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No Mercy / No Malice: Last Exit to Brooklyn

10 March 2017

by

No Mercy No Malice

Last Exit to Brooklyn

We sold L2, the firm I founded in 2010, today to Gartner (NYSE: IT). The transaction is, undeniably, a good / great thing for the employees and shareholders of L2 and should / will be a win for Gartner. Some thoughts four hours post-closing.

Hard

Deals are hard to get done. Really. Fucking. Hard. We had substantial interest from several suitors, yet closing the deal felt similar to landing an F-15, low on fuel, on an aircraft carrier, at night, in stormy seas. My job was to get the plane on the flat top (close the deal) while others kept the carrier (business) moving, and the plane kept getting waved off. Deal people (high-priced bankers, lawyers, private equity) are rich for a reason, as it takes skills, perseverance, and an iron stomach. I haven’t felt this stressed since the financial crisis. This was a better flavor of stress — fear of something great not happening — whereas the stress I felt in 2008 was just fear. But still, stress.

Why Now

Kids in my classes were most interested in knowing why sell now. Few things:

i) One of my biggest mistakes as an entrepreneur has been selling too late. When things are going well, your bias is to hold on, and when things get wobbly, to sell. The opposite is true — you should sell when things are firing on all cylinders. Acquirers are smart and can smell success, or lack thereof.

Promise is worth more than profits in this market. A firm doing well, that’s growing and differentiated, gets a multiple of revenues. A firm that’s not growing fast, or doesn’t offer anything that unique, trades at a multiple of profits (performance).

ii) Market dynamics trump firm performance. In 1999, the first firm I founded, Prophet, was offered $55mm, 11x revenues. However, it was the go-go years, and I was stupid and wouldn’t entertain the offer. Three years later, after the market had rationalized, we sold for 2.3x revenues. Given current market dynamics, this may not be the best time to sell, but I know it’s not a bad time to sell. Markets are at all-time highs.

iii) There are well-publicized stories of people, like Zuckerberg and Spiegel, who refused to sell and made billions holding on. However, the ability to get your employees liquidity / significant ROI should always be seriously evaluated. As a founder you are a fiduciary for your employees, and getting a bunch of young people some liquidity (most of whom have never had a payday like this before) is your responsibility. Our society creates a gestalt that favors people who are already rich espousing that “shareholders should come first.” Your venture capitalist is already rich, and you should be focused on putting employees first. None of our employees, especially those who had little to no money in the bank, felt, like our VCs, that we were selling too early. Fortunately, our VCs were unique and had empathy for the employees, and deferred to management.

Reward

The most rewarding part of the experience was, after we signed, sitting down with L2 employees and telling them what it meant for them. They all received a transaction bonus, and many had ownership via options. I sat in meetings with 21 people, and seven cried. Their emotion was a mix of excitement about the victory / validation, happiness for me and other early employees, and a sense of relief and joy at the economic bump and freedom this money would provide them.

Humans are transistors for others. We don’t register deep emotion until we can share things with other people and validate our reaction with theirs. Funerals / weddings are sad / joyous occasions, as we feed off of each other’s feelings. I feel less of a sense of accomplishment these days, as nobody in my life beams with pride at these victories the way my mom did. However, seeing a half dozen of these kids (and most are kids) overwhelmed with emotion helped me register how wonderful this is.

The people who got the most from the deal (millions or tens of millions), senior management and investors, were generally supportive, expectant, and managed to talk themselves into believing it wasn’t a great deal for them.

And What about the Money?

People don’t talk much about money after the deal, though it’s typically the primary motivation for giving up control to someone else. I don’t want a bigger house, and think (like millennials) cars are sort of yesterday. I’d like a plane, as they have always been an object of fascination, and one of the few negatives in my life is I spend way too much time being molested by a guy name Roy from the TSA, and in airports in general. However, it’s not likely.

I’m giving a bunch of money to universities — yes, a (not-so) humblebrag. However, it’s more consumption than philanthropy, as giving to my alma maters and NYU makes me feel relevant and patriotic — both things I aspire to. I’ve spent the first 50 years of my life believing I’m a good person. However, reality is I haven’t done that much real good. As Cindy Gallop says, the most underutilized resource on the planet is people’s good intentions. It’s pretty much been all about me, all the fucking time. Intent on fixing that.

I’m giving decent sums to UCLA and NYU, and 6x that amount to Berkeley. NYU, especially our dean, has been supportive of me, and I’ve made some great friends there. In addition, teaching has been immensely rewarding. However, it’s been a relatively fair trade (I add decent value there), and my boss (department chair) is a unique mix of mediocrity and stridence (extreme confidence despite her mediocrity), which has turned me off the place. Tenure is the business equivalent of precancerous cells metastasizing — but that’s another post.

