit in every single time we did not look for it. We were approached once very early in our life cycle. Then a second time, that's reading the second time we were approached. We were so close to signing with an American buyer and really literally a few days before our counterpart, the CEO of the company aiming to buy us disappeared was just became incommicado. And for two weeks we had no clue what's happening. Called, emailed, tried every channel there was until we learned that the person was arrested by the FBI on a federal case, wire fraud. Ended up serving I think 60 years or something. The whole thing was a Ponzi scheme. The company basically did not exist. His investors or their investors had been defrauded. They were fake employees, fake clients. We had done the reverse due diligence and nobody found anything. We were so close to basically selling to worthless equity. So third time lucky. The real exit, it was almost a year process between interest and signing closing. Very stressful. We had initial, very fast progress, very strong cultural alignment. And then for a long time it was a very tedious game of negotiation of due diligence. And I learned, I realized too late that our buyers had financial sponsors and still have A financial tier, private equity backed and in our case we were their first acquisition. So the financial sponsor was above average risk averse. So on the legal terms they were extremely strict, it was compensated. I think we got a very, very good offer on the monetary side and a good package on the monetary side. But the legal, you know, the reps representation warranties were, I mean our lawyers sometimes told us you cannot accept that. We were, we were quite at ease accepting tough terms because we had the, we had built the company from scratch. We knew we had no skeletons in the closet. But it was a very drawn out. It was also American acquirer, Swiss company, Swiss company not be willing to operate under American law. American buyers not willing to operate under Swiss law. So we chose UK law. So it was complex for many reasons. It was very stressful. And deciding on December 21st in 2021, still with masks for Covid was a big rig, not just a monetary side. It was really a moment of pride to really close a chapter together. It was quite a beautiful moment.
- [14:42]
B
That's, you know, that, that's the moment that most entrepreneurs look for at least certain parts of the world. Obviously they're building companies because they wanted to go down 15 different generations but for you know, many places like in Europe and the US at least, you know, we're looking for that exit as like the pinnacle of success. If you, if you look or let's say you're on the board of a, of a newer company and they're like, hey Mark, what should I do so I can get ready from day one for a possible exit in the future to have, you know, to eliminate some of the stress that might be happening.
- [15:18]
A
Very tricky question. I, I for one, I think it's, it's really probably more promising to build a business not primarily from a financial reward but really from either a problem solving or a creation kind of perspective. You know, I really want to build something, I want to solve a problem. And also, you know, the typical VC question, what's your exit strategy? I always was quite averse to that one. I always, in my whole time of building my own company, I was kind of maintained the stance. I said if we build a successful business, optionality will result, right? If we have, you know, if we build a growth company, if we build a profitable company, if we establish a stance as kind of a really world leading product, we will create options. Now obviously that is not, you know, VCs have a time horizon where they need to translate an investment into liquidity. That's their game. That's what they owe to their investors. So those clash. And that's an interesting board dynamic. Right? There's inherent conflicts of interest with investors serving on the board because some of them have a really clearly defined limited time horizon. I, as founder, might not. I just served in a company of such a structure where investors made a lot of pressure to the founders to sell. And the founders were completely convinced that they can kind of accelerate and really drive the company Forward easily another five years and, you know, really 10x the business yet again. That is a very, very tricky conflict of interest to treat and to navigate.
- [16:53]
B
Which I think a lot of people now are reconsidering where they get the money from. Used to be absolutely money. Now you're like, I mean, with so much technology, maybe you don't even need the money. You know, maybe you don't need. It's like a badge of honor. Before, like, oh, I, I raised money and now it's like, yeah, but if I bootstrap and I don't have to give out control. There's some founders that I know of a really popular company. I, I didn't even realize that maybe a year or two, two ago, they were just kicked out of their own company. And then I'm, I hear a lot of stories around people that gave too much equity. So even when they exit for a large amount, they, they don't even take any money home.
- [17:29]
A
Yes, it's, it's a, it's a mixed bag. Right. You know, investors can be phenomenal. There's, there's extremely helpful. There's very, you know, very, very impactful investors that really add. Besides just the money. I've, I've seen, I just serve on a company that is, you know, fairly advanced, has a board that has quite a few of their investors on the board. They also have some conflicting time horizons, all that, but they navigate it with a lot of civility and fairness and. Yes, and then there's really the war stories, the horror stories. You know, people have large exits, but because of the liquidation preferences of the investors, they basically walk away with nothing. Having worked hard for eight years, 10 years, whatever. There's really not necessarily need. It really depends on the sector. I would say if people have a business model and a way to bootstrap, by all means. Not everything needs to be built so fast and, you know, needs to rush things. And sometimes, yes, there is really need to be fast because it's really kind of not the winner takes all, but the winner takes a lot situation and then serious funding. But at the Moment the market is clearly moving from fast growth to real or earliest profitability. Right. That the needle with the interest environment has clearly changed away from fast growth at all costs to better be sure you have a very, very defined path to profitability.
- [18:50]
B
There's this whole talk around the solo founder, barely any employees.
- [18:56]
A
Unicorn, billion dollar comp.
- [18:58]
B
Yeah, yeah. Leveraging AI to basically having AI agents and stuff is basically all your employees. I was just reading about, he just exited I think for $80 million. Just a couple employees here and there, no raised money, but all driven through AI. How do you see the future of AI agents and companies leveraging AI to basically replace a whole workforce?
