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Scott Craig & Stephen Day on Navigating Private Equity M&A & Building a Bulletproof Startup Advisory Team

Learn M&A secrets from Scott Craig and Stephen Day to optimize your business for a high-value exit and avoid costly legal traps during due diligence.
Guest
Scott Craig and Stephen Day
Published on
March 10, 2026

What if a single "loose thread" in your accounting could unravel your entire multi-million dollar business exit? For many entrepreneurs, the journey from startup to sale is paved with unknown risks that only surface when it’s time to talk numbers. In this episode of From Boots to Bodrum, host Hari Vasudevan sits down with M&A titans Scott Craig and Stephen Day to pull back the curtain on what it truly takes to prepare a company for a massive capital raise or a successful exit.

This conversation is a masterclass in building a business that stands up to the most rigorous due diligence. From fixing $5 million financial discrepancies to the critical importance of early legal counsel, Scott and Stephen share the lessons that keep founders from leaving money on the table. If you've ever wondered how the world's most successful tech companies navigate the complexities of growth and acquisition, this is the episode you cannot afford to miss.

Key Takeaways for Entrepreneurs

  • Prioritize Integrity: Never leave your integrity behind; it is the foundation of the trust required to close a multi-million dollar deal.
  • Hire for the Exit You Want: Ensure your legal and banking teams can go "toe-to-toe" with the global firms representing potential buyers.
  • Formalize Your Workforce: Properly classify employees and contractors early to avoid expensive legal corrections during due diligence.
  • Trust the Experts: The CEO's job is to build the company; having a "trusted advisor" allows you to discuss concerns in a safe, strategic environment.

Meet the Experts: Scott Craig & Stephen Day

Scott Craig is a partner at Latham & Watkins, the second highest-grossing law firm globally. With a unique background in biomedical engineering and consulting, Scott transitioned to law to gain better control over the client experience. He now acts as a "point guard" for emerging tech companies, guiding them through everything from initial incorporation to massive global M&A exits.

Stephen Day is the co-founder and managing director of Navidar, a leading investment banking firm specializing in M&A and capital raises. A veteran with 25 years in the industry and a former auditor, Stephen brings a unique perspective on integrity and creative problem-solving. He lives by the "Wall Street Journal Rule"—asking if you’d be proud to see your actions on the front page—a philosophy that defines his approach to high-stakes deal-making.

The "Sweater" Effect: Why Early Preparation Matters

When a deal hits a snag, it often starts with a small discrepancy that hints at deeper issues. Stephen Day describes this as "pulling on the string of a sweater," where a single unknown can make an advisor fear the entire business structure might fall apart.

  • Audit Your Leadership: A "hiccup" in a deal, such as a missing $5 million in EBITDA, is often the result of poor accounting leadership rather than intentional fraud.
  • GAAP Financials from Day Zero: Entrepreneurs should move toward audited, GAAP-compliant financials as early as possible to avoid "hairiness" during a sale.
  • The Cost of Cutting Corners: Trying to save cash by skipping professional services early on can lead to massive classification issues with contractors or weak terms of service that devalue the company later.

Building Your "A-Team": Bankers and Lawyers

A common mistake for founders is waiting too long to engage elite advisors. Scott Craig notes that while a giant firm like Latham might not be needed for every day-to-day task of a bootstrapped startup, reevaluating counsel before an exit is non-negotiable.

  • Point Guard vs. Specialist: A good lawyer acts as a point guard, bringing in specialists for tax, intellectual property, and AI as the company grows.
  • The Quarterback Banker: An investment banker acts as a "confidant" in what is often the loneliest role in business, shepherding the founder from the first pitch to the final wire transfer.
  • Advocacy Over Fees: Beware of advisors who push for a quick close just to secure their commission; the best partners advocate for the client’s long-term interest, even if it means delaying a deal.

Protecting Your Exit Value Through "Hygiene"

The ultimate goal of early legal and financial "hygiene" is simple: maximizing your payout and minimizing post-sale risk. Stephen Day emphasizes that strong, clear contracts directly correlate to higher purchase prices and fewer headaches.

  • Avoid Money "Give-Backs": Poorly worded contracts can lead to escrow disputes or terms that force you to return money to the buyer months after the deal closes.
  • Bespoke Privacy Policies: For SaaS companies, "copy-pasting" a competitor's privacy policy is a recipe for disaster. These documents must be custom-built to protect the company's unique technology and data handling.
  • Momentum is Everything: In high-stakes deals, responsiveness is key. The best advisors are those who maintain momentum to reduce founder anxiety and keep the buyer engaged.

Conclusion

From avoiding the "sweater-unraveling" risks of poor accounting to the strategic importance of choosing the right "point guard" for your legal needs, Scott Craig and Stephen Day provide an essential roadmap for any founder. Their insights prove that while building a business is hard, exiting one successfully requires a foundation of integrity, preparation, and world-class advice.

Don’t miss these real-world stories and actionable tips—listen to the full episode and subscribe to catch future episodes packed with practical advice and inspiration for the entrepreneurial journey.

