How we got acquired: Joining the winning pie
A deal happens quickly or not at all.
This is the twelfth part of my Megacool startup journey series about our acquisition process. I'm sharing my emotional roller coaster so you feel less alone as a fellow struggling founder.
Here's an overview of the entire series:
Part 1: How the Megacool journey began
Part 3: Embracing Failure – How we tested 10 different startup ideas over 10 weeks
Part 4: Hackathon 1-3: From AI travel agent to photo management adventures
Part 5: Hackathon 4-7: The messy middle
Part 8: How we built our co-founder team
Part 9: From idea to live product
Part 10: Our bootstrapping hustle
Part 11: How we raised $1.6m in funding
👉Part 12: How we got acquired👈 YOU ARE HERE
Part 14: The emotional founder roller coaster
Part 15: The epilogue
Remember when I mentioned our first dance with an acquisition offer? It kicked off after a big-time game developer, who was integrating our product, decided they wanted to be more than just friends. Our integration was such a breeze it even charmed the skeptic engineers – quite the feather in our cap! As our investors saw this as market validation, they filled the rest of our seed round and ended our grueling 18-month-long fundraising process. We could finally breathe again when the money hit our bank account in July 2017.
With Megacool, we'd set out to solve the enormous problem mobile game companies faced: how to scale their user base cost-effectively. Our solution turned players into marketers by recording and sharing highlights from their game experiences with friends, tied to a referral program.
In August 2017, we kicked off big time, stepping out of beta and growing our team to seven (mega) cool team members working from San Francisco and Oslo. But as time passed, we struggled to move fast enough and make data-driven decisions due to the slow sales and feedback cycle, a common B2B curse.
Sure, we got many thumbs up, but we had multiple challenges, especially around our business model, as our customers weren't familiar with how to pay for what we were building.
"He said it sounded like we have a product fit [since the customer clearly wants it], but not market fit given that we're still not smooth sailing when it comes to closing revenue generating deals." — A note following a discussion with our lead investor in June 2018.
'Ice in our bellies'
June 2018 approached. With only six months left in the bank, we reviewed our options with our lead investor. We had prepared worst-case scenarios where salary reductions/elimination for us as founders were the main lever, with reducing SaaS costs close behind, followed by potential revenue targets. We also discussed different fundraising routes and acquisitions. We hoped the upcoming events of big launches ahead of the holidays and a competitor closing down would work in our favor. Our burn was already low, so it wasn't unrealistic that a few enterprise deals could get us close to profitability.
Together, we agreed not to make drastic changes as of now but instead follow Scenario 4 (in the screenshot above), continue without distractions, and revisit both acquisition and fundraising strategy in October—with only two months left of the runway.
Our lead investor said he was more optimistic about us after the meeting and encouraged us to have 'ice in our bellies' — a Norwegian expression for staying 'calm and carrying on.'
Despite hard and focused work, October 2018 rolled around without enough dent in our revenue streams to make a difference. We had already proactively halved the founders' salaries. We made a short list of potential acquirers. We didn't have an existing partnership relationship with most of them and didn't want to show all our cards. Thus, our play was to get to know and propose partnership solutions at the same time, and—hopefully—they would throw themselves at us, screaming: let's be more than just friends!
But hope is not a strategy.
The lifeline
There was not enough time to partner and shake hands with larger company executives likely to acquire us. They were too slow-moving.
We hadn't shown enough progress with our six-month-long sales cycles to raise our Series A funding round.
I had pitched everyone, and — despite my tenacious pitching and not taking 'no' for an answer — it was hard to see a way forward.
As we were staring into the abyss, one of the VCs we'd been talking to—who truly saw the potential in what we were building—was granted a $200k "angel check" by his fund to place in startups he believed in but had yet to reach the stage for their fund to invest.
We got talking. He got excited. We got excited. We answered all the due diligence questions. He said, "It's 90% certain that this will happen."
