20VC So You Want To Be Acquired Instacart VP of Corp Dev, Dave Sobota on His Biggest Lessons From 10 Years in Google's M&A Team Working on The Acquisitions of Motorola, Waze & Android

In this episode of the 20 minutes VC, host Harry Stebbings interviews Dave Sabota, VP of Corporate Development at Instacart, discussing the intricacies of corporate development and M&A strategies. Sabota shares insights from his experience at Google and Instacart, highlighting the importance of aligning with an acquirer's vision, conducting due diligence, and ensuring a smooth post-acquisition integration. He emphasizes the role of venture capitalists in M&A, the current healthy market conditions, and the rise of private equity in tech acquisitions. Sabota also touches on the significance of relationship building and the necessity for startups to assess their readiness for acquisition. The conversation delves into the operational aspects of tracking competitive landscapes, the internal conviction building for acquisitions, and the metrics for post-acquisition success.

• Harry Stebbings hosts the 20 Minute VC podcast, focusing on venture capital insights.
• The podcast features interviews with venture capitalists and explores different aspects of the investment world.
• Corporate development is highlighted as a key topic in the current episode.

We are back for another week on the 20 minutes VC with me, Harry Stebbings.

The quote introduces Harry Stebbings as the host of the 20 Minute VC podcast, which regularly delves into the venture capital industry.

• Dave Sobota is the vice president of corporate development at Instacart.
• Sobota previously worked as director of corporate development at Google for over ten years.
• He has been involved in significant acquisitions including YouTube, Android, Motorola, and Waze.
• Sobota's background includes being a CPA at KPMG and a lawyer before moving into corporate development.

I'm so excited to welcome Dave Sabota, vice president of corporate development at Instacart.

This quote introduces Dave Sobota, highlighting his current role at Instacart and his impressive professional background.

• Dave Sobota transitioned from being a CPA to a lawyer, and then to corporate development.
• He joined Google initially as a lawyer before moving to the business side.
• Sobota found his role in corporate development to be the greatest career he's had.

I made the jump to the business side and have been leading M and A and investment deals for Google Worldwide ever since.

The quote explains Sobota's career shift from legal work to focusing on mergers, acquisitions, and investments at Google.

• The M&A market is described as healthy, with no signs of slowing down.
• Key factors contributing to a robust M&A environment include strong business sentiment, corporate profits, access to financing, and favorable tax laws in the US.
• Despite a slowdown in 2016, the overall outlook is positive, with 2015 being a record-setting year for M&A activity.

Overall, we're seeing a healthy m a market with no real signs of it slowing down.

This quote from Sobota provides an overview of the current state of the M&A market, emphasizing its strength and growth.

• There has been a noticeable increase in private equity (PE) firms participating in the M&A space.
• PE firms are raising larger funds and have significant capital to deploy, leading them to acquire more VC-backed companies.
• The trend reflects the evolving dynamics of the acquisition market and the role of different types of investors.

We're definitely seeing more PE involvement in the M A space, including an increase in acquisitions of VC backed companies by PE firms where previously we hadn't seen them so much.

Sobota comments on the growing presence of private equity firms in the M&A landscape, particularly in acquiring venture capital-backed companies.## Interest Rate Environment and Private Equity Participation

• The current interest rate environment in the US is characterized by creeping interest rates that are still low historically.
• This environment has led to increased participation from private equity firms (PEs).
• Private equity firms are paying high multiples, around all-time highs, for acquisitions.

"Due to the interest rate environment, which is creeping up a little bit in the US, but still are at relatively low levels, historically speaking. And so what we're seeing is lots more participation from pes and lots of high prices. The multiples that pes are paying are around all time highs."

The quote discusses the current state of the US interest rate environment and its effects on private equity investment behavior, highlighting significant participation and high acquisition prices.

• Price sensitivity is a consideration in M&A, but successful deals often overshadow the initial cost.
• Companies use various analyses like DCF (Discounted Cash Flow) and multiples analysis to evaluate acquisition prices.
• High growth companies may require a "leap of faith" due to their potential versus current financials, as seen with Google's acquisition of Waze.

"If you do a good m a deal, no one's ever looked back and said, how much do we pay? It's just smiles and congratulations."

Dave Sobota emphasizes that the success of an M&A deal often mitigates concerns about the price paid in retrospect.

• Founders should consider selling if they are offered a price that reflects their company's future value.
• Founders need to evaluate their risk-reward profile and their desire for independence versus financial security.
• The potential acquirer's ability to enhance the startup's success is crucial, as exemplified by Google's acquisition of YouTube.
• Non-monetary factors, such as access to resources and talent, should also influence the decision to sell.

"The general rule of thumb is that if someone is going to pay you today what you think you're reasonably going to be worth well into the future, then sell now."

Dave Sobota provides a rule of thumb for founders considering selling their company, highlighting the challenge of future valuation.

• Startups should manage their time wisely and build relationships with potential acquirers.
• Trust and understanding between the buyer and seller are essential for successful M&A.
• Startups may engage with CorpDev if they consider M&A in their future strategy.

