20VC LinkedIn's Head of Corp Dev on Why and When Startups Should Start Relationship Building With Corp Dev, What The Structure of M&A Traditionally Looks Like & How To Mitigate The Biggest Risk of M&A, Integration Risk

In this episode of the 20 Minutes VC, host Harry Stebbings interviews Emily Choi, Head of Corporate Development at LinkedIn, who offers insights into the world of mergers and acquisitions (M&A). Emily discusses the importance of strategic M&A alignment with company goals, the value of early and ongoing dialogue with startups, and the significance of transparency throughout the M&A process. She also highlights the critical role of integration post-acquisition and advises founders to balance building their business with forming strategic relationships. The conversation touches on the changing landscape of tech M&A, the rise of private equity and strategic investors, and the need for a methodical approach to acquisitions, emphasizing that the right company fit trumps price. Emily's experience includes leading LinkedIn's acquisitions such as Lynda, Bizo, and SlideShare, and she stresses the importance of retaining key talent post-acquisition for long-term success.

• Harry Stebbings introduces the new week on the 20 Minute VC podcast.
• Harry is reachable on Snapchat and highlights his username.
• The topic of liquidity in the context of Limited Partners (LPs) and mergers and acquisitions (M&A) is introduced.
• Emily Choi from LinkedIn is introduced as the guest, with her background and achievements mentioned.

"Another beautiful week begins here on the 20 minutes vc with me, Harry Stebbings on Snapchat at h stepbings with two B's."

This quote is Harry Stebbings opening the podcast and sharing his Snapchat handle for listeners to connect with him.

"So I wanted to dive into the world of m and a today with one of the preeminent players and buyers of startups."

Harry Stebbings sets the stage for the episode's focus on mergers and acquisitions within the startup ecosystem.

• Emily Choi is the head of Corporate Development at LinkedIn.
• She has led over 40 acquisitions, aqua hires, and investments.
• Emily's notable acquisitions include Lynda, Bizzo, Newsle, Bright, Pulse, SlideShare, and Reportive.
• She has also led strategic investments in Cornerstone OnDemand and G2 Crowd.
• Emily has previous experience at Warner Brothers, MySpace, and Yahoo, and has been on the Naspers board for ten years.
• Matt Switzer from Hootsuite is thanked for introducing Emily to the podcast.

"Emily Choi, head of Corp Dev at LinkedIn, where she's led 40 plus acquisitions, aqua hires or investments."

This quote provides a brief overview of Emily Choi's role and her significant experience in corporate development at LinkedIn.

• NatureBox offers an unlimited snacking program for offices, promoting healthy eating.
• Lisa is a company that sells mattresses online, emphasizing a good night's sleep and charitable donations.

"Naturebox is the first ever unlimited snacking program for offices of all sizes, starting with just $12 per month per employee."

This quote describes NatureBox's business model and value proposition for providing office snacks.

"Lisa have done away with a terrible mattress showroom buying experience by creating this luxury premium foam mattress that's ordered completely online and ships for free to your doorstep."

This quote explains Lisa's business approach to simplifying the mattress buying experience by selling online and offering free shipping.

• Emily Choi shares her background in tech and digital media.
• She started on the east coast in investment banking and transitioned to Yahoo in CorpDev and strategy.
• At Yahoo, Emily worked across various verticals and deals, including investments in Flickr and Alibaba.
• She built a strong network at Yahoo, which includes LinkedIn's CEO, Jeff Weiner.
• Emily has been at LinkedIn for seven years, overseeing acquisitions and strategic investments.

"I'd always been into tech and digital media, and I was on the east coast working in investment banking for more traditional industries, and I reached out to Yahoo about working in Corpdev and strategy and I got the role."

Emily Choi discusses her career path, highlighting her interest in tech and digital media, which led her to a role in corporate development and strategy at Yahoo.

• Emily emphasizes a "crawl, walk, run" approach to building out a CorpDev practice.
• Understanding the nuances of the company's strategy is critical in mapping out an M&A strategy.
• It's important to work with engineering and HR to integrate acquisitions and hires effectively.
• The goal is to set up founders, new technologies, and products for success within the company.

"I think anybody who's building out a corpdev practice should think about kind of a crawl, walk run approach."

Emily Choi advises on the gradual and strategic approach to developing a corporate development practice within a company.