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Transcript
Hari Vasudevan (00:00.65) Okay guys, we're ready to go. Welcome to a new episode of From Boots to Boardroom. I'm your host Hari Vasudevan, founder and CEO of KYRO AI. Previously I was the founder and CEO of ThinkPower Solutions. The show shares the educational, entertaining and entrepreneurial journeys of those who power America. Presenting sponsor for the show is KYRO AI. Digitize work and maximize profits. more information, visit KYRO.ai. Today we have two special guests. First show we're doing with two guests, Scott Craig and Steven Day. Scott is a partner with Latham and Watkins, the second highest grossing law firm in the world. For more information, visit lw.com. Steven Day is the co-founder and managing director of Navidar, investment banking firm and trusted advisor for &A and capital race. For more information, visit navidar.com. Thank you so much, guys. I appreciate both of you being on the show. Scott Craig (01:16.529) Happy beer. Stephen Day (01:16.847) Thank you, Ari. Hari Vasudevan (01:18.99) Awesome, awesome, awesome. So let's get started here. really, this this show is truly for entrepreneurs at the end of the day, right? I mean, we all build businesses, we start businesses without really knowing what we're doing. I mean, I can tell you that was my personal experience, right? And then you get to a point where you need to raise capital or go towards an exit. And then you realize you've not really done many things right, right? So for, Steven Day, let's get started here with you. When you first encountered the big hiccup in my deal that both of you guys super fortunate to have you on my deal where there's five million dollars missing in EBITDA, right? What were you thinking? And then I'll get to the next question, which will help entrepreneurs out. So what were you thinking? What are your thoughts on? Stephen Day (02:12.111) Well, when we come across a difficult accounting situation like that, we don't, you start pulling on the string of a sweater, and what you're afraid of is the entire sweater will come apart. And so that's our number one concern is when you have something like that that's unknown discrepancy is with the accounting background, the audit background is your first question is, is what their fraud? You know, did somebody take, you know, five million from your account and try to cover it up? So of course, fraud is very difficult to detect. And it's obviously it's a very scary thing if that's the thread that you pull. And luckily that was not your situation. It was just, you know, You had a poor accounting leader in the seat who had poor accounting processes and controls, and we were able to get to the bottom of that relatively quickly. But those are the things that come to mind as a trained auditor. Hari Vasudevan (03:10.498) Yeah, yeah, no, it's good. But you know that that is a great learning experience. And the reason I'm starting out with this question, first of all, that that gave rise to KYRO. That's what we're doing right now, right? But more important question is why should an entrepreneur engage with a banker and a law firm early in the entrepreneurial journey? Right. Because I remember Scott asking a question, hey, who set up your company? Right. Because it's hairy. I set it up. Right? No law firm for seven, eight years. Right? So things I learned definitely incorporated in the in KYRO's journey, if you will. maybe we'll go to Scott here on this question. Why should an entrepreneur engage with a law firm and a banker early on? What are the advantages that they get? Stephen Day (03:57.051) Thanks. Scott Craig (04:00.33) Yeah, I I think with respect to the law firm, it depends a little bit on what kind of company you are, on what kind of law firm you should engage. But if you're going to hire employees, if you're going to raise capital, if you're going to, if you're technology heavy, if you're SaaS software, there are things that just, you you need legal help for. And the earlier you do it, the better because what you don't want to do, and I'll give a couple examples, you don't want to... hire a bunch of contractors and keep them on his 1099 and call contractors but they're really working for you full time and they should have been employees the whole time. If you brought attorneys in they could have helped you manage that either to do the right things to make sure they're actually contractors or to, hey no these are employees let's convert them so you don't have a classification issue. Another one would be if you're a SaaS software company your terms of service and your privacy policy are really important and I don't know how many times I've had clients that said, yeah, we just pulled it from either a competitor or a public company that was what we aspire to be and we copied and pasted and we changed some words and we posted on our website and that's enough. And it's not. mean, I think, you know, we talked to our technology attorneys, terms of services can be a little templated and you can work from that. Privacy policies are bespoke. And then even if two companies are very much alike, you know, there's enough differences that you need to talk to an attorney about. how to put that out there. So those are just a couple examples. mean, there's lots of others around raising capital, employee equity. And again, I think a lot of companies can be a little pennywiders, pound foolish in all areas of services, lawyers, accounting, because there's not a lot of cash early on and you don't want to spend it. But I think the best service providers will work with you on how to make sure that the company's got enough cash to operate, but also to make sure that they're getting paid for the services they're providing at the right times. Hari Vasudevan (06:00.404) Yeah, no fair point on that. You know, all those issues that you pointed out, I actually went through all those issues, right? Those are all the things that I'm trying to avoid. Akira, hopefully some of the entrepreneurs that may listen to the show can learn from that. Steven, what's your take on that? Stephen Day (06:17.359) Yeah, I think it comes down to two things. One, it makes you more money when you decide to sell the company. You get a higher purchase price from doing it. And number two, it saves you from losing money after the sale is complete by having good, strong contracts. so a purchase price can be impacted by poor customer contracting. Purchase price can be impacted by poor accounting information. And likewise, after the deal closes there might be an escrow or there might be other terms and conditions that you have to satisfy and if you don't have a well-worded contract you could end up giving money back after the close of the transaction. So I think there's a very direct correlation to you get more money in a sale and you reduce the risk of losing money after it's closed. Hari Vasudevan (07:08.354) When you believe in yourself and you believe in the company that you're building, it's better to build it right, right? So I took the advice of both of you and actually, know, the second company I'm running, obviously from day zero, audited financials, gap financials, right? So no such issues on the back end. you know, let's kind of back up a little bit, right? We talked about some of the issues, but let's kind of get to your... experiences that shaped your leadership style, both personally and professionally. The reason I'm bringing it up is having worked super closely with both of you. It's very unique. I've spoken to a lot of my friends of, you know, started companies, whole companies. They're actually genuinely surprised that I'm friends with my lawyer and investment banker, right? Steve, and you come to my house with your family. We've had a meal together. We catch up all the time, right? Scott, you've helped me through so many situations since the deal, right? So I really want the audience to know what is it that from your personal and professional