"One of the elements to a successful M a deal is having a relationship of trust between the buyer and the seller and a good understanding of each other's products, teams and cultures."

Dave Sobota discusses the importance of trust and understanding in successful M&A deals, suggesting that startups build relationships with potential acquirers.

• Startups in stealth mode or focusing on product development may choose not to engage with CorpDev.
• Open and honest communication is the best approach when deferring talks with CorpDev.

"Yeah, if a company is operating in stealth mode or is truly heads down, focusing on developing their product with no intention of selling in the near term, I think it's completely appropriate to defer any talks with Corp dev."

Dave Sobota explains when it is appropriate for startups to avoid discussions with CorpDev teams and emphasizes the importance of clear communication.

• VCs are valuable partners for corporate development teams.
• CorpDev professionals at Google maintain relationships with top VCs to understand technology trends and investment focuses.
• VCs provide a market view that complements the internal focus of corporate development professionals.

"Yeah, vcs are an important and valuable partner to us in Corpdev. We have relationships with all of the top vcs and we meet with them frequently to learn about their portfolio companies and their views on technology trends."

Dave Sobota highlights the importance of VCs as partners in the corporate development process, providing insights into market trends and potential investment opportunities.

• Google's CorpDev team works closely with product and engineering leadership to align M&A with company roadmaps.
• Research and networking are used to develop a pipeline of potential acquisition targets.
• A bespoke in-house CRM system is utilized to track and manage interactions with companies in the ecosystem.

"Great question. So, as I mentioned, my job is to meet frequently internally with our product and engineering leadership, understand the roadmaps, and then together we explore how M a could advance these roadmaps."

Dave Sobota describes the process of aligning M&A strategy with Google's product and engineering roadmaps, emphasizing the collaborative approach and the use of specialized tools for tracking potential acquisitions.## Interaction with Startups in Pipe

• Google reaches out to relevant companies for potential engagement.
• Meetings can occur at Google or over casual coffee conversations.
• Introductions are often through internal Google contacts or trusted external sources.
• Cold emails to companies are not uncommon.
• Transparency about mutual fit and interests is emphasized.

But quite simply, we reach out to relevant companies and meet with them. Typically, I'm happy to host at Google, but I love having casual conversations at coffee as well.

This quote explains the initial contact process with startups, including the flexible meeting arrangements and the value placed on casual interactions.

• M&A processes can be grueling, especially in price agreement or during confirmatory diligence.
• Legal and accounting details are scrutinized, including reviewing all contracts signed.
• Founders are advised to be upfront about potential issues to avoid surprises later.

The process certainly can be grueling and it can happen on the front end before a term sheet is signed, maybe because it takes a long time for the two sides to agree on price, or it can happen on the back end after the term sheet is signed, and that can be due the confirmatory diligence process, which involves folks like lawyers and accountants, and it's very detail oriented.

The quote describes the challenging aspects of M&A, highlighting the importance of thoroughness in both price negotiation and legal diligence.

• Founders should focus on pitching their company and also perform due diligence on Google.
• Understanding Google's plans for the deal is crucial since founders often continue with the company post-acquisition.
• Alignment on the product's future, team, and growth plans is essential for a successful partnership.

It's important for me as a corp dev person to make sure that these discussions happen. But I always encourage founders to ask questions along the way too, to make sure we're on the same page.

This quote underlines the significance of open communication between founders and corporate development to ensure mutual understanding and alignment of goals.

• Founders should ask any questions they have, with no limits on the topics.
• Concerns may vary among founders, such as team treatment or product survival.
• It's encouraged to address specific concerns unique to each founder.

There should be no questions that are off limits. So different founders may have different concerns.

The quote encourages founders to be inquisitive and transparent about their unique concerns, emphasizing the openness of the dialogue.

• Startups often have multiple opportunities and do not strictly need Google.
• Google must convince startups that it is the best option for realizing their product vision.
• The offer to startups must include both monetary and strategic value.

And therefore we need to not only pursue them and offer them a decent monetary amount, but we also need to convince them that we are the best place for them to fulfill their long term vision of product success, whatever that means for them.

This quote discusses the competitive nature of acquiring startups and how Google aims to position itself as the best option for a startup's future success.

• Google's CEO and an executive sponsor must approve M&A deals.
• Building a story and rationale for the acquisition is part of the process.
• Early check-ins with senior leadership ensure alignment before seeking formal approval.

Every m a deal at Google needs to be approved ultimately by our CEO, and it needs an executive sponsor.

The quote explains the hierarchical approval process for M&A deals at Google, highlighting the need for executive support and alignment.

• Integration strategies vary depending on the deal's objectives.
• Discussions about the level of integration and autonomy are tailored to each acquisition.
• An explicit conversation about the integration plan is vital before signing definitive agreements.

Well, first off, each integration we do is different. There's no one size fits all.

