20VC Key Questions Entrepreneurs Must Ask in M&A's, Why Acquihires Come In 2 Different Categories & Why M&A Is Lumpy with Bram Sugarman, Director of Corporate Development @ Shopify

In this episode of the 20 minutes VC, host Harry Stebings interviews Bram Sugarman, Director of Corporate Development and Strategic Partnerships at Shopify. Sugarman shares his journey from software engineer to VC at OMERS Ventures, and now to his role at Shopify, where he focuses on M&A to accelerate the ecommerce giant's product roadmap. The conversation delves into Shopify's strategic approach to acquisitions, emphasizing the importance of cultural fit, shared vision, and empowering entrepreneurs. Sugarman highlights the significance of building long-term relationships and the meticulous planning that goes into the post-acquisition phase to ensure smooth integration. He also offers insights for founders on engaging with potential acquirers, understanding the acquirer's culture, and looking beyond immediate financial gains to the broader opportunities of joining forces with a larger company.

• Harry Stebbings introduces the episode of "20 minutes VC" and mentions his availability in New York.
• Bram Sugarman, Director of Corporate Development and Strategic Partnerships at Shopify, is the guest.
• Harry credits Boris Vertz at version one for introducing Bram to the show.
• Harry promotes First Republic's services for early-stage startups and Segment's data integration platform.

We are back on the 20 minutes VC with me, Harry Stebbings at h stepbings with two B's on Snapchat.

This quote is Harry Stebbings opening the podcast episode and introducing himself.

But to the show today and part two of our special feature week on the world of corporate development, going inside the minds of those that buy venture backed startups and joining me today, I'm delighted to welcome Bram Sugarman.

Harry introduces the theme of the episode, which is corporate development and venture-backed startup acquisitions, and welcomes the guest, Bram Sugarman.

• Bram Sugarman's background as a software engineer.
• His initial career in video games, working at EA (Electronic Arts).
• Interest in startups sparked during Web 2.0 boom.
• Decision to broaden his horizons by attending business school.
• Experience with Extreme Venture Partners in the Toronto startup ecosystem.
• Joining OMERS Ventures and working on numerous transactions.
• Transition to Shopify post-investment and IPO.

Yeah, absolutely. So my background as a software engineer and I started my career working actually in video games, and I had started programming when I was in high school and playing a lot of video games at that time, the most applicable thing to me was using software to build great video games.

Bram explains his initial career focus on video games and the relevance of his software engineering background.

And as I entered my second year in school, I really wanted to embed myself a lot more in the exploding Toronto startup ecosystem.

Bram expresses his desire to immerse himself in the growing startup community in Toronto during his business school years.

Funny enough, chasing Shopify in order to make an investment in the company, and then finally in 2013, when the fund had the opportunity to make the investment, got to know a lot of the management team and the founders pretty closely.

Bram discusses his journey from pursuing Shopify as an investment opportunity to getting to know the team and eventually joining the company.

• Shopify's use of corporate development to accelerate product development.
• M&A as a tool to overcome resource constraints and build products faster.
• The difference between Shopify's approach to M&A and traditional M&A.

And M A allows us the opportunity to really accelerate a lot of those products faster.

Bram highlights the role of M&A in speeding up product development at Shopify, emphasizing its strategic importance.

This quote explains how M&A is used by Shopify not just for expansion but specifically to speed up the creation and delivery of new products.

• Bram Sugarman spends the majority of his time working with the product team.
• He focuses on understanding the product roadmap for the near and distant future (1-10 years).
• The goal is to identify areas within the roadmap that can benefit from M&A to accelerate the company's mission of empowering entrepreneurs through software.

"And so what that means at a low level is I spend the majority of my time working with our product team and understanding what that roadmap looks like for the next one. Two 3510 years."

This quote explains Bram's role in aligning M&A strategy with the product team's long-term vision, highlighting the importance of planning for various time horizons.

• The process of structuring M&A with the product team is highly collaborative.
• Bram spends time discussing product opportunities and market potential, which vary from short to long-term.
• The product team drives their roadmap, and Bram aligns M&A focus based on their set priorities.

"I spend a lot of my time actually discussing all those products and what the market opportunities are."