experience that makes you who you are, the leadership style that you bring in, so they can understand you a little bit more. Maybe Stephen, you can go first. Stephen Day (08:26.137) Sure, well. I appreciate that Ari and I would say in terms of from the leadership style, boy, it's hard to pinpoint, you know, where all of that sort of came together. I will say this in terms of being able to maintain friendships with our clients. I do think that's a bit unique, you know, for the industry because these transactions are very difficult. They're very stressful. There's, you know, very tough moments in them. But I think that, you know, I had a banking mentor when I first started investment banking some 25 years ago. His name was Gordon and he said, know, Stephen, every day when you take that elevator down to the first floor, make sure you take your integrity with you. And that really stuck with me. And I think that one of the reasons why Navidar, Tim and I have been able to maintain good relationships and have a lot of repeat business is because we don't over promise, we don't mislead, we work extremely We try to be very creative in what we do and we try to deliver the very best investment banking service that we physically are able to deliver. I think when you focus on making sure every day when you take that elevator to the first floor you keep your integrity intact. I think it's sometimes as simple as that. Just making sure that everything that you say and do during your engagements is something that you don't have to worry about. There's another lesson. that Goldman Sachs taught me is to make sure that whatever we do on a transaction, if it shows up on the first page of the Wall Street Journal, that it's an article that we're proud of and not one that we're embarrassed by. And I think that's another very simple rule. If what you're doing was reported on the first page of the Wall Street Journal, would you be proud of that or would you not? And so I think some simple life lessons like that have been good guiding posts for us. Hari Vasudevan (10:02.158) is to make sure. Hari Vasudevan (10:23.81) Yeah, no, awesome. Scott? Scott Craig (10:26.474) Yeah, mean first, just to have worked with Stephen and Navidar on a number of deals and what I've always found great about Navidar is in that middle market &A world, a lot of investment banks, they come in, they help you get the PPM out or the SIEM out to market your company and then they help you navigate the negotiation with the various interested parties. But once they get, once you're on exclusivity, it's like they're working against you a little bit because they're, they see that fee and, and, some I've, I've run into situations in the past where I almost feel like, wait, who's your client here? we need to protect this company. And if that means that we don't close as quickly to get the terms we want, that's what it means. but we're working with Navidar. I've always felt that throughout the whole process, just like me, that they are, you know, advocating for their client. to the very end. And even if that means delaying or if it's not good for their client to close that deal, giving that advice, they do that I don't see that. And that's my job too, but I've always felt collaborative with Navidar because of that. And I think that that's an important piece. I just wanted to say that. And from my perspective, sort of a different path, I was a... biomedical engineering major in undergrad and I hated it. I was really bad in the laboratory and so I took a consulting job like everyone did back then and for a software company and I loved the client service aspect of it. I was out there helping install software in warehouses and meeting different types of people and sort of the tip of the sword but I didn't sell the software and I didn't develop the software. so salespeople would over promise, developers would... under deliver and I had no control over that. And I remember talking to my dad and said like, I love this client stuff, but I hate being out of control. He's like, we'll go to law school. And that's sort of how it's turned out. I, you know, as I've grown as a lawyer, I've been able to kind of help manage the whole process and stay involved, both sell and deliver and be the tip of the sphere from a client facing perspective. And I think one of the things that I've learned that clients really appreciate and obviously substance and getting things right. Hari Vasudevan (12:30.286) Thanks. Scott Craig (12:49.11) and getting the best deal possible is the most important thing. But I always say like that's one A, one B is responsiveness. And I feel like if as lawyers we have to make sure that especially if there's a really big deal going on, that our client knows we're on the ball and ready to act and available. Even if that means I'm hopping on a plane and I won't get back to you for three hours, the fact that there's been that touchback helps. Hari Vasudevan (12:55.148) Yeah. Scott Craig (13:16.374) client have comfort that, they saw the email and they're going to take care of it or get somebody to take care of it. I think in our space, as people get busy, emails tend to float to the bottom of the stack and that can create anxiety both for the client and for me sometimes when I'm like, wait, why hasn't someone responded to this yet? I think just the responsiveness and keeping the relationship warm throughout the process is really important so that people know that they're being taken care of. Hari Vasudevan (13:44.526) Yeah, I know. I'd say, yeah, yeah. Stephen Day (13:45.213) tell you one quick story about Scott. I think it was my very first deal with Scott. when I fell in love with this guy and we were, I called him up spontaneously. It wasn't a scheduled call. It was in the middle of a deal. I was regarding a deal and he was right in the middle of a move. I mean, it's literally his entire house. I think it was in boxes in the house and the movers were there picking up boxes. He's like, Hey, can you give me a moment to set up my computer and open it up and I'll take a look at it. And so he had to go find a box to set his computer on, open it up, turn on, look at the document, look at the issue and gave me an immediate response. to what we needed on this deal to unlock whatever issue it was and to keep moving forward. And I'm talking about that's the kind of guy I love. That's responsiveness to the industry. Yeah. Hari Vasudevan (14:26.862) Yeah, he's the guy you can work with, right? You know, it's interesting. I was about to say something similar, you know, when our deal was going on, the Think Power Solutions deal was going on. towards the end of the deal, if I, if I remember right, Scott's wife was sick. She had COVID or something like that. And he was nursing her, but he was just responding. I can't believe how he did it, honestly, right? I really can't believe how he did it because he was managing so many different things. Kids were sick, something like that. And things were actually flowing really well. I you know, I'm wired that way. I remember once I was in India traveling, 1 a.m. a customer calls me and I answer the phone. They didn't even know I was in India. And I come back and I tell them, hey, I was in India when you answered, when you called, rather. And they were actually really surprised by that. So I'm wired that way. I deeply appreciate how Scott works. Scott Craig (15:24.342) Yeah, I think you can balance it, People, for the most part, are understanding. So if you are going through something or have some other things that are distracting you, even if it's other transactions, you can set expectations. I think as long as you set expectations correctly and meet them, that's the most important thing. But the worst thing is just people hanging and waiting and waiting. I think that's why, especially when you're in the middle of the deal, it is hard because it... For folks like you, this is life changing and you want to know that the people that are helping