This quote emphasizes the customized approach Google takes for each acquisition's integration phase, ensuring alignment with the acquired company's goals.

• Google conducts post-closing check-ins and post mortems to learn from each deal.
• An engaged deal sponsor from Google is critical for successful integration.
• Continuous involvement from a seasoned Googler helps navigate post-acquisition challenges.

And the single most important element we found for a successful integration is that we have an engaged deal sponsored from the Google side.

The quote identifies the key factor in successful integrations, which is having a dedicated and involved sponsor from Google to guide the acquired company.### Incentivization in Deal Success

• Ensuring involved parties have appropriate incentives is crucial for the success of a deal.
• Incentives help address potential problems quickly.

"involved with the deal, with appropriate incentives to make sure the deal succeeds, is a great way to help ensure that potential problems get addressed quickly."

This quote emphasizes the importance of incentivizing all parties involved in a deal to proactively tackle issues and ensure the deal's success.

• Google measures the ROI and success of acquisitions using a set of objectives and key results (OKRs).
• OKRs are not just financial but include user growth, product launches, and employee retention.
• Google collaborates with the target company to set these goals and adjusts them after closing.
• The company regularly reviews these goals as a report card, every three to six months for two to three years.
• If goals are not met, Google investigates the reasons and attempts to make corrections.

"For every deal we do, we set okrs, which are essentially goals that we want to achieve. And these aren't just financial, but they often are financial, but they include things like growth of user base, product launches, employee retention and things like that."

This quote outlines the broad spectrum of objectives Google sets for measuring the success of its acquisitions, highlighting that financial metrics are important but not the sole focus.

• Dave is most proud of the acquisition of Waze due to its successful growth and leadership.
• The Waze deal was competitive, with challenges from other potential acquirers and internal questions regarding its integration with Google Maps.
• Despite these challenges, the process was rewarding.

"I would say Waze, and not just because it turned out to be a really successful deal for us in terms of phenomenal growth."

This quote reflects Dave's pride in the Waze acquisition, emphasizing its significant growth and success as key factors.

• Coinbase is commended for its aggressive and bold approach to acquisitions and investments despite being a relatively small and young company.
• Dave respects Coinbase's strategy and sees it as a model for other companies.

"I have a lot of respect for what our mutual friend Emily Choi is doing at Coinbase."

Dave expresses admiration for Coinbase's M&A strategy, suggesting it is particularly noteworthy given the company's size and age.

• Startups should focus not only on closing the deal but also on post-closing operations.
• The integration and operation within the acquiring company post-deal are as important as the deal itself.

"Although it's important to focus on getting the deal done, it's equally or even more important to jointly agree on how your company's going to operate within Google after closing."

The quote advises startups to pay attention to the operational integration post-acquisition, which is crucial for long-term success.

• Dave's favorite book is "Lonesome Dove," a western novel with compelling heroes and a great story.

"My favorite book is Lonesome Dove, which is a great western novel with two very different but compelling heroes."

This quote shares a personal recommendation from Dave, highlighting his appreciation for the storytelling and characters of "Lonesome Dove."

• Aqua hires are less frequent, and prices have generally decreased.
• Exceptionally talented individuals in machine learning can still command high prices in aqua hires.

"No, but they are less frequent and prices are coming down with, I'd say one exception, which is rarefied machine learning talent can still fetch a premium price on the aqua hire market."

Dave notes a market trend where the frequency and cost of aqua hires have declined, except for top-tier machine learning experts.

• The hardest part of Dave's role is declining companies that are not a good fit for Google.
• Turning down great companies feels like letting the founders down, even if it's not due to their failure.

"It's having to say no to great companies that just happen not to be a good fit for us."

Dave expresses the difficulty of rejecting companies that do not align with Google's strategy, despite their potential.

• Tenor, a GIF search company, was acquired to complement Google Image search with a modern and fun approach.
• The acquisition aimed to enhance the search experience.

"Tenor, which is a Gif search company, and we bought them in part to be a modern and kind of fun supplement to Google Image search."

The quote explains the strategic reasoning behind Google's acquisition of Tenor, aiming to improve and modernize the image search experience.

• The podcast hosts endorse Brex, a corporate card for startups, and Terminal, a service for building remote engineering teams.
• Stripe is recommended for its resources to help technology companies start, run, and scale.
• The podcast aims to provide insights from experts in the field of business and technology.

"Brex founders Enrique and Pedro built a payments business in Brazil, but found themselves rejected for a corporate card when they were in Y combinator."

This quote provides context on why Brex was founded and endorses its services for startups.

"Terminal is your dedicated partner in quickly building skilled remote engineering teams."

The quote endorses Terminal as a solution for the challenge of hiring remote engineering talent.

• Thanks are given to Dave for participating in the podcast and tolerating the host's humor.
• The hosts express appreciation for the support of their listeners and tease an upcoming episode.

"And again, I want to say a huge thanks to Dave for putting up with my british wit there."

This quote is an acknowledgment of Dave's patience and participation in the face of the host's humor during the interview.