UCLA is a great institution, but I was 18 and didn’t get much of an education (my fault). The biggest gift is going to Berkeley, as I got my shit together there. Again, not their fault… just the age when you’re in grad school. Cal will graduate more kids from low-income households this year than the entire Ivy League combined. The gift will be designated for the financial support of kids who, like me, are children of immigrants. The big hand of government (state-sponsored education) saved my ass — I’m hoping this helps keep it extended.

Clarity

It’s 2 am, and the deal coming to a close has given me some clarity on my blessings and what’s next. I am the son of a superhero (single mom) and the product of big government (UCLA/Cal). I had the chance to see seven inspiring young women and men cry with joy this week, and want to start being the man my kids think I am.

Life is so rich,
Scott

  • Beautiful. Awesome. Well damn done!

  • Helena Fogarty

    Great f’in post. I <3 it all. Well done on the deal, as well.

  • Whitney Mileham

    I love reading these every week, especially when it’s news like this. Congrats, Scott (and team)!

  • Shilpa Bhatia

    Congratulations! Heartfelt and genuine

  • Adler Merveille

    Absolutely awesome. I’ve only been reading your newsletter for a few months but already love the content and your opinionated perspective. Very happy for you and your team and much respect for your balanced, uplifting, and generous motivations and goals moving forward.

  • Thomas Berryman

    that’s your best post ever.

  • Andres Duque

    Best reading of the week, as usual. Congrats! Well-deserved

  • Congratulations Scott and team!

  • Brian Rigney

    Damn. Reading that was beautiful! Congrats! Well deserved.

  • Rebecca Stern

    Congrats from a former student! What a fantastic move to donate to higher ed and pay it forward. Sounds like your s&*t is definitely together!

  • Jim Brett

    Wow – Congratulations! It’s so wonderful to hear about a well deserving, innovative, and inspiring team experiencing great rewards for their contribution. And for Scott – you have done real good. – simply recognizing that you are a fiduciary for your employees is “real good.” All the best!

  • Robin Laylin

    I’ve looked forward to the communiques and I hope it won’t stop. Your open thoughts on selling, paying back and forward I wish would get wider airtime. Someone at L2 who is dear to me is a beneficiary of your leadership and dedication. Thank you!

  • dharmabuilt

    Congrats! Well done. “….I shall take with me something without crease or stain, in spite of you…and it is…my panache!” ~ Cyrano de Bergerac

  • Isaac Herrera

    I look forward to every single goddamn email I get from Scott & the L2 group. Congrats to all. Well deserved.

  • Doug Zuber

    Cheers. I will have a drink for a guy who deserves a big victory

  • Matt Fantazier

    Congrats from a former student! Your class helped me get my shit together.

  • Brian Hathaway

    Fantastic moment and authentic, real reactions. Loved reading about it!

  • Kate Delhagen

    Big Fat F*ing Awesomeness! Congrats to you for creating a huge wave of goodness / success. Ripples to continue for many years to come.

  • Congrats to L2 and team. Hoping that Scott staying on Winners/Losers was part of the golden handcuffs for a few years.

  • Suresh Ramaswamy

    Congratulations Scott! Will you still be doing the Winners & Losers?

  • Ellie Kutsevol

    Congrats to one of my favorite profs ever !! Well deserved victory and amazing way of processing it. Thank you for sharing your joy with us.

  • Tracey Hamilton

    Scott – massive congrats on what is well deserved for you, and your awesome team. Selfishly I hope there’s extended buy out handcuffs involved which means you have to keep on writing for us all!

  • congrats, prof galloway

  • Marcel Kaminstein

    Inspirational, damn well put, congratulations on epic success as it’s absolutely deserved, would love 30 min of your time for a similar program I’ve set up in Rome Italy for American students abroad (MediaLab- a European incubator for American social media, partners Temple, Notre Damn, AUR).

  • Marcel Kaminstein
  • Tom Hurford

    As a 50 something with a lot of millennial employees, I totally respect what you’ve done. The millennial generation got screwed with graduating with high student debt and entering a crappy job market. They are just now getting their lives in order and if they can have a meaningful liquidity event, all the better.

  • How much does the ex get? 😉
    But glad to hear things closed out nicely. Curious to see where things go from now. Congrats !