you are totally involved in body health. Hari Vasudevan (16:02.67) Yeah, no, 100%. I agree with you on that. So that's great. Maybe we'll kind of get a little bit more, give the listeners a little bit about what Navidar does, what Latham and Watkins does, because listen, everybody, most people know Latham. know Steve and you work for big firms and you started Navidar. Can you kind of give a super brief overview of what Navidar does and how it helps entrepreneurs? Stephen Day (16:30.34) Sure. First and foremost, we want to be a trusted advisor to that entrepreneur, you know, in the context of a transaction or not. When that entrepreneur calls, we want to be an independent trusted advisor. We want to be a place where they can bring literally any question, concern and have a discussion in a safe environment about it. you you've heard those sayings that the CEO is the loneliest spot in a company. And so we often, you know, are a confidant to the CEO, to the founder about our broad range of issues. so that I think that's the basis of these friendships that we've had over a long period of time. The second thing is from a transaction standpoint, we want to be able to help you facilitate a capital markets transaction. So whether you want to buy a company, sell your company or do an investment, a capital raise, we want to be that partner to shepherd you through that process. And so we start with you day one and take you all the way to the point of funding. And so that in every step along the way, we want to sort of be the quarterback of that process. Hari Vasudevan (17:33.071) Yeah, yeah, no, I mean, that's a really good summary of what you do. And I can definitely vouch that you've been a great, great, you know, sounding boat to me throughout the Think Power journey, post the Think Power journey, during the KYRO journey. I had a call a couple of weekends back for an hour and a half to the evolution of KYRO. Right. So that's a great, great thing that you're doing. You know, I do want to add something to what Scott said about Navidar here, because I've been on both sides of deals, as you guys know, I was obviously a sold ThinkPower. And then when I was still running ThinkPower post transactions, I was involved in a couple of &A transactions as well. Scott, you're 100 % right. In one of the deals we did, tens of millions of dollars, and the banker was there on the front end. I'm not gonna name the banker or the firm, Banker there on the front end. And literally they did. disappeared for the next two to three months. I mean, I'm not joking, completely disappeared, right? And then here I am, I'm really in many ways helping the sellers out. I these are family owned company, helping sellers understand different aspects of it, which Stephen helped me with right back in the day. And they just came back and I saw the, you know, final cash flow, if you will, money flow, whatever, call this, right? and got their fee but they completely disappeared which was honestly very frustrating from a buyer perspective. I don't know how frustrating it was from the seller perspective because they didn't get good advice. And to make things worse, the legal counsel was awful, right? This is where I really appreciate having you Scott and Stephen on my deal because you the legal counsel, it is tens of millions of dollars again, right? and they were negotiating, I don't know, 5,000 bucks of AR and things like that. It was just, know, Pennywise, Pondfulish, as you put it, right? Not having the right focus on the right things just made it very difficult to make the transaction. I'm not quite sure they did the sellers any good, to be brutally honest, right? So I just definitely want to emphasize Hari Vasudevan (19:57.647) you know, my personal experience there, both from a buyer as well as a seller perspective, emphasize how important it is to have really, really good advisors, really good bankers, really good lawyers on your deal. So I want to add that to your point, Scott, and back to you, Scott, maybe you can elaborate a little bit more about what Latham does, especially what you do, right? Because you work with a niche, if you will, maybe you can explain that. Scott Craig (20:25.566) Yeah, as you mentioned, we're the second biggest law firm in the world, both by gross revenue and number of attorneys, I think. We're still that. And so it's a big place. I came here four years ago from another large law firm, but not nearly as big as this one. I had been there for 15 years. A couple of the reasons I came over were resources and just the breadth of expertise and the level of expertise in all areas at Latham and Watkins. think my practice is focused on helping emerging companies grow. I incorporate I help them raise money. help, you know, I kind of play what I would say point guards with my specialists, employee benefits, tax, technology, privacy, AI, all of that to help them through their growing pains, you know, as they grow. I also do a lot of tech M &A and in sort of two types. think one is for the companies I've represented since the beginning that have raised a lot of capital. think the other ones are very similar to what we did with ThinkPower. We have a company that's been bootstrapped, which, you know, to be honest may not make the most sense to hire a big law firm like Latham and Walkins just for day-to-day stuff, but when they get ready to exit, I think it's really important that companies reevaluate who their legal counsel is at that time of exit and whether their historical counselor are going be capable of going toe-to-toe with the big law firm in that transaction. But I think generally speaking, Latham and Walkins is global, which is really helpful. in Asia, Europe, and throughout the United States. And as I mentioned, I'm in emerging companies, I'm a tech attorney, and being able to leverage, we've got the largest and most prolific capital markets group in the world. We're on almost every IPO, either on the company side or underwriter side for technology companies. And to have that expertise as my clients grow is huge. And this is similar with &A. I enjoy doing emerging acquisition. Scott Craig (22:33.156) but having the leverage of one of the leading &A groups in the world as well has been a huge bit into my practice. Hari Vasudevan (22:42.156) Yeah, no, that's fantastic. Thanks for that explanation there. So you briefly talked about Entity Setup. I know you set up KYRO, but you know, let's kind of talk about maybe we can get into Texas versus Delaware, right? A lot of discussions around, you know, Texas now, Elon Musk is here, the Elon Musk Compensation fight in Delaware and things like that. I know you may not be able to talk specifics because you guys may be representing one party or the other, but you know, what's your take on Scott Craig (22:53.824) Okay. Hari Vasudevan (23:11.682) where an entrepreneur should set up an entity, if there is any and things like that. Scott Craig (23:16.764) Yeah, let's focus on the earlier stage private companies because a lot of what Texas did is frankly to draw public companies to Texas and I know it may not be as applicable but some of the stuff is still applicable to private companies. We've set up I think three Texas companies that would have no normally set up in Delaware in the last four months that are going to raise venture capital and grow. you know, some of that is sort of just Elon followers, I guess, in a sense. Others are people that have had bad experiences in Delaware in the past. And now that Texas is opening up the statutes to be more business friendly, you know, potentially they want to they want to be here. think the main thing is for private companies that have been that I think the biggest thing is the codification of the business judgment rule and essentially which basically means that a lot of deference to the board and how they make decisions if a stockholder is angry about something. And they've also essentially initiated what's called the entire fairness doctrine