• Emily discusses the slowdown in tech M&A activity.
• She notes that tech giants are good at copying startup products, reducing the need for acquisitions.
• The flow of talent to tech giants is strong, making it less essential to acquire companies for their teams.
• High valuations make it a good time for acquirers to be cautious.
• Consumer giants wait for inflection points, while enterprise acquirers look for monetization and customer expansion.

"It's true. I think there's a few dynamics going on. One is that the tech giants have in many cases gotten really good at copying emerging startup products, so they don't need to deal with the hassle of acquiring."

Emily Choi explains one of the reasons for a perceived slowdown in tech M&A activity: tech giants are able to replicate startup innovations without needing to acquire them.

• Private Equity (PE) firms see opportunities to consolidate spaces and find revenue growth and cost synergies.
• Concerns exist about PE focus on cost-cutting impacting R&D investment.
• It's uncertain if PE firms can justify the multiples paid for tech acquisitions.
• Strategic investments can seed ecosystems around products and services.

"It's certainly an interesting development for this space I think PE firms see an opportunity to consolidate certain spaces, potentially spur some more revenue growth, and find cost synergies."

Emily Choi comments on the trend of Private Equity firms entering the technology acquisition market, highlighting their strategies and potential concerns.

• Emily Choi and Harry Stebbings discuss the M&A process.
• The conversation touches on operationalizing tracking of the competitive landscape and deciding which companies to engage with.
• The discussion is set to continue on the process of M&A, with insights from Paul Graham's perspective on engaging with corporate development teams.

"We map"

The transcript ends abruptly, indicating that Emily was about to explain how they map the competitive landscape or engage with potential acquisition targets. Unfortunately, the transcript cuts off before she can elaborate.

• Companies track competitive landscapes through regular meetings with startups, articles, relationships, and third-party tracking tools.
• Tracking includes monitoring VC funding and talent flows, particularly from notable companies like Google and Facebook.
• Understanding where high-quality engineers are moving to can indicate a startup's growth and potential.

"We also track things like vc funding and talent flows to understand, for instance, that a startup is attracting a lot of high quality engineers from Google and Facebook."

This quote highlights the methods used to assess the competitive landscape, emphasizing the importance of following talent movement as an indicator of a startup's success and potential.

• CorpDev teams prefer ongoing relationships rather than transactional interactions.
• The right time to engage with CorpDev can be any time, not necessarily when a transaction is imminent.
• Good entrepreneurs are advised to build relationships early and talk to anyone who might help them.

"So don't just come to us when there's a transaction going on. Knowing the Corp dev team at a company is a great way to navigate the company and begin to form the right relationships, and it can start at any time."

Emily Choi emphasizes the value of building long-term relationships with corporate development teams, rather than only engaging during transactional events.

• Starting interactions at the seed level is beneficial, even if there is no immediate transaction.
• Regular check-ins and sharing updates on business metrics and landscape observations are useful for both parties.
• Relationships should be formed regardless of the immediate need for networking.

"It's good for us to start interacting at that stage if they're in a space that we're interested in."

Emily Choi suggests that early engagement with startups allows for a more informed and beneficial relationship for both the CorpDev team and the startup.

• Founders should primarily focus on building their company.
• Balancing relationship-building with development work is necessary.
• Networking should not consume all of a founder's time, but it's important to form strategic relationships.

"There's a balance to this and no one's expected to network all the time."

Emily Choi acknowledges the need for founders to balance their time between building their business and networking with potential partners or acquirers.

• CorpDev teams engage in dialogues with VCs about market trends and investment patterns.
• Discussions with VCs can provide insights into which startups have strong teams and innovative ideas.

"It's good to just, again with both the vcs and the founders, just have an ongoing dialogue so that you're both tracking things and triangulating upon points about the spaces and the companies that are interesting."

Emily Choi values ongoing dialogues with VCs to gain insights into the startup ecosystem, which helps in making informed decisions about potential collaborations or acquisitions.

• Transparency and openness from VCs are preferred.
• Sharing both positive and negative aspects of portfolio companies helps form a well-rounded view.
• Long-term relationships with VCs are important for a comprehensive understanding of potential targets.

"I like openness and transparency. I like the ones who aren't trying to put lipstick on a pig."

Emily Choi expresses a preference for VCs who provide a truthful and comprehensive view of their portfolio companies, which aids in building trust and long-term relationships.

