Most ad tech firms are thirsty for an acquisition since their lack of original technology places them at risk of cratering. For the latest in our anonymous Confessions series, we talked to an ad tech executive whose firm got purchased by a larger company. The source said that getting purchased created tension among management, the acquisition paycheck trickled in slowly and people misunderstand how buyouts are structured.
Here are excerpts, edited for clarity.
Did getting purchased create any rifts within the company?
There isn’t yelling or screaming, but I would call it white-collar hostility. There were lots of letters from lawyers getting passed around and people started questioning other people’s roles in the company.
What created that strain?
When you operate independently, everyone has the same objective, which is to grow revenue. But when you go through the M&A process, people’s goals diverge significantly. If you have a seed investor who got a 20 percent stake in the company for $1 million, and a C-round investor who put in $100 million years several later, they will have very different thoughts about when to exit.
Can you elaborate?
Say the company gets a purchase offer for $120 million. The seed investor will see their $1 million share turn into $24 million, but the C-round investor will probably lose money in the deal. That adds tremendous stress to the company, and if the deal doesn’t go through, that stress is hard to recover from.
Has the animosity calmed down since you got that payday?
Not really. What often doesn’t get reported in the stories about these deals with huge figures, is that the earnouts usually take several years. The big figures make headlines, but you usually just get a percentage of that right away. With most deals, you have to stick around for a few years and keep performing.
So you and your colleagues aren’t cashing in and going on a long holiday?
No, you don’t go into coasting. You still have to bust your ass to get most of that money.
As an ad tech veteran, what do you think people get wrong about ad tech?
You can’t paint all issues of transparency with the same brush.
Are you saying a lack of transparency can be a good thing?
It depends on how you define “transparency.” If a programmatic company tells a client upfront that they are not agreeing to a fixed cost and the client agrees to that, then everyone is complicit.
Is there any benefit to this?
There can be. If you tie the fees to incentives and toward hitting certain KPIs, the client will see some fluctuation in what they get billed. However, the vendor will have a stronger motivation to try to drive profits. Sure, the vendor might reap more of the revenue this way, but they won’t get all of it, and if they help grow the overall pie, the tradeoff is worth it.