in Delaware, which means if there's a conflicted director, let's just say, venture capitalist director on a board is trying to convince that company to sell to one of his other portfolio companies. In Delaware, there's a lot of processes to try to prevent being what we call an entire fairness land. Under the new Texas law, outside of fraud or a bad actor, the board's gonna be able to rely on business judgment, on the business judgment rule under these new statutes which have been codified. In Delaware, these things have not been codified. think a lot of companies that might, you Scott Craig (25:07.414) be concerned that they don't want to be, like, for instance, founders that want control over their company and want, and maybe they're gonna raise a lot of money with a lot of stockholders, but they want to continue to control their company and be able to sell their company to who they want to, buy who they, they're gonna want the protections that Texas is potentially affording them. Now, the other thing that Texas has put in place is the Texas Business Court. I just was taught it's a singular, not a plural, but the Texas Business Court is brand new. It's supposed to be sort of a corollary of the Delaware Chancery Court. Yeah, it's interestingly, it's brand new, so there's not a lot of precedent, but the idea is it's supposed to be very business friendly. And what that means from my perspective is, again, deference and... maybe the benefit of the doubt to the board and the company versus the stockholders outside of very extreme situations. We're gonna have to see how that plays out. I think the practical problem with Texas, which I'm sure that the current government's trying to solve, is just the Secretary of State's office ability to handle filings. Whether it's your certificate of incorporation, a certificate of merger, and a transaction, Delaware historically has been able to do that as little as a half hour if you spend enough money, but an hour, two hours. So if I'm closing a transaction, need, if it's a venture financing, I need a certificate of incorporation. If it's a merger, I need a certificate of merger. I can file it and get it back from Delaware in an hour, two hours. In Texas, it's always been maybe two days, even if I expedite it, you're not sure when it's gonna come back and that can slow up a deal and potentially, you know, a deal could die if something macro happens or even with the target in the meantime. Now they're trying to remedy that. They've created some... in person same day turnaround at the Secretary of State's office in Texas. I think that at the end of the day, I think that the case law coming out of Delaware that has angered folks like Elon and others, or just some of the unpredictability where it used to not be that unpredictable, is pushing people to Texas. Now, in Delaware's defense, they've tried to fix these things with statutory changes immediately after they happen. But... Scott Craig (27:23.99) I think that there's still a concern that it's not as business friendly as it used to be and that people are gonna be wanting to explore Texas. We've been on the front end of that. Personally, if you ask me for an early stage company, it's just easier to be a Delaware company. It's very possible your investors are gonna require you to be, although Andreessen Horovitz said they don't wanna be in Delaware anymore. So there's some major ones that are fine with it. But from all the form documents, the NBCA, National Nature Capital, they're all Delaware documents. So if you want to be in Texas, there may be some extra costs associated with it. And the benefits could be there. Well, I mean, it's going to take five to 10 years to really understand whether these changes make a difference. And really, there's going to be a lot of momentum moving to Texas, particularly at the private level. Hari Vasudevan (28:17.174) Yeah, yeah, no, that's a really good expression. So Steven, there's a little bit of a background noise on your side. That's why I kind of muted you a little bit. Stephen Day (28:26.812) There's nothing running here. What kind of noise is it? Hari Vasudevan (28:31.374) So that's reason, it's all right. So I just took a timer note that way we can edit this piece out, right? So anything you want to add from your side, Steven? Stephen Day (28:36.316) Okay. Stephen Day (28:39.77) No, I just think these are really important issues. We sold the company in Indiana and it came down to a final deal of a cash plus an earn out with a private equity firm in New York. And as we got into exclusivity, it became very apparent that the team had no interest in working and staying with this private equity firm. was just a really bad cultural fit. And so we took the second bid and pulled them forward at the end of exclusivity, but it wasn't the highest total consideration bid. business judgment rule allowed for that to happen gave the board the autonomy to be able to make that decision. It sort of allowed the company to go on be sold and combined with another private firm where they had a great experience and a great outcome. It turned into be a wonderful case study. But the importance of these types of choices, this is why we use a law firm. There's three conditions that Navidar has to work with us. One is that you accept our engagement letter on our terms because we treat all clients the same. Number two, that you get an audit. And number three is that you hire a top tier firm. And most small companies really question us as to why they need a top tier law firm. But the reason why we're going back to Scott and Latham so many times over and over is because you never know on a deal when an IP issue is going to crop up, a tax issue, an HR issue, global issues. We've sold companies based domestically here and we've restructured those deals to be cross border deals. so deals can take many different twists and turns. And what you don't want to do is have to spool up another law firm or have a law for who doesn't know these nuances and missing for you. That's the worst. And so we, we, it's just a requirement that we've made and we've done that for 15 years. It's been one of the best choices, you know, we've ever done. Hari Vasudevan (30:22.286) Has anybody asked you to have edited your engagement letter? What have you told them? Scott Craig (30:28.342) Okay. Stephen Day (30:29.788) We have some entrepreneurs like those present company who have tried to modify our letter without success. But that's how great friendships are born out of time with difficulty. Hari Vasudevan (30:35.586) You And what happened to that lawyer who edited the engagement letter? Stephen Day (30:51.472) Yeah. Yeah. I haven't seen him since. Scott Craig (30:56.534) But yeah, I think the other piece when you're exiting your company, or if you're doing a very complicated fundraise with an institutional investor, even beyond the substance, you might have the smartest boutique law firm in the world that's been able to be perfect for you on a day-to-day basis. But unless you're their only client, If you're opposite a Latham or another large law firm, those small law firms tend to get run over. Not because they aren't smart and not because they're not good at what they do. It's just because these transactions move fast. There are lots of issues. There are a lot of questions and diligence. And the bandwidth becomes a real problem. Hari Vasudevan (31:48.495) And honestly, Scott, they just don't know, honestly. mean, I've been on buyer side of a transaction where, I mean, like I just said, small law firm, maybe it was just one or two lawyers, right? They just did not know. And you know, multi tens of millions of dollar deal, you're negotiating 5,000 bucks. I'm like, shows you have not been part of the transaction, right? And that really hurts their clients ultimately because they don't necessarily look at... Scott Craig (31:52.736) That's true. Yeah. Stephen Day (32:06.3) you Hari Vasudevan (32:16.366) the things that can actually come