  • Pamela Bernstein-Gulla

    Hi Scott, I have been reading and enjoying your newsletters and watching your videos for a couple of years and I hope they will continue even with the sale of L2. You always seem to articulate what everyone is thinking and feeling at that moment in time. Having worked for a couple of startups I know that what you did for your employees is amazing. The company will soar now that they know they are valued and that is huge in terms of loyalty and work ethic. Congratulations and good luck. I will continue to follow you on Instagram and good luck on your next venture. Best, Pamela Gulla

  • Nice one Scott, I just hope that Gartner put in a clause forcing you to keep making winners and losers videos

  • karamjit singh

    Clarity is incredible rare ..good for you. Thanks for sharing & congrats. Have fun making a difference.

  • This is great, Scott. We need more owners willing to write about the experience of exiting.

  • Ruben

    congrats! few people have more self awareness and sees things more clearly than Scott. it’s truly inspiring to read this post.

  • christophel76

    Congratualtions Scott. Well deserved. I do hope that you will keep L2 on tracks and that Gartner will not “disrupt” the great work in any bad way.

  • Joe O’Brien

    Well done, Mr. Galloway.

  • Be proud Scott, but be prouder with what you are striving to do with part of the proceeds. That’s legacy!

  • brian kelly

    peace

  • Jonathan York

    Great article and something all founders and would-be entrepreneurs (including students) should read – especially the parts about giving back. I want all the young entrepreneurs I work with to read this. (But why lessen the teaching moment with a swipe at your department chair? Grace and humility in success are a rare commodity and you demonstrate it beautifully everywhere else.)

  • Lucas Verra

    I love the internet because of this mix of braggery, honesty, anecdotal history and humility . Well done Professor !
    P.S : Gartner went from udderly suckers (a la elsevier) to udderly suckers having scored L2. kudos for them. Hope L2 remain what it is today.

  • Isabel Menéndez

    As always: a PLEASURE reading you!!! such a source of inspiration when you talk about business and about YOUR business!. Thank you for sharing! i have been a fan since the begining (of L2 approach and of your analysis) and it has been great following you in this part of the journey as im sure it will be in the next one.

  • Headwall Sports

    Landing an f15 on an aircraft carrier at night in a storm would be really really hard. F15s are air force. They can’t land on boats. So like, impossible 🙂 Otherwise great post. Congrats SG!

  • Congrats, Scott! Your Brand Strategy class was one of my faves at Stern and it’s great to follow your entrepreneurial journey.

  • matthewNcube

    Big. Fucking. Deal.

  • GB

    Impressive. Incredibly clear and articulate, but most of all sincere. Congratulations on the adventure and on taking only four hours to achieve what feels like the result of years of introspection.

  • Seppo

    Congrats! I thinks it’s hilarious and great that you’ve been calling the top of the tech bubble right at the same time as closing a deal to sell a tech firm at a bubble multiple. Absolute gold. If until now I was only half convinced that the Snap IPO marked the top (as you suggested), then your exit from L2 makes me certain of it.

    Now go buy back that $10m house in SF next to Zuck that you sold for $900k!

  • Soham Bhatia

    Current Bear checking in! Congrats!

  • Jason Kanoff

    Congrats Scott! Selfishly I hope you continue your winners & losers videos – they are great! Have you given any thought to what is next?

  • Diane Horton

    Thank you for such a great, honest account of your experience. I wish all founders would read this. Congratulations Scott.

  • michaelbaer

    Congratulations! You deserve it.

  • Courtney Harwood

    Congrats Scott!

  • Gerald Abualy

    Thank you Scott!
    Fantastic summary of the closing of this chapter. Nice Job!

    I hope we will be able to continue to have your insight shared with us, to add beautiful context and colorful commentary to an otherwise gray, flat monogamous media landscape.

  • Larry Sidney

    Scott, I’m Haas EMBA 2014, so we’ve never met. I’m completely taken by your post/story. Congratulations, and kudos on immediately committing yourself to helping others.

  • Mounir Diawara

    Several times that your “no mercy / no malice” posts are moving me so profoundly, and that I was tempted to comment… This time, I just have to. I’m very far from you (African, living in Africa) but also somehow feel very close (entrepreneur, 50, digitally connected, and… just human). Please don’t stop this blog, and don’t stop “Winners and Losers”…! Bravo to you. And thanks.

  • Pia

    Huge congrats.
    It’s been interesting to watch your journey since I first saw you at DLD and we DM’ed on twitter in 2010. This post is inspiring and I hope you make good on your intention to be the man your kids think you are. Nothing could be more important.

  • makemineamac

    So very happy for you. Congratulations, it’s a great story all-around.

  • Jamie Naguiat

    Heart warming and inspiring. Thank you for sharing.