The $200k would give us the lifeline we needed as we could get a few angels to "jump after." This would give us enough time to close, integrate, and launch some of the key deals in our sales pipeline. Bridging the gap towards metrics needed for a Series A fundraise.
In November 2018, when we were all set to seal the investment deal, things took a surprising turn for the worse.
We hadn't heard from the VC for a few days after their partner meeting. Eventually, he came back with his tail between his legs and dropped the bomb: the fund manager had axed the deal. Turns out, earlier in the week, the fund owner and manager had this out-of-nowhere moment and decided games weren't good for the world, putting a stop to all their investments in gaming. Just. Like. That.
Our lifeline was gone. GONE!!!
I must admit, I carried my last drops of energy on the potential of this deal. The VC was so bullish on what we were doing. I had allowed myself to imagine the light at the end of the tunnel, where days were filled with scaling customers' games without feeling like our head was next on the chopping block.
In response, we founders cut our salaries to carry us through the end of the year. We broke the heartbreaking news to the rest of the team and detailed what lay ahead: either continue without pay from January 2019, or this is, unfortunately, your notice.
Words of encouragement
Our empty bank accounts were again staring back at us — for the third time on our journey. It was the end of December 2018. After months of no's and banging my head against the wall, I felt like giving up. But somehow, I mustered the courage to go on.
We were three team members left standing, thanks to support from loved ones/savings paying our rents. We agreed to give it another three months to see if we could turn things around—our Hail Mary Quarter.
"What started as a good day became worse when I entered a negative thought spiral around how in the world we'll be able to pull this off. My boyfriend had to give me a pep talk to remind me how important this quarter is and that, for once, we won't have to wonder after this quarter ends. We'll either be 'somewhere' or 'nowhere' ready to do something different." — Journal entry January 8th, 2019
We had three potential outcomes:
Find an investor who hasn't said no yet
Get acquired (likely without a prior partnership)
Close the hottest leads in our sales pipeline to cover our burn
While I felt like we were walking into the startup graveyard with no viable solution in sight, our lead investor encouraged us:
"I've seen several cases where companies have been even closer to the edge, and things turned around. Don't give up!" — Arne Tonning, Alliance Venture
Back on the VC train
I spent January pitching VCs while catching my first flu in ten years. I attended a popular gaming conference in London, using my last savings to score the cheapest flights and crashing on the couch of a friend. I later heard through the grapevine that some of the VCs I met didn't think I was up for the task. I'm thinking back at this moment and acknowledging that I was completely burned out and hallucinating from the high fever... I wonder why I gave a bad impression!
Upon returning to the US, my fever peaked in the grueling immigration queue. I started hallucinating and must have looked like a total mess, leaning against any walls and over structures for support. To the other travelers, it probably seemed like I was either wasted or high.
Following catching the flu, the first thing that slipped was my ability to follow up. I was two weeks behind, a stark contrast to my normal timeliness. Knowing what I know now—in 2023—there's no excuse for dropping the ball. The VC can be as busy as a bee, but you—the founder—got to be on top of everything to appear worthy of their precious money.
Battery Save Mode
With all the ups and downs over the past ~3 years, my burnout was catching up to me.
I became more snappy, short-sighted, and tired than ever before. This impacted my ability to think clearly, see solutions, put my energy to work on the right things, and bring my best self to the team. It was affecting not only my health but the health of our company.
My batteries were already in save mode. How could I possibly gather the energy to get through these next three months and get Megacool to a better place?
The answer had been right in front of me for years.
Everyone "knows" about this conventional wisdom, but few have the persistence, motivation, and maturity to follow through, especially as you don't see immediate results.
As a flight attendant would say, you must put the mask on yourself before helping others. I needed to take care of myself first to be there for the team, see the opportunities, think clearly, and find a way out.