back and bite them down the road, right? Escrow money, which are millions of dollars and things like that, right? So sorry, keep going. Scott Craig (32:21.142) Yeah. Ask them if they've done it before. And ask them if they've done specifically what the transaction you're about to go through is. Because I've had to say, no, I've never done this before. But the nice thing about being in Latham is there's someone here that has, almost always. And so if I have to bring a partner or a senior associate that's got an expertise that's needed for a transaction, I've got the ability to do that very quickly. there's no ego in it. you know, if there's something going on, like if it's in a specific country or there's a specific, you know, type of provision that I haven't seen before, I know that I've got a resource that can help me manage through it that's got the pattern recognition, which I think is the most important thing in all of this, is pattern recognition and deals to be able to help you through that. Because I think anyone's smart enough to like figure it out and like, get through it and then know on the other side of it. Now I know how to do that but you you don't want to be the client that's got to go through that with the attorney. know everyone's got to do something for a first time but it's better if you do it for the first time with someone that it's you know got experience there. Hari Vasudevan (33:35.055) No, 100%. Honestly, even some of the big law firms, I wouldn't say big. I mean, maybe Patik, I've used them in the past. Steven has used them in the past without naming names, right? In the sense that they got me into certain stuff that I really wish they hadn't gotten me into. They got me into this weird captive insurance and I didn't want to be part of it and it's still a pain that I'm dealing with. So you really want to make sure you have a really, really good law form on your side and things like that. So let's talk a little bit about, I really want to get to the exit piece of it, how different pieces of the puzzle come in. But let's wrap up the entity setup piece because many, many entrepreneurs don't get this or get it too late. The importance of operating agreements. Your two friends get into business, I know. friends who got into business didn't set up proper operating agreements. Now they're no longer friends, right, with each other. They're still friends with me. So how important it is to set up a good operating agreement, Scott? Maybe you can go first on this. Scott Craig (34:48.182) Yeah, I I think it depends on what you want to be. Like if you want to be a venture backed company and you're going to be building a product that might run at a loss for a while as you grow, you know, maybe you want to be a corporation and then, you know, that's mostly what I work with. And there are all sorts of things we do to protect companies, which I'll get into in a second. If you're going to be a company that may not take a lot of money to grow, Stephen Day (35:08.284) you Scott Craig (35:13.334) it's gonna be profitable quickly, then there's some benefits to being an LLC. know, an LLC is a pastor entity, it's not taxed, and a corporation is taxed. So I think, but either way, if it's multiple founders, the key thing you've gotta remember is to, when you're doing your formation documents, is to set ego aside and think through the scenarios where someone decides they need to leave. Like, because what you don't want to have happen is like a 60-40 deal or a 70-30 deal. And then one of those people is particularly the person that has more, but really either one, says they want to You need to have a mechanism set up so that equity comes back. And the way we normally do it is founders vest over, if there's multiple founders, they agree that they're going to vest over four years. And if they leave before those four years are up, some proportional amount of their equity goes back to the company. In LLCs sometimes it's a buy-sell arrangement, but it's not at a price where the company's got to pay for it, right? It's at a price that just kind of goes back. Because otherwise you've got debt equity on your cap table, it's going make it hard to raise money, and it's going to create adverse and sort of perverse incentives at exit. And so just think about what... Stephen Day (36:09.148) you Scott Craig (36:35.606) how you want to handle if someone leaves early, even if no one intends to, because life gets in the way, and it may be completely friendly, someone just says, I can't do this anymore. And we need to plan for that. I think that's the most important thing early on. mean, we can talk about entity formation, that might be a whole other podcast, whether it's an LLC or a corporation, but generally speaking, multi-founder corporations should have a plan right when they start about what happens if someone leaves. Hari Vasudevan (37:03.246) Yeah, 100%. 100%. That is something people don't think through because they think that it's going to be forever. You need to think through, hey, life comes in the way, things happen, right? You never anticipate and you want to give yourself the best shot of success because if you're having to... I've seen these situations, what you're talking about, where the company has to buy one of the founders out, they don't have money to grow. They end up with cashflow issues that affects the company in the long run and all these kind of things comes into play, right? But you're right. Venture capital raising company, corporation, you set up KYRO, obviously, right? KYRO's corporation, ThinkPower, I set it up myself, LLC, right? So, Steven, from your side. Stephen Day (37:50.959) Yeah, I totally agree that the exit is really important to figure out upfront and then the valuation. The two nuances I would put around that would be number one is keeping the company record keeping on a gap basis eliminates one partner's desire to manipulate a choice of accounting one way or the other that might impact evaluation. So understanding the valuation approach and framework to exit that partner and when that would be paid out and how that would be paid out. important. Then there's the other gray zone which is that in between where a partner is not acting in good faith and is trying to stick around to get their four years vested but not delivering what they said and I think that's probably the hardest scenario to deal with but really trying to think through what are the mechanisms and what are the bars that somebody has to hit in order to remove them even if they don't want to voluntarily go. Those are the things where I've seen the sticky points. Scott Craig (38:28.362) you Hari Vasudevan (38:50.998) Yeah, yeah, okay. Let's get to exit because you know, honestly, I really want to focus on that, right? Because you know, I've seen all kinds of weird situations. You guys have seen probably worse, right? One of my friends did a deal, which I think, Steven, I told you this a couple of weeks back, where I still don't know why he did the deal, right? It's like a private equity firm approaches him or her. They initially say, here's the deal. And then as the transaction goes with no advisor, or not a great advisor, you know. bulk of it becomes an earn out, right? And it's an all or nothing earn out, right? Meaning an example is, hey, if you're hitting $25 million and you get X amount of money, but if you're $24,999, you don't get it, right? So lots of poor things happen and people don't want to listen, right? So, and you know, even some of the successful ones like Mark Cuban, for example, right? He sold Mavericks. to the Adelson family. I'm a huge Mavs fan. I'm pretty pissed off because they Luka Donchich, right? And then he's since then he's come on local sports radio, which I listened to said, I don't regret doing the deal, but I regret how I did the deal. I should have gone out for a bit. I should have hired a banker, things like that, which, you know, many of the football teams that have recently sold, they've