Why I merged

We had a great plan. We had a great app. What we needed was a great part­ner

Inc. (USA) - - CONTENTS - Thomas Goetz Thomas Goetz is a co-founder of Io­dine, a dig­i­tal health startup based in San Fran­cisco. He is also the au­thor of TheRem­edy. Fol­low him on Twit­ter: @tgoetz.

SOME­WHERE ALONG the way, most founders re­al­ize things aren’t go­ing ac­cord­ing to plan. This shouldn’t be a sur­prise—a startup is ba­si­cally a dou­ble scoop of hopes and dreams, driz­zled with un­cer­tainty. You might up­date your road map hourly, but even­tu­ally you end up some­where you never ex­pected to be.

A year ago, the plans for Io­dine—my startup—were care­fully scripted. We be­gan 2016 with two great prod­ucts: a web­site and a mo­bile app. Both were grow­ing in pop­u­lar­ity with con­sumers, and we had be­gun try­ing to trans­late that ap­peal into ac­tual rev­enue. This isn’t a straight­for­ward propo­si­tion, though, be­cause in the health care in­dus­try, con­sumers don’t gen­er­ally pay di­rectly for things like apps and web­sites. To make money, we needed to pull off a bank shot that would turn con­sumer trac­tion into en­ter­prise rev­enue. For­tu­nately, we were able to quickly line up com­mit­ments with big part­ners— health in­sur­ers and hospi­tal sys­tems—that al­lowed us to of­fer our prod­ucts to their pa­tients. The model is fairly sim­ple: The more pa­tients use our prod­ucts, the more we get paid. All we had to do was con­vert those com­mit­ments into pay­ing con­tracts.

That was the plan. But sales cy­cles are no­to­ri­ously slow in health care. We knew this go­ing in, but know­ing it and liv­ing it are very dif­fer­ent things. Let­ters of in­tent would be drafted and then dis­ap­pear for months, lost in cor­po­rate le­gal de­part­ments. Soft­ware se­cu­rity re­views would be sched­uled and then post­poned for a month, and then two. The process was tak­ing much longer than even our more pes­simistic fore­cast. As weeks turned into months, it be­came ap­par­ent that we weren’t fol­low­ing a road map so much as try­ing to ma­chete our way through an im­pen­e­tra­ble thicket. That isn’t progress—that’s a slog. Mean­while, back in prod­uct land, things were still hum­ming along. More and more peo­ple were find­ing our web­site—and find­ing it use­ful. Then Ap­ple in­vited us into a (non­pay­ing) part­ner­ship. Three years of ef­fort were fi­nally bear­ing fruit.

But no­body was ac­tu­ally buy­ing the fruit. And with­out pay­ing cus­tomers, we couldn’t raise out­side cap­i­tal. And with­out new cap­i­tal, we couldn’t add to our team to speed up our sales ef­fort. In time, we’d be out of cap­i­tal al­to­gether. Run­ning out of money is never in any startup’s plan ei­ther.

At this point, my co-founder and I re­al­ized we needed to find a dif­fer­ent sort of part­ner. Not one that would pay for our ser­vices, but one we could ac­tu­ally join forces with to make the busi­ness part of the equa­tion eas­ier. Per­haps the best way to grow was to merge with a com­pany that could work with us to cap­i­tal­ize on the prod­ucts— and the team—that we had suc­cess­fully built. We re­al­ized we didn’t need a Series A round. Or a B or C round. What we needed was M&A.

This wasn’t an easy re­al­iza­tion. It’s meant de­tour­ing from our map—that care­fully crafted doc­u­ment, with its well-ar­tic­u­lated quar­terly tar­gets and nicely charted growth mod­els—and plot­ting a new course. It’s also a no­to­ri­ously lonely place to be. Luck­ily, I have a few friends who have sailed their star­tups through sim­i­lar wa­ters.

Their ad­vice co­a­lesced into three points. First, talk to every pos­si­ble part­ner. There’s no telling who might be in­ter­ested in a deal, so it’s es­sen­tial to cast the net far and wide. Sec­ond, run a process. Track every con­ver­sa­tion, set dead­lines for in­ter­ested par­ties, and es­tab­lish

your terms clearly and defini­tively. And third, don’t do it half­way. If you are ex­plor­ing a deal, you need to com­mit to it. We needed to make it hap­pen. And so we be­gan, and made a new plan.