I made three commitments to myself: exercise, sleep, and brain-dumping my head into my journal each night—to be able to fall asleep. With days filled with rejections and uphill battles, I would at least accomplish these three seemingly simple commitments. Every day. Here's how I changed my habits.
"Going back and forth on whether I think we can make it. In one minute, I'm all, "yes, this will be ok," and in the other, "shit, how can we make it??"" — Journal entry from January 29th, 2019
The first sign of relief
Mid-February, one of the early-stage companies we had been helping and I viewed the founder as a friend mentioned casually: "You know, I think we could reach much further together."
I hadn't thought about getting acquired by another early-stage company as that didn't fit my mental model of acquisitions, as larger companies did them.
I was surprised but immediately felt some weight lifted off my shoulders. Could this be our solution? My team had more questions than I could answer.
"Wow, how the table has turned from the previous week!" — February 25th, 2019
The following week, things got crazier. We'd been working on selling a white-label integration with a large game company (The Game Company). To my surprise, after what felt like a decade of discussions, they suggested exploring bringing us 'in-house' as they wouldn't allow third-party tech to integrate as deeply as we needed to.
The ball started to roll. We had two independent dialogues running. Where the first one focused on getting clarity around the terms and making them attractive enough for the stage, the second triggered an interview process.
"Didn't sleep well. Been thinking about the different options and am not sure what I want anymore. Feeling my energy of the past few weeks is fading away, but I've got to carry on!" — Journal Entry from March 6th, 2019
Looking back, I wish The Game Company would have taken a page out of Elad Gil's chapter on M&A:
"The employees (...) are unlikely to have interviewed recently. As such, they are unlikely to have prepared for interviews with your team(...). As such, discount some standard interview items like "do they have passion for our company" that you may have if you hired someone off the street."" (Elad Gil, High Growth Handbook)
The Game Company took my engineering colleagues through a standard engineering interview process with lots of whiteboarding.
"I don't want to work there," I remember the first reaction came back after they were done with the intense full day of interviews. They were fuming. They didn't like the interviews and were caught off guard that no one who interviewed them knew it was an acquisition process.
My heart dropped as I realized how, even if we got ideal terms, this was not a viable solution for us. As honest Norwegians, our ability to keep them warm and use it as leverage in the negotiation would be hard. Ultimately, a few weeks following the interviews, the deal was scrapped due to a shift in their strategic focus.
After receiving the first firm acquisition signal, we also reached back out to all the prior potential acquirers to see if we could bring them along and get a better deal. This time, we went straight to: "Someone wants to acquire us. Do you want to join the process?" We got initial meetings with some of the corporate development teams, but once we mentioned our timeline to close by the end of March, they all said it wasn't possible to move that fast for them.
"I can't overstate the fact that relationships matter. You can't start this process with 3 months of cash. You should be thinking about this even if you plan to conquer the world — get to know key decision makers/GMs at every potential acquirer because…you never know." (Alex Rampell, 1/ Thread: How to Sell Your Company)
The Hail Mary
As our dialogue with The Game Company came to a halt, I received a Twitter DM from Pim de Witte, the CEO of Medal.
I met Pim back in 2016 when I pitched them to integrate Megacool into their mobile game. After struggling with the rising costs of user acquisition, they pivoted to solving the same problem as us but focusing on PC game recording as a B2C play.
Medal was growing well and about to raise their Series A round. Pim was coming to SF and wanted to catch up. He was getting more and more requests to support a mobile SDK. We jumped on a call to explore a partnership, which evolved into a conversation about truly joining forces.
Pim had been very helpful at making VC introductions and was probably picking up on the fact that they hadn't matured, and thus said during our catch-up: "Let me know if we should talk about acquiring you."
Pim went on to share a ballpark figure of what the terms of the deal would look like.
We had three weeks left of our Hail Mary Quarter and two early-stage companies eager to discuss how we would be better together.
