Q&A: Corporate Development Analyst At A Tech Startup
Hey guys, just wanted to do a Q&A and give back to the community that has helped me out over the years. Some of my background below: * Graduated from a semi target (or whatever you want to call it) * Been in the same LCOL/MCOL city (think Charlotte, Atlanta, Dallas, etc.) for school and work * Started off at a LMM / MM boutique investment bank going from Analyst to Associate (~3.5 years) * Did a short stint in a hybrid strategic finance / FP&A role at a $5B+ revenue company (~1 year) * Currently a corp dev analyst at a relatively large tech startup of 500-1,000 employees (~0.5 year)
So, we're a team of two (my director and I). The corp dev function for the company is pretty new so we're planning to grow the team starting with someone to help specifically with integration. I'd say we're actually a pretty small team. I've seen many tech companies our size have closer to 5-10 people (more acquisitive and older corp dev team), but it really depends on deal flow and how acquisitive the company is. In 1-2 years as we ramp up acquisitions I can definitely see us being a team of 5+.
Right now since we're pretty new, we do get asked to chip in a lot to strategy and corp finance, but that maybe makes 25% of our work. 75% is truly corp dev work. I'd say of the corp dev work 30% is identifying and pitching acquisition targets to the C-suite while 70% is taking a target through a transaction and some integration work on the backend. Since our corp dev function is new, we haven't really had too many previous acquisitions so integration work has been pretty limited, but as we scale up our M&A activity we'll definitely need to bolster that side of the team as my director and I plan to stay out of most of that.
Most of our acquisitions targets are smaller startups with valuations of $20mm. We have the ability to do larger deals, but at this stage we're still kind of dipping our toes in the water as an organization. With many of these startups we'll take a look at the funding they've received (pre and post money valuation if available), revenue, other metrics (e.g., number of customers, team size, etc.) and triangulate a rough valuation estimate. We'll also do some basic modeling to do a sanity check on our estimate as well. We'll also typically help in creating projections for our acquisitions, but other than that the role has been pretty light on modeling. Rather, I more often work out of ppt creating decks for the C-suite pitching acquisition targets, growth areas to expand into inorganically, etc. In terms of due diligence and taking an LOI to close a lot of it is just managing different teams (e.g., HR, legal, tax, etc.) to make sure they get their due diligence complete and make business related decisions in negotiating the SPA. All the being said, at the end of the day the C-suite at my company care less about price and a +/- $1mm in purchase price, but rather they care more about how a certain target / growth avenue strategically fits into our product helping us go further, faster than building something organically.
Right now everything is cash. As I mentioned above M&A as a growth avenue is pretty new here so we're dipping our toes and making smaller acquisitions to test the waters (typically $20mm). We have pretty deep pockets so an average $10mm acquisition is a drop in the bucket of how much cash we have available. I do imagine that in the future we'll start making larger deals and when that time comes we'll definitely need a little boost outside of just cash.
We're not doing much chasing at this point. I'd say we have ~3-5 targets that we've been in talks with and are in separate verticals of interest that all have a good chance to get an LOI submitted for them by us. Specifically, at the rate we're going it looks like we'll close 3-4 deals by the end of Q2. These companies kind of came up organically through various means and that's something that we hope to move away from in the future where we'd rather have a more solidified acquisition strategy. In my mind what I've envisioned and pitched to the C-suite is that there will be a clearer inorganic strategy for the next 3-5 years that we'll help create where we have a handful of verticals that we know we need to growth through M&A - our job as a corp dev team will then be to identify targets, acquire them, and run integration.
No... Haha, but really nothing. When I look back and think about what I liked about banking (negotiations, strategic thinking for buyers/targets, etc.) I do all of that, but in a greater capacity in my current role without a lot of the BS that comes with IB. Even the pay is negligible to me in the sense that sure maybe I do make a good amount less than I did in IB, but my hours are a fraction of what they were and I'm still making good money with great trajectory in the org.