The search got started with sev­eral weeks of hint- drop­ping emails and coy phone calls to ap­pro­pri­ate prospects. We’d men­tion that we were “ex­plor­ing part­ner­ships” and look­ing to “join forces,” with the hope that we’d find not just in­ter­est on the other end, but the right sort of in­ter­est— in­ter­est in the team we’d built, in the prod­uct we’d cre­ated, and in the progress we’d made—which would make a merger right for both par­ties.

AS AD­VISED, WE RAN A PROCESS, ex­plor­ing dozens of pos­si­bil­i­ties. But ad­vice can vary. Some sug­gested we tell our team we were shop­ping a deal, while oth­ers in­sisted we spare them the angst un­til all the pa­pers were signed. We de­cided on not telling them. Our con­cern was that they would (not with­out rea­son) start to fret. We needed them to be en­gaged in what they were do­ing. And we cer­tainly didn’t want them to start look­ing for work else­where. Keep­ing our peo­ple was go­ing to be in­te­gral to a successful deal. Some sug­gested that we push hard on a num­ber of fi­nanc­ing op­tions and ex­its, while oth­ers coun­seled a fo­cus on one strat­egy alone. In the end, the best ad­vice came from our ace lawyer, Michael Esquivel, who kept mak­ing the same point. “Com­pa­nies don’t get sold,” he told us. “They get bought.” We took heart in that; he meant we needed to be­lieve in the com­pany we had built. But he also meant we needed to find a part­ner that be­lieved in it as much as we did.

Fi­nally one clear fa­vorite emerged: GoodRx, a Santa Mon­ica, Cal­i­for­nia– based com­pany with a mis­sion that’s com­ple­men­tary to Io­dine’s. GoodRx’s tech­nol­ogy—its web­site and apps— helps peo­ple find the low­est price for a med­i­ca­tion at their lo­cal phar­macy, a god­send for those with no in­sur­ance or with high- de­ductible in­sur­ance (the com­pany gets ad­ver­tis­ing and re­fer­ral fees in re­turn). Not only was GoodRx in­volved in the same area of health care as Io­dine—im­prov­ing the con­sumer ex­pe­ri­ence around phar­ma­ceu­ti­cals with bet­ter data—but the founders are good souls too. We’d ben­e­fited from their savvy ad­vice in re­cent years, and a merger made sense all around.

Still, even af­ter ev­ery­one had agreed on the nitty-gritty, the deal had to get done. And so we en­tered a fren­zied, two-month march of pa­per­work, lawyers, due dili­gence, and in­vestor up­dates.

About those in­vestors: We were de­cid­edly lucky that they were sup­port­ive and pa­tient. Every one of them signed on to the deal promptly. (Why? Keep­ing them posted with thor­ough up­dates every two months over the past three years paid off. I can’t rec­om­mend that enough.)

We closed the deal two days be­fore Thanks­giv­ing. And then we told the team the news. Though the de­tails came as a sur­prise, most had fig­ured some­thing was up. There were smiles all around, and en­thu­si­asm for the new part­ner­ship. It was surely the big­gest re­lief of my life.

Truly, hon­estly: We couldn’t be hap­pier. Our small team stayed to­gether and held fast dur­ing the tu­mult, and they took the news with de­light. As part of the GoodRx fam­ily, we’ve pretty much gone back to work on what we’ve been build­ing all along. In fact, we’ve put the pedal down, of­fer­ing richer, bet­ter con­sumer re­sources at Io­dine.com.

The whole process took a good six or seven months. We’re still part of a small and grow­ing team, we’re still fo­cused on us­ing data to help peo­ple, and I’ll still be shar­ing the hard-won lessons of startup life with you in Inc.’ s pages.

Last Au­gust, back when I still thought M&A would be a rel­a­tively quick and pain­less process (ha!), I had din­ner with a friend who’d walked over the startup coals him­self a cou­ple of years prior and man­aged to sell his com­pany. His words still echo in my mind. “You just have to do one thing,” he said over a third bour­bon. “Just land the plane. Land the plane. Don’t let it crash into a moun­tain.”

It wasn’t easy, but we man­aged to do just that—and to re­fuel for an­other jaunt. This jour­ney isn’t over yet, not by a long shot.

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