How I dramatically failed my company’s exit

And how to avoid yours.

August 2021. I’m on top of the highest skyscraper in Helsinki, sitting across from the CEO of a €30bn industrial group — the incumbent of my startup Uptime’s market. He looks me in the eyes and says: “We can do an operation of €100m.” Well, be my guest.

The night before, at dinner, he had broken the ice with: “Could you please stop breaking our balls on the public markets?” Hum, it depends.

We had started Uptime with my brother Amaury 5 years ago, with one goal in mind: develop an elevator’s predictive maintenance technology powerful enough to disrupt the entire industry. It had cost >10m€ of investments and 4 years to get there, but here we were, with a tech that had more proven results than the different 200m€+ R&D programs of the giant incumbents.

There was a catch: we couldn’t establish a sound business model selling our tech to the long-tail of small elevator companies around the world. We had to get to the four major multinationals of the sector if we wanted to do something big.

To get their attention, I had published a series of blog posts exposing how these four incumbents were disguising declining market shares and the total absence of positive impact of their — supposedly — amazing predictive maintenance products. It had worked well beyond our expectations: within weeks, Morgan Stanley had released a 20-page research note based on our work. JP Morgan followed. Pension funds started calling. Soon, billion-dollar CEOs were being asked tough questions about predictive maintenance and about Uptime live on their quarterly earnings calls.

Now, hearing a 100m€ commitment, it felt like it was all about to happen. It didn’t.

Just fourteen months later, in October 2022, Uptime was sold through a judicial process for €3m — less than our liabilities. We walked out naked.

We failed to transform this interest in either contracts, or more adequate for us and our investors, an exit.

Exits are the ultimate purpose of most startups — but if you don’t know what you’re doing, the process will not only be brutal and messy, it can also be fatal. I learned that the hard way.

That failure is what pushed me to create Hexa Scale — to be the investor I wish I’d had — and now to start this newsletter, Underdogs. For my first post, I want to walk you through what happened to us, because if you’ve been building the hard way for years, you’re probably eying towards an exit too — and man, it’s easier to fail one than to ace it.

Here is what killed us.

We were nice and polite instead of brutal

Towering headquarters of multinational corporations, marble lobbies, elevators that opened onto boardrooms larger than our entire office. Herds of corporate suits and polished shoes. Direct access to key decision makers, people that can unlock hundreds of millions of investments without necessarily further approval.

We were flattered, awed, and frankly intimidated. We smiled, nodded, agreed to almost every request (but no, we can’t give you the codebase for an audit). We thought playing the “good son-in-law” would make them trust us and get us faster to a deal.

What it actually did was make us look like something they already owned.

Don’t act like the teacher’s pet — smiling, nodding, saying yes to everything. Acquirers don’t buy what they already feel they own. They’re driven by FOMO, not politeness. Be brutal instead. Say no, make them come to you, laugh at the first offer. If they’re serious, they’ll chase harder.

We waited on one suitor for nine months

For Uptime, a great exit was a very narrow path: only four large corporations could really afford the price to pay for the huge synergies our technology would unlock. One of them was much more advanced on this point, and so we decided to pour all our energy on that lead.

So month after month, we jumped through every hoop. New Letter of Intent. New data rooms. Updated models. Forecasts redone for the fifth time. New meetings with each key exec in the world. New roll-out plans for our tech. Updated synergies calculations. Each week brought another set of questions. Each time, we thought we were close.

Nine months of this.

And then, one morning, when key documentation was finally agreed upon, it ended with a single phone call. The context for them had radically changed: the Chinese market, where most of the synergies were expected, was falling down (Chinese real-estate bubble explosion) and the company’s stock was in free-fall in public markets. The CEO announced cost-cutting measures, and stepped down a year later.

We scrambled to bring other suitors to the table, but then our company was already in serious financial trouble, and it was too late.

Keep the competition alive, refuse exclusivity until the very last moment, and let word spread.

We chose the wrong bankers

We had two options. On one side were bankers who knew us well — they’d worked with our VC, they were close to Uptime. But they had never once closed a cross-border deal of this size with a €30bn industrial giant.

On the other side, one of the world’s top three banks called us directly: “We know your acquirer’s board. We can help get this over the line. But our minimum fee is €Xm.”

The fee felt outrageous.

We thought it mattered that our bankers knew Uptime well. In reality, that counted for nothing. What mattered is their ability to navigate a professional billion-dollar M&A buyer.

Only take an M&A banker that has really done it before (and selling a tech startup to an old conservative industrial conglomerate cross-border is rare and hard). Either go without a banker, or pay for the best — the cost of the wrong one is far higher.

We ran out of runway

With our huge R&D program, we had bet everything on building the best technology possible for our market. It had paid off: we had it, and we had an industry leader ready to pour €100m on it. But we lacked a scalable business model. So by the fifth year, we were already running on fumes.

We were patching cash flow with duct tape — one more bridge, one more loan, suppliers so angry at our payment delays that they threatened to cut us.

And of course, the acquirers understood it, and soon enough, they knew. Once they saw how fragile our runway was, they didn’t need to negotiate. All they had to do was wait.

Fake it if you must — line up a conditional bridge, venture debt, or a noisy investor commitment. We were in discussions with competitors: killing us instead of buying us can always look like a nice plan B.

We listened to the wrong advice

Our board and VC had never actually closed such a deal. They knew nothing. But they carried authority, and we deferred to them. One of our closest friends was the only one around us who really understood what was happening — and of course, he was the one we listened to the less.

Your investors are supposed to know, or at least not act like they know if they are clueless. I can still remember these meetings and confident assertions:

• “Be nice to the acquirer, keep their trust.”

• “Don’t go to the competition now, it’s way too risky. Imagine if they hear about it?”

• “Let’s take this banker, we know them well, they’re serious.”

• “We still have some cash left, and we’ll close the deal with them, it’s fine.”

Every single one of those calls was wrong.

Don’t take guidance from people who’ve never actually done it — even if it’s their job to ‘know’. Check your VC’s successful exits track record. If it’s thin (and unless you’re with a Tier-1 US or UK fund, it often is), don’t rely on them. Bring in advisors who’ve done a similar transaction for real.

October 2022. We’re in a court in Paris, and Uptime is sold through a judicial process for €3m to another market incumbent. From the “we’re out” phone call from our first suitor to this, less than four months had passed.

But by then, we knew who to listen to, and we knew that this outcome was the best for everyone — including our business angel investors, our banks, our customers and our team. Well, maybe not for our VC’s reporting, but that clearly wasn’t our priority anymore.

Pretty brutal — but put me back at the start with Amaury, and I’d do it all again in a heartbeat. Never learned so much in such a short time-frame, and never had more fun in my professional life.

Since then, through creating Hexa Scale, I’ve met hundreds of companies - I’ve seen exits unravel in many different ways, and I’ve learned an enormous amount, not only from my own experience but from working alongside other founders.

And that’s why I’m starting this newsletter.

Underdogs is where I’ll share the tips and strategies that can help founders that built the hard way for years to scale their company well, until it has enough strategic and financial value to be eligible to a great exit.

And I promise, it’ll be the right blend of success stories and horror ones ;)

—Augustin