• The M&A process can be grueling, with extensive interviews and due diligence.
• Founders and CorpDev teams should align on the process to avoid team exhaustion.
• More upfront diligence can increase the security of the transaction post-term sheet.

"I think interviews and due diligence can be very grueling."

Emily Choi acknowledges the challenging nature of the M&A process, highlighting the importance of careful planning and alignment between the parties involved.

• Founders should engage in mutual conversations with potential acquirers.
• Attention should be paid to the acquirer's interests, challenges, and potential areas of collaboration.
• Discussions should explore how both parties can work together to bring products and services to market.

"Good conversation should be a back and forth."

Emily Choi advises founders to engage in reciprocal dialogue with potential acquirers to explore synergies and collaboration opportunities.

• Regular check-ins with companies lead to discussions about strategic interest and potential M&A.
• Collaborating on the M&A process includes determining the type and extent of due diligence and interviews.
• The process involves verbal offers, term sheets, further legal diligence, and definitive agreements, with integration planning throughout.

"At that point, the founder either say yes or no, but assuming they say that they're open to it, they should collaborate with the corp dev head on what the process should look like."

Emily Choi outlines the steps of the M&A process, emphasizing the importance of collaboration between the startup and the CorpDev team to ensure a smooth and successful transaction.

• Issues often arise with team leveling and integration into larger companies.
• Ensuring that both sides feel the impact they desire is crucial for a successful M&A.
• Deal negotiation and process can be points of contention.

"Well, typically a lot of the breakdown happens when there's issues with, for example, leveling."

Emily Choi identifies common challenges in the M&A process, particularly around the integration of startup teams into larger corporate structures and ensuring that the acquired team feels valued.

• Founders should avoid creating a false sense of urgency in deal-making.
• False deadlines can lead to credibility loss for the company.
• It's important to balance urgency with allowing the acquirer sufficient time to assess the deal.

"So, for example, it often happens that somebody will call and say, listen, we're going to get a term sheet from three other companies by the end of the week. If you want to enter this process, you've got to jump right in."

This quote exemplifies the pressure tactics some founders may use to accelerate a deal, but it also highlights the potential negative consequences of such an approach, such as losing credibility if the stated deadlines are not genuine.

• LinkedIn has a 'rapid process' for building internal conviction for acquisitions.
• The process involves executive sponsorship and agreement among key stakeholders, including the CFO.
• Teams peripheral to the deal are allowed to weigh in, ensuring comprehensive input and accountability.
• CEO Jeff ultimately makes the decision to proceed with the acquisition.

"There is one usually executive level sponsor who will on R D, usually who will recommend this acquisition. The other R D person, for example, the head of engineering for that particular group, would then have to agree with it because they have to make sure that they are comfortable with it."

This quote explains part of LinkedIn's internal process for acquisitions, emphasizing the need for executive-level recommendation and agreement from relevant department heads, which ensures alignment and comfort with the potential acquisition.

• Price is important, but acquiring the right company is more crucial than getting the right deal.
• A rigorous valuation process and a build vs. buy analysis are essential.
• Successful acquisitions can transform companies and justify the acquisition price over time.

"I truly believe that the most important thing is buying the right company and not getting the right deal."

Emily Choi argues that the strategic fit and potential of the acquired company to transform the acquirer are more significant than the acquisition price, suggesting a long-term view of the value of an acquisition.

• Integration risk is a significant concern post-acquisition.
• LinkedIn uses a 'barbell approach' focusing on pre-acquisition strategy and post-acquisition integration.
• Successful consumer acquisitions often involve minimal integration, while enterprise acquisitions may require more complex integration.
• Shared goals and clear understanding of integration points are key to minimizing integration risk.

"I always say that everybody loves a deal, everybody wants to weigh in on a deal. It's the sexy part of the transaction for us."

This quote from Emily Choi acknowledges the allure of deal-making but underscores the importance of focusing on the integration strategy from the beginning to ensure a smooth and successful post-acquisition process.

• Success metrics for acquisitions are developed in collaboration with the target company and internal teams.
• Goals may include embedding functionality, employee retention, and achieving specific growth or engagement benchmarks.
• A custom approach to setting targets for each acquisition is necessary due to the unique nature of each deal.

"We work with both the target companies as well as the sponsoring teams at our companies to come up with those, call it three or so goals of the integration."