"I've struggled a lot with staying asleep. Given everything that's going on and all our choices, I've tossed and turned. I'm trying to think about how to improve and work with the situation. The team is hungry for answers that I don't have yet." — Journal Entry from March 12th, 2019
We spent the remaining weeks negotiating with both parties, detailing what our collaboration would look like, and meeting with more people from the team and their investors.
"The most important week in Megacool's history starts now!" — Journal Entry from March 25th, 2019
"Today's the day! We're making our decision!!!" — Journal Entry from March 31st, 2019.
"SHIT, what a day. When back and forth between the offers. Eventually, we decided on Medal and already felt 10kg lighter. Have to get the paperwork done…” — Journal entry from April 5th, 2019
It was draining, but after lots of back-and-forth, on April 7th, 2019, we signed the Letter of Intent (LOI) to be acquired by Medal.
We chose Medal based on a few factors:
Their team moved at the speed of light: we were betting on them as the eventual winner in our space, someone whom we would be better off joining than competing with down the road
We were working towards the same vision but from different angles (B2B vs B2C, mobile vs PC)
Most importantly, we would continue to offer Megacool to our customers without making drastic changes
Separately, Medal focused on incentivizing both us as the team and our investors for the IP, whereas the other party focused on only rewarding our remaining team. We weren't talking about life-changing outcomes, so I felt it was important to leave our investors, advisors, and former team members with a potential upside.
With the LOI in place, Medal added us to their Slack and team meetings and started working alongside them while they closed their own Series A funding round. Alongside the LOI, Medal committed to covering base salaries and hosting, helping us stay afloat as we finalized the transaction.
Their Series A round took three months to close, and our deal took an additional three months to close on September 15th, 2019, as covered by Venture Beats.
Epilogue: The Winning Pie
When discussing startup shares/options, it's often described as 'getting a piece of the pie.' In our case, we not only joined the company that was able to build a bigger pie but, more importantly, the Winning Pie.
I'm very happy we chose Medal as our new home. After joining Medal, I transitioned into their COO role; we grew from 12 to 85 people, raised $60m over two funding rounds, and acquired four more companies.
Together, we emerged as the winners in the short-form clipping space, offering a cross-platform solution that more than 1m users use daily.
Today, Medal is worth roughly 10x more than when we joined. Although our piece of the pie is smaller than going the distance alone, we became part of the Winning Pie.
Looking back, I wish I had spent more time talking to both potential partners and competitors from the beginning. One thing I observed Pim do really well was to engage with everyone in our space, big and small.
If I had fostered relationships with potential acquirers earlier, our exit process would probably have looked very different. Alex Rampell says it best in his tweet storm on "How to sell your company":
"Raise money when you don't need it" is the normal advice for fundraising. For M&A, I would strongly encourage everyone: "Build relationships and think about this…when you don't need to sell." Because one day…you might want to or need to."
Although all the advice we sought told us to forget our investors in the negotiations and focus on ourselves. They had probably written us off by now anyway and chose not to fund us further. Although Alliance Venture didn't double down on their already considerable investment in us, Arne Tonning was an invaluable partner throughout the negotiation. Despite potentially getting nothing, he answered the phone at any hour of the day to help us through the process. I think that speaks volumes to the trust and relationship we had with them.
"It's very tough to balance the needs of all the stakeholders involved, but I'm trying. I want to find a solution that is not only good for me but for everyone involved. It's extremely stressful, and all I want is to get to a solution and get back to work." — Journal entry from April 2nd, 2019
In retrospect, we shouldn't have tried to play games with the big guys. They don't move fast enough. They wear you out instead. And usually, you have to navigate tons of internal politics for anything to happen. After being on both sides of the early stage M&A, Pim's wise words ring loud and clear for early stage M&A:
"A deal happens quickly or not at all."
A special thank you to everyone who helped me along the way. I really appreciate your thoughtful input that helped me get it over the line: , , , , and ❤️
You can really feel the emotional whiplash