Bram emphasizes the collaborative nature of his work with the product team, focusing on market opportunities and how they inform M&A activities.

• Conviction building involves close work with individuals looking to accelerate their product roadmap within the company.
• The process includes understanding the target company's product, founders, and cultural alignment.
• When these align with Shopify's vision and product roadmap, gaining conviction becomes a natural outcome.

"Gaining conviction is really about understanding the company, the product and the founders of that company and bringing them into the Shopify fold."

Bram describes the conviction building process as a comprehensive evaluation of potential acquisition targets, ensuring alignment with Shopify's culture, product, and vision.

• The acquisition decision-making process at Shopify is structured similarly to VC decision-making.
• It involves a "deal champion" who pushes the transaction through the company.
• After due diligence, the investment or acquisition thesis is presented to the executive team for approval.

"We have an individual who I work with who would sort of be the partner on the transaction, really pushing and championing what we call a champion of the deal."

Bram draws a parallel between VC investment committees and Shopify's internal process, highlighting the role of a deal champion in advocating for the transaction.

• Shopify finds aqua hires highly attractive and has had success with this approach.
• They have brought in agencies local to their operating geographies, providing these teams with long-term product ownership.
• Founders are considered strong leaders and are given opportunities to lead within Shopify.

"We find aqua hires to be incredibly attractive. It's actually one of the things we've done the most."

Bram discusses the value of aqua hires in M&A, emphasizing their success in integrating agencies and founders into Shopify's ecosystem.

• Shopify's M&A strategy includes acquiring local agencies, contributing to a consistent geographic strategy.
• The acquisition of an agency in San Francisco was part of their product roadmap acceleration strategy, not a deviation from geographic specificity.
• The San Francisco team was acquired for their product, Kit CRM, which aligned with Shopify's strategic goals.

"Actually, the team in San Francisco was a product acquisition."

Bram clarifies that the San Francisco acquisition was consistent with Shopify's product-focused M&A strategy, rather than a shift in geographic focus.

• When acquiring companies, Shopify considers both the revenue aspect and the opportunity to accelerate the product roadmap.
• Price sensitivity is assessed in terms of the opportunity's size and potential to contribute to Shopify's strategic targets.

"Yeah, I think that there often is some revenue."

Bram acknowledges that while revenue is a factor, the primary focus is on the strategic opportunity and its alignment with Shopify's product roadmap when evaluating acquisitions.

• Price sensitivity is influenced by the potential to build a unique business unit within a company.
• Optionality for startups is crucial to maintain a strong strategic position.
• There are three main forms of optionality: a sustainable, profitable business; support from committed funders; and mergers and acquisitions (M&A) with aligned partners.

"Those are more feature type of things. But as you look at major opportunities that have the chance really to build out a unique business unit within Shopify, that's how we define the opportunity and where price sensitivity can really be expanded when we see a massive opportunity."

This quote explains that price sensitivity is less of a concern when there is an opportunity to create a significant, unique business unit within a larger company like Shopify.

"The second piece of that really is optionality. And so when you think of startups, one of the pieces of advice I give to all founders is build a great business. You can always keep yourself in a great situation once you have optionality."

Bram Sugarman emphasizes the importance of building a strong business as it provides various strategic options for the future, which is a valuable position for startups to be in.

• The goal post-acquisition is for individuals to have better jobs than before and to focus on their strengths.
• A smooth integration means that the acquired company's employees feel they are continuing their great work without feeling lost.
• Challenges should be managed by the acquiring company to allow the new team to thrive.

"One of the core pieces of our m a process is that we want the individuals on the company joining Shopify to have a better job day one than they did at their last day as an independent company."

Bram Sugarman outlines Shopify's approach to ensuring that new employees from an acquired company have an improved work experience from the very beginning.

• Shared vision and communication between companies pre-acquisition is crucial.
• Entrepreneurs should ask many questions to ensure alignment and reduce uncertainty.
• Detailed planning and execution for the first year post-acquisition are essential for a successful transition.

"The places where you get into a little bit of trouble is where there's not great communication or one the acquirer or the acquirer believes that there's certain aspects that are going to go one way."

Bram Sugarman highlights the importance of clear communication and shared expectations to avoid misunderstandings during the acquisition process.