Emily Choi describes how LinkedIn collaborates with the acquired company to establish clear, shared goals for the integration, emphasizing a tailored approach to success metrics for each acquisition.

• Employee retention is a key success metric post-acquisition.
• A good retention rate is benchmarked against the overall employee base of the acquiring company.
• The retention rate should be assessed relative to the importance of the acquired team to the long-term success of the integration.

"So which employees have we designated to be truly key for the longer term, and what is our benchmark retention rate going to be?"

This quote highlights the importance of identifying key employees within the acquired company and setting a benchmark for their retention to measure the success of the acquisition.

• Companies often integrate founders from acquired startups into significant roles within the business.
• Successful integration is indicated by founders running key business lines.
• This approach brings an entrepreneurial spirit to larger business segments.

"So at one point, for example, at LinkedIn, we had three founders running the three key business lines of the company..."

This quote highlights the strategic move by LinkedIn to place founders from acquired companies in leadership positions, signifying successful integration and the positive impact of an entrepreneurial mindset on the company's main business areas.

• Retention of software engineers post-acquisition is a benchmark for success.
• Matching or exceeding the company's overall retention rate is considered very successful.
• Acquisitions introduce variability in retention due to differing preferences of employees from startups versus larger companies.

"If you are anywhere close to the overall software engineer retention rate for your company with the acquisitions, you are crushing it."

This quote explains that retention rates for software engineers from acquired companies are a key metric for success, and achieving rates close to the company's overall retention is an exceptional outcome.

• Being transparent with startup founders during M&A can be beneficial.
• It is important to communicate what is resonating or not with the acquiring company.
• Open discussions can help determine if there is a fit between the startup and the acquiring company.

"Be transparent... if you can talk to that startup founder and say, listen, for some reason this landed with a thud. Let's unpack it and figure out what went wrong."

The quote emphasizes the importance of clear communication with startup founders during M&A processes to address any concerns and determine the potential for a successful acquisition.

• Founders should not create a false sense of urgency about acquisition timing.
• Processes often take longer than expected, and missed deadlines can damage credibility.
• Startups should seek advice from trusted VCs or advisors experienced in M&A.

"One don't create too much of a sense of false urgency about timing... The other thing I would say is selectively make sure that you leverage advice from your vcs or whatever advisors you truly trust..."

This quote advises startup founders to manage their expectations regarding the timing of M&A and to utilize the expertise of their advisors to navigate the process effectively.

• Emily Choi is an avid reader, finding it difficult to choose a favorite book.
• She recommends "The Bonfire of the Vanities" by Tom Wolfe for its portrayal of a specific era.

"But lately I've been coming back to the bonfire of the vanities by Tom Wolfe..."

Emily Choi shares her recent reading preference, highlighting "The Bonfire of the Vanities" as a compelling depiction of its time.

• Corporate Development (CorpDev) involves feedback from various leadership roles within a company.
• A thorough process before offering a term sheet ensures smoother post-acquisition integration.
• Founders should understand that delays in acquiring a term sheet often indicate a detailed internal process.

"Corpdev is really a corporate level process... It takes a lot for something to actually come together."

The quote describes how CorpDev requires input from multiple departments, and a meticulous approach is necessary for successful acquisitions.

• CorpDev professionals need to constantly consume industry news and analysis.
• Ben Thompson is highlighted for his insightful and detailed analysis.

"You need to be constantly reading all of the blogs, newsletters, tweets to better understand what's going on in the universe."

This quote stresses the importance for those in CorpDev to stay informed through various industry-related information sources to make well-informed decisions.

• LinkedIn's acquisition strategy includes adding functionality to existing services.
• Heighten was acquired to enhance LinkedIn's sales solutions with features like pipeline reporting and an intelligent notepad.
• The acquisition was based on shared vision and timely opportunity.

"The most recent one we announced was Heighten, which was for our sales solutions business."

Emily Choi explains the strategic rationale behind LinkedIn's acquisition of Heighten, emphasizing the alignment with their sales solutions vision and the timing of the acquisition.

• Naturebox offers an unlimited snacking program for offices.
• Lisa provides a mattress buying experience with a luxury foam mattress ordered online.

"Naturebox is the first ever unlimited snacking program for offices of all sizes... Lisa have done away with a terrible mattress showroom buying experience..."

The quote presents Naturebox and Lisa as innovative solutions in their respective industries, offering convenience and quality to consumers.