First installment
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Due Diligence Postscript and Explanation
In the previous installment, I concocted a melodramatic fantasy about the process of "due diligence" (whereby big fish companies inspect smaller fish companies prior to the actual meal). I depicted events through a warped funhouse mirror in order to convey the surreality of it all. By wildly exaggerating the facts of the process, I hoped to capture some emotional truth, and I suspect other entrepreneurs would nod their heads in sympathy.
But I failed to fully explain the daunting stakes - the actual basis for all the stress. While it's true that our deal would not have been undone even if we had closet skeletons galore, there were nonetheless three main perils:
1. In the tech world, due diligence is sometimes used in the same way as a house inspection report: as an excuse for a buyer to chip away at his offer price.
2. We were locked down tightly during this period. CNET could have altered or even cancelled the offer at their sole discretion, but we were prohibited from making overtures to other parties. And the problem is that with bubbles one never knows when the window of opportunity will close. If CNET blew us off, or slashed their offer, they'd have informed us toward the end of our lengthy lock-out period, by which point it might have been too late to do anything but summarily shut down the site.
3. The plan was to complete due diligence and close our deal by December 15. If the process hit a snag, that would mean a three week holiday hiatus, during which sentiments might cool, bubbles might burst, personnel might change, etc.
Also, consider that our tech was about to explode (we'd disclosed this to CNET, but, still....). And our biz dev contact, who I've called "Clay", was looking more and more twitchy/paranoid. And we'd had a gazillion moments of great expectation for Chowhound over the years, so there was a lingering suspicion Lucy might once again snatch away the football as we reluctantly agreed to kick.
So that's why due diligence, in our case, felt so airless and fraught. Plus, Bob and I were pretty exhausted and bedgraggled to begin with.
Read the next installment (#16)
But I failed to fully explain the daunting stakes - the actual basis for all the stress. While it's true that our deal would not have been undone even if we had closet skeletons galore, there were nonetheless three main perils:
1. In the tech world, due diligence is sometimes used in the same way as a house inspection report: as an excuse for a buyer to chip away at his offer price.
2. We were locked down tightly during this period. CNET could have altered or even cancelled the offer at their sole discretion, but we were prohibited from making overtures to other parties. And the problem is that with bubbles one never knows when the window of opportunity will close. If CNET blew us off, or slashed their offer, they'd have informed us toward the end of our lengthy lock-out period, by which point it might have been too late to do anything but summarily shut down the site.
3. The plan was to complete due diligence and close our deal by December 15. If the process hit a snag, that would mean a three week holiday hiatus, during which sentiments might cool, bubbles might burst, personnel might change, etc.
Also, consider that our tech was about to explode (we'd disclosed this to CNET, but, still....). And our biz dev contact, who I've called "Clay", was looking more and more twitchy/paranoid. And we'd had a gazillion moments of great expectation for Chowhound over the years, so there was a lingering suspicion Lucy might once again snatch away the football as we reluctantly agreed to kick.
So that's why due diligence, in our case, felt so airless and fraught. Plus, Bob and I were pretty exhausted and bedgraggled to begin with.
Read the next installment (#16)
Wow, thanks for the compelling read.
ReplyDeleteJim....that's a great story just read all of it...and like one commenter said it is like crack...when I can expect my next hit...i mean installment?
ReplyDeleteyrs.
Joey Deckle a/k/a Canchito /a/k/a The Guy Who Ate Queens