- [19:22]
A
I think it's happening. I think the big game will be the combination, right. I think most of the time AI will replace 50, 60, 80% of a certain function and things. And I think for many things I think there will be human layer. But yes, the human to agent agent to agent. Human agent agent human. I think that will completely change the ball game. And I think this, know this one one person, billion dollar companies already exist. It's like you know, the, the, the Taylor Swifts and the Roger Federers and the Tiger woods type of service. But those, those are, you know, special stories and you know, we had those in the past. I don't know, at WhatsApp's sale to tomato, I think there were about 20 people somewhere thereabouts. I, I know it was almost a billion per employee. So, so they, they, they almost in a way have, have happened already. But I think that will, that will accelerate. I think you will. And also, you know, the business models become more flexible with you know, all the, you know, with this, with the hyperscalers, with the scalable infrastructure. It's just, you know, with the freelance economy you don't need to hire everybody. You can also do a lot of work with, on a, on a, you know, on a gig, case by case thing. I think there's a lot of very exciting trends in the market. I do think, I really, I really think to come back to boards, I think having a board that works is a unique underutilized competitive advantage. Kind of overseen by many. Just on these conflicts of interest, having an independent chair, somebody that really can spar with the c close be to founder or the CEO. Just having this mentor, this sparring partner, this close confident to bounce things. I had mentors in my life. That's a very powerful and helpful thing.
- [21:14]
B
No, you got me thinking about, I started thinking about clubhouse and how they were offered like two or three billion dollars. And they turned it down to Twitter and then Twitter basically destroyed their whole business model. So I wonder when it's like the flip side. So it's like I don't, again, I don't know their, I don't know the story of, I know they got money from, you know, large vc.
- [21:34]
A
I don't know, I think it's like up Andreessen.
- [21:39]
B
I wonder how much is. Because we've heard this before. You know, Snapchat turned down money, then went ipo and maybe that was better for them. It's like the flip side. So how many companies got great offers but didn't take the offer? But maybe it was the investors that didn't allow them to take the offer. I don't know how does this play out? Because I'm not really an investor, so I don't know the ins and outs of how and who can make the decisions.
- [22:02]
A
There's very, very well known Silicon Valley VCs that claim at the very least that they never vote against the founders. Now I don't know if that is marketing or if that's a reality, but I think in an ideal case, kind of my stance and again one company where I chair the board and I work very closely with the founder CEO, I typically challenge the founder strongly before the board meeting. But if he is convinced and, and kind of, I really can sense that conviction, I have his back in the board meeting. Right. So, so, and I think that I, I, I, I like that model. That does not mean I, I, I trust him blindly. I, I have a very high degree of trust. But I, I, I take the liberty to challenge and I think it's a healthy sign of a board to, to challenge, to challenge strongly. I need, I need to follow the person who leads the business because you know, firmly, you know, the CEO is the person that takes the operational decisions. We can give input on strategy and long term visions, but the executive team is closer to the business. And if I don't have to, I mean the moments of real disagreement, they should be rare, right? Challenge before, but once you align, go and back it and go all in.
- [23:25]
B
If you're going to go all in on a CEO and you're going to have their back and you're going to see it through, are you looking for certain traits in that person? Because obviously I'm guessing you won't know everything about someone before you back them. You only have the information provided.
- [23:42]
A
Yes. So for me I think that's, that's something that is a bit underappreciated. Because it sounds very sexy to serve on the board and you know, there's, I sometimes a bit struggling with very young people saying, oh, I'm stopping, stop doing operational work. I become a board member. There's a fairly significant legal responsibility in most jurisdictions. You really kind of the buck stops there. If something happens, you're on the hook as a board member and rightfully so. So my number one thing, I need to be fully convinced about the integrity of the person, right. Running the business. If I have any doubts whatsoever, I serve on the board of a financial services of an asset manager, which is obviously quite regulated. So I would never do that if I wouldn't know that's a person I know for 30 years, I'm godfather to his daughter. I know because the risk reward, trade off that just doesn't pan out. If something happens in that business, I'm in the newspapers possibly I can't afford that. Right. So the risk reward is very negative. I can only afford to take that If I've complete 100% trust in the person. So that's my number one filter. If I don't have the trust, if there's any doubts, there's no compensation in the world to make up for it.
- [24:56]
B
I like that. Trust and integrity. So Mark Stockley, I don't know where we're going to see each other again, but I'm excited at whatever retreat, wherever that's at in the world. I'm sure it's going to be fun. If people want to follow along the journey because they can, they need to get your book once the book comes out and you know, I, I'm so fascinated with this world of boards and advisors and it's just hard to find someone that really has, I don't want to say mastered it, but has this experience like you do so, you know, appreciate you today. If you want to get in touch with you, they want to follow along. How can they do?
- [25:28]
A
So the best at the moment is LinkedIn. I'm quite active there and I surely will tell when the, when the book launches a bit is a bit closer. The website for the book is, is also under construction, but it's not up there yet. So LinkedIn for the moment is clearly the best.
- [25:45]
B
Amazing. Mark, always great to talk to you and thanks for filling me in today. I feel like I have a whole new renewed sense of what it even means to have a board.
- [25:54]
A
Thank you, thank you. I really appreciate it. Thank you.