One of our companies, ImageVision, recently went through an M&A process that ultimately fell apart. ImageVision has computer vision technology which can count thousands of pieces of inventory just by taking a picture (jewelry, pipes, computers) or identify what is moving in a video (did the security camera see a bird fly by or is there someone trying to open my door). In this case, the acquirer was interested in the latter and wanted to integrate IV’s tech in its security cameras to identify motion as an IOT play. During the process, we made big mistakes which you absolutely cannot make:
-Never show the acquirer all the code. The acquirer came on-site three times and audited/reviewed the code with the team multiple times. As a result, they pretty much had the roadmap to build our tech bug-free and no longer needed to buy us. Whereas it took us 4 years and $10mm to build our technology, by showing the acquirer the roadmap they basically had the keys to the car and with the right team could replicate our tech in significantly less time. Make it clear ahead of time even before you sign a term sheet that there will be no code audit, no extensive review of the code, or any other exposure of critical IP.
-Make sure you have non-solicitation clauses protecting employees. Any NDA and term sheet needs to include non-solicitation or no-hire clauses which prevent the acquirer from trying to hire your employees at any time, up to two years after the acquisition process should it fail. In our case, we didn’t have these clauses so once the acquirer saw the code, they attempted to poach our key data scientists and developers during the actual M&A process. It was very bad behavior on the acquirer’s part but we couldn’t do anything about it. The M&A deal fell apart in April, but just last week, they acquirer reached out to our key data scientist and tried to hire him away.
We learned another critical lesson from this process: build a product, not just a technology. At ImageVision, we built phenomenal technology but didn’t actually productize it. The acquirer saw this and essentially treated us as an acquirhire, attempting to isolate the value of the team and the tech which is never as valuable as an actual company with a product, sales process, recurring contracted customers, etc. Building a product and selling it makes you a company which is far more valuable than just being a team with great technology.
Another side effect of building a great technology but not an actual product: although every contract we signed was big, it was always a custom project which took up team resources and had a very long sales cycle. Had we built a product around the technology, we could have said to a customer “here is the product, if it’s a fit for you, sign this nifty SaaS contract.” If the product wasn’t a fit, no problem, we could move on and focus on our real customers as opposed to expending resources trying to mold the technology to particular needs.
We learned a lot from the busted M&A process and now ImageVision has actual products which we believe will be very valuable. Of course, if you have a need to count thousands of pieces of inventory by just taking a picture or you need to identify what is moving in a video, not just that something is moving, I’ve got a solution for you!