done that, right? bankers and things like that. So, the importance of going through a process, Stephen, maybe this is obviously a super important sweet spot. maybe you can take that out and I know I probably explained a little bit about why they should go through a process. Maybe you can take it on from your side. Stephen Day (40:46.16) Yeah, well. The challenge is, and we spend a lot of time in the middle market and we come across a lot of entrepreneurs who did not go through a process and we hear lot of horror stories. We also hear about a few who they were approached by one or two parties. They hired a local banker, a nightmare outcome and deals didn't close. Incredible amount of wasted time and money and emotional breakage from that approach. So we're adamant about a methodology that works. And the methodology that works is to do an extreme amount of preparation like you saw us do with your company. And to really have the company prepared from a legal perspective, a financial perspective, operational perspective. And that might take one month for some companies and it might take nine months for others. And we've had everything in that range at Navidar of taking one to nine months to get somebody. Scott Craig (41:31.859) you Stephen Day (41:47.834) ready. Scott Craig (41:52.12) We lost your audio there, Hari. Stephen Day (41:54.992) Yeah, hear a mute. Hari Vasudevan (41:55.823) Sorry, for me, took one year. just want to let the audience know because it's like, I remember we started the deal on June 9, 2021. We closed on June 9, 2022. I remember those dates because it's my grandfather's birthday, right? So it is a solid one year deal for me. It takes time, right? But there's issues in my mind that you may not encounter in others. Stephen Day (42:17.916) Yeah. It takes a lot of time. the benefits of doing the process correctly and contacting all potential parties and getting all bids in at the same time on the same day is this bottom line, it allows you to get a higher sale price. mean, bottom line is it puts more money in the entrepreneur's pocket. And number two, it reduces risk that they lose some of that money post-closing because they breach a rip-in warranty. what usually speaks for the entrepreneur is cash and you just end up with more cash. That's just the bottom line. But along the way it's so much easier. You know I sit on panels with bankers all the time and they talk about the exclusivity process and what a nightmare and how many heart attacks everybody had and everybody's fighting and the deals get extended and deals get retraded and they talk about this horror story between the signing of exclusivity and closing of the deal and it absolutely doesn't have to be that way. We sold a company to a serial Acquire, they had purchased 20 companies, 22 companies on this platform by the time they came to do the deal that we are working on. And in their exclusivity, they asked for 90 days. We said, this is crazy. This should be a 45 days close. It's a simple deal. It's one owner, et cetera. And like, we have never closed a deal in less than 75 days. So we'll, we'll give you that. We'll ask for 75 days. And we said, look, we'll make a deal with you. You set out your calendar, you set out your timeline, and if we miss a single due date, we'll extend it from 45 to 75 automatically, and if we miss two, we'll extend it to 90 days. We didn't miss a single deadline, we closed at 45 days. They said it'd never been done in the history of their deal making, right? That's the importance of process, and if you bring in your attorney early, you bring in your banker early, you get your accounting work done early, then it can be very, very quick, and I'll just give you one other little tip Stephen Day (44:14.586) If you have a banker who's telling you not to do an audit and to do a sell-side Q of E, right there, you know you have a lazy banker. There's no replacement for an audit. There's no replacement for doing it right and building it right from ground up and doing it a gap basis. You don't need to pay for a Q of E if you've done your financials correctly. The buyer is on a private equity firm side is always going to do a quality of earnings analysis. They're not going to accept yours. And you'll be prepared for that if done the proper financial preparation. You won't be surprised by what's in that QV report. So bottom line is there's no substance for putting in the work and there's no substitute for putting in the work and getting a phenomenal outcome. In the end of the deal, it's always going to be stressful, but it doesn't have to be a nightmare. Hari Vasudevan (45:03.682) Yeah, no, super eloquently said. I'll make you look good about it. I'll bring a smile on your face. KYRO from year one has audited gap financials. So you'll not have the nightmare that you had. Eventually, hopefully, there's an exit. And it'll be a much, hopefully, a smoother exit, right? So Scott, from your side. Stephen Day (45:16.88) Excellent. Stephen Day (45:20.955) Yeah. Stephen Day (45:27.153) Yeah. Scott Craig (45:30.25) Yeah, I agree. you hire a banker transactionally, it's going to be a transactional experience. It's the same with attorneys. I look, I have groups at our law firm. I look at myself as a general practitioner, and we definitely have groups that I see as surgeons, and they come in, and they do the deal, and they come out. But I keep that overall relationship. people work on deals differently. That being said, even those folks, the reason they're so successful is they have relationships with the people that are serial acquirers or just, know, are multi-time entrepreneurs and have exited multiple times. So, you you have, you can't, you can't come in as a service provider and be like super transactional about it and just sort of focused on yours. You have to be there to help the client if you want the work. you know, from, From my perspective, having diligence for the buyer in order and ready to go, both the legal and the financial, is huge. So obviously an audit and a clean Q of E that the banker's been able to do for you and your accountants as well, and having it ready to go makes it so much easier for the buyer. It allows you to do a 45 day process instead of a 90, because I'm guessing that company bought a bunch of messes. And so the reason it took them 90 days every single time was because they had to go do the work that Navigar would do for you before. I do think a lot of companies engage bankers and jump right into the process. Sometimes circumstances and timing, just how it had to work out. But if you see an exit on the 18 to 24 month horizon, you should start talking to bankers. And if you've got VCs on your board or other institutionals on your board, Hari Vasudevan (46:53.72) Yeah. Scott Craig (47:18.102) Hopefully they're smart enough to figure that out. think a lot of people are worried about the fees, but if you don't close a deal, the fees are for when you close. That's why I think folks like Steven and Navidar, they're good because they come in, they're more relationship based. As are many other banks, that's what you want to look for. You don't want to have... I have to sell my company by 1231, let's go and engage a banker. Maybe you end up having to do that because of circumstances, but that's gonna make a tougher experience, I think. Then I would like to sell my company by 1231 of next year, let's go start talking to bankers. And I think that's the way I'd look at it. And then from a legal perspective, I would, even if you're not, You don't have institutional investors, so no one's done diligence on your company before. The more you can keep stuff in order, your HR files, your commercial contracts, your vendor contracts, your open source downloads, all of that, have order to it. It may not be perfect, but if it's all over the place, if you've got a bunch of documents in your system that are signed by one party and not the other, if you've got missing contracts, if you've got oral contracts that you're