• Continuous communication between founders and potential acquirers is recommended.
• Shared learnings and challenges should be the focus of discussions to build a productive relationship.
• There is no specific time to start building a relationship, but it should be based on product development and shared interests.

"Understand when there's distinct parts of the journey, that there are shared learnings. And so what you really want to do is engage individuals within potential acquisition companies in terms of what you're building, what you're learning, and how that applies to them."

Bram Sugarman advises founders to engage with potential acquirers around shared learnings and product challenges to foster a strong relationship.

• Founders must understand the core mission and culture of the acquiring company.
• Empathy towards customers or users is often a key cultural driver.
• The fit between the founder's and the acquirer's culture is critical for a successful acquisition.

"I think that the cultural aspect of it is really understanding what the core mission of the acquiring company is."

Bram Sugarman stresses the need for founders to deeply understand the mission and culture of the acquiring company to ensure a good cultural fit during an acquisition.

• Founders should grasp why they are being acquired and why they want to join the acquiring company.
• It's crucial to have long-term alignment with the acquiring company, not just short-term benefits.
• Shopify's core value of building for the long term extends to their M&A strategy, aiming for long-term ROI.

"And so the bigger picture is really about how it's structured in your favor to acquire a great piece of a great ROI on your investment, which is really you joining the company for the long term."

This quote emphasizes the importance of considering the long-term benefits and alignment when being acquired, rather than focusing solely on the immediate gains.

• M&A is not a straightforward process; it involves ups and downs similar to the entrepreneurial journey.
• Understanding the lumpy nature of M&A is crucial for managing expectations.

"M A is really lumpy and what that ultimately means is that it's not a straight here's an offer to buy a company and the next day you've joined the company."

Bram Sugarman highlights the complexity and unpredictability of the M&A process, likening it to the typical entrepreneurial journey with its highs and lows.

• VCs are helpful during M&A, especially for first-time founders.
• VCs act as a sounding board and guide through the unfamiliar elements of M&A.

"We love working with really refined, great vcs because really, and this is especially the case with first time founders, there are a lot of new elements in the M a process that are not familiar to entrepreneurs."

Bram Sugarman explains that seasoned VCs provide valuable guidance and support to founders, particularly those who are navigating the M&A process for the first time.

• Founders should be aware of the M&A process and its timeline.
• Long-term relationships and understanding the stages of acquisition are important.

"Just understanding that things really don't happen overnight. Long term relationships matter, as well as the timeline that it takes to actually go from start to know that first meeting right through to closing an acquisition."

Bram Sugarman emphasizes the importance of patience and understanding the duration and phases of the M&A process, from the initial meeting to the final acquisition.

• Bram Sugarman enjoys reading biographies, particularly those that blend creativity and genius.
• He finds inspiration in stories about the long-term entrepreneurial journey, such as Nike's story in "Shoe Dog."

"One of my favorites is the Albert Einstein biography by Walter Isaacson. It's a really great marriage of creativity and genius."

This quote shows Bram Sugarman's interest in understanding the lives of influential people and how their creativity and intelligence have shaped their contributions to the world.

• The hardest element is focusing on the right opportunities and key areas in Shopify's ambitious product roadmap.

"Just focusing on the right key areas is definitely the hardest day to day challenge."

Bram Sugarman identifies the difficulty in prioritizing tasks and projects in a fast-paced environment with numerous opportunities.

• Shopify's recent acquisition of Oberillo was based on data, the founders' vision, and cultural fit.
• Oberillo's product sourcing aligns with Shopify's goal to support merchants in their entrepreneurial path.

"Recent acquisition is a company called Oberillo that does product sourcing."

Bram Sugarman explains the rationale behind Shopify's acquisition of Oberillo, highlighting the strategic fit and shared vision for supporting merchants.

• Bram Sugarman expresses gratitude for the introduction to the show by Boris Vertza.
• He highlights the importance of infrastructure and support systems for early-stage startups, praising First Republic and Segment for their services.

"And I'd like to say huge thanks to Bram for taking part in the episode today. So fantastic to have him on and hear the internal process at Shopify."

Harry Stebbings concludes the episode by thanking Bram Sugarman for his insights and discussing the value of strong support systems for startups.