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July 20, 2016

How One Little Clause Led To A Bigger Exit For Matt Jaffe’s Spin-Off

A very real business strategy these days is to create and establish a tech or software based startup for the purpose of selling to a large corporate buyer in short order. It happens every day, but that’s not what Matt Jaffe and his co-founders had in mind when they started a spin-off company. Their goal was to create an additional revenue stream that could truly be competitive and offer great software tools to the healthcare industry – and they did exactly that. And it was their success that brought not just one offer to purchase the company from a competitor, but two. You can hear Matt’s story of building that company from scratch, walking through the acquisition process, and changing direction at the last minute as a second offer was placed on the table. It’s an unbelievable story with practical insights from a real life negotiation and buy out.

Early goals for a startup software company

Matt Jaffe and his co-founders weren’t thinking too far down the line when they began their healthcare oriented startup. Their initial goals were very simple: #1 – Get their first customer. #2 – Build that one into 5 customers. #3 – Move on to 10 customers, then 20, then 50. Their mindset was to build the company from the ground up, one happy customer at a time. Their dedication to building a solid product and serving their customers is what put them on the radar of a competitor as a potential company to acquire. Deal after deal they beat the larger competitor until finally an offer was made to buy them out. Matt shares many insights on this episode – about starting a company and navigating the sale of it. If you’ve ever wondered what a buyout is really like, you’ll get a lot of insight into the process from Matt’s story.

Time kills deals: How a second offer landed on the table

As the process of working through the offer of one competitor ground away, another company came in at the last moment to make an even better deal. Buyer #1 had allowed their “Lock out” to expire so Matt and his partners were free to pursue other options – and they did, getting an even better offer as a result. It’s an example of how complicated processes like this have to run their course, but can’t be allowed to go on for too long. Unexpected things happen when they do.

Take some time to listen to this episode with Matt Jaffe. You’ll find his story helpful on many levels.

Scroll below for links and show notes…



Selected Links from the Episode
Show Notes
  • [0:14] Andy’s introduction of this episode and his guest, Matt Jaffe.
  • [0:35] Matt’s business history and how he came to run his own company.
  • [3:52] How 4 guys with full time jobs worked as co-founders of a new company.
  • [4:50] Getting validation for the new company through a trade show.
  • [5:54] Early goals for the new company.
  • [7:09] A competitor makes an offer to purchase the new company – and why the team was open to a buy-out.
  • [13:28] Next steps: Organizing, in-house accounting clean up, project & technology audits, documenting processes.
  • [16:50] The process slows down and the buyer revisits old ground before the deal is signed.
  • [18:26] Trade offs that the partners had to make regarding employment contracts with the new owners.
  • [21:05] Getting through the representations and warranties portion of the purchase agreement.
  • [23:40] Buyer #2 makes an offer at the last minute before signing the purchase agreement with buyer #1.
  • [27:26] Time kills deals – what it means and how it happens in real life negotiations.
  • [32:00] Better employment terms and how an “earn out” agreement works in a deal like this.
  • [35:50] Lessons Matt has learned from the process and how he’s applying it to his current business.
  • [38:10] Feelings and mindsets that enabled the buyout to go through more smoothly.
  • [41:07] Matt’s plans for his company moving forward: expanding services.

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