working off of. And they've never been papered. Those are all gonna be problematic and diligence because the buyer especially if it's an institutional buyer They've got a process and they're gonna want to turn overturn every stone and they're gonna make everything a big deal even if you don't think it is and and so the more you can be clean when you start the process the easier it's gonna be and I just Hari Vasudevan (48:56.087) Yeah. Hari Vasudevan (49:03.182) Yeah, information arbitrage, right? They don't know what you know. So they really are going to be always careful about it and they have to be. again, I've been on both sides. I've seen that, right? Where the other party feels they're violating their trust. Why are you doing this? Why are you asking for this? But, you honestly, I know my company really well. I really don't know somebody else's company. So I really need to see the documentation. And if you don't have it right, that means you don't have it. right? Scott Craig (49:34.059) Yeah, an example of something that was super silly, but a buyer is going to use it as leverage against you is I had a client that was like a 10 year old SaaS software company, this deal was about nine, 10 years ago. But they had a lot of contracts in boxes in a closet and they pulled one out and there was one from like the first two years of the company that had promised that the customer would own the customized source that they, now, The issue was this customer had been bought two times over since that, like nine years later. And frankly, the company that bought the company that bought them didn't even have that business line anymore. So like the risk was super low, but all the buyers saw was this, hey, some of your IP is owned by somebody else. How do we know that this isn't gonna be a problem and everything you did wasn't developed off of this? And so, these are things like you wanna be super careful about early because... you might not think it's a big deal. Your lawyers may even advise you that the risk is super low, but the buyer, even if they know the risk is super low, they're gonna use it to extract the deal. Hari Vasudevan (50:41.768) leverage, right? It's a leverage point for them, right? that's good. So, know, Stephen, back to you now, purchase price consideration, cash-free debt-free basis, things like that, different components that go into a deal, right? Rollover equity, indemnification framework, right? You've got the fundamental reps, survival of general reps, amount of escrow goes into it, things like that, right? So whether the escrow is the sole source of recovery, there's breach of fundamental reps, all these kind of things. You can elaborate a little bit, of the tipping basket. Can you elaborate a little bit? Because most entrepreneurs, I did not know this, honestly. I had no clue about any of these things, How does it matter to know? Stephen Day (51:29.944) How does it work? Hari Vasudevan (51:31.714) How does it matter to an entrepreneur? How do they evaluate a deal? How do you come in and explain all these things? Stephen Day (51:33.722) Doesn't matter yet. Yeah. Right. Well, so I'll say a couple of things and it may sound like a broken record, but ultimately at the end of the day, it's all about how much cash stays in the entrepreneur's pocket. And there's a couple of parts of the deal making that are very esoteric. And this is one reason why it's very important that your banker and your lawyer are on the same page because these legal issues, they kind of blur between, you having a business element to them, any kind of a business decision to them, and then they have a legal underpinning to them. It's important that the banker and the lawyer are on the same page around these very esoteric areas. Number one is an escrow versus a reps and warranty deal. An escrow is you leave your cash behind in a trust account and the buyer has one or two years they can go after that cash if you breach a certain rep. Reps and warranty deals have an insurance company stepping behind them. deal and so you have to leave less cash behind, a lot less. In that scenario, number one, just say the reps and warranty market has continued to come down market to smaller and smaller deals and so it's more and more accessible. It used to be for the very large deals. So that's something that you need a banker and attorney who are familiar with that product and familiar with the pros and cons of the two approaches and can walk you through that new ones. So that's one that really matters how much cash you leave behind. That's how much it matters to the entrepreneur. Stephen Day (53:08.03) The second. Hari Vasudevan (53:08.858) So let's give a quick example from most people trying to help them understand this. So let's call it as a $10 million deal, ease of math, right? An escrow, ease of math again, 10%. The entrepreneur leaves a million bucks into an escrow account. And if there's a breach of some rep, right, you can explain that. The buyer, I'm the seller. there is a buyer, the buyer has access to that cash in the escrow account because, you know, they didn't, the deal didn't go as they thought they would, right, for a variety of reasons. That's an escrow account. And reps and warranties essentially is it's same purpose at end of the day, there's an issue, but there's an insurance that, you know, both parties, sometimes it's one party, pay a premium to so that, you know, more cash sits in the entrepreneur's pockets, if you will. Is that a reasonable way to put it? Okay. Stephen Day (54:08.86) That's right. Yeah. Normally we see that the buyer and the seller split the premium or if it's a very competitive deal, then the buyer will pay the cost of premium for the insurance. That's basically kind one of those two scenarios. And then the insurance company stands behind it. But you still have to have done the due diligence. They still have to have the same types of reps and warranties. It's the same kind of framework, which Scott can share more on that, that you would in a regular deal. you do largely do all the same type of work. Scott Craig (54:23.574) you Stephen Day (54:42.448) There might be some places around the margin where a reps and warranty deal might make it a little bit easier to come to an agreement on terms of conditions, but by and large, it's the same document either way. It's just a matter of who's stepping behind the reps and warranty. Is it your escrow, your cash, or is it an insurance policy? Scott Craig (55:01.046) I think the important piece. for this, because you're right, the insurance, Reps and Warranty Insurance has definitely come down market. We were talking $10 $15 million deals that would have been unheard of a while back. And what's funny is way up market now, people are starting to self-insure, buyers are. which is, whether that, that'll be harder to push down market than Reps and Warranty Insurance, but I think it just depends on the size of the buyer. But what you've got to remember is that the buyer is hiring an insurance company to rely on, to be able to make claims against, if there were breaches by the seller, selling company. And so what I find in reps and warranty deals, there's actually an additional cost of diligence because the buyer actually has to do the amount of diligence that the insurance company requires in order to be comfortable underwriting the deal. And so there's always, when you do these deals and you remember the call with Buyers Council, Hari, where they ask you all of these questions about your business. Well, there's a subsequent call. Hari Vasudevan (55:54.913) Cheers. Scott Craig (55:58.645) if you're a buy side counsel with the underwriters counsel, where you're basically acting like the seller and they're asking you about the company that your client's about to buy and it's the same exact call. because they want to make sure that buyer's counsel has done enough diligence on the deal that they can stand behind all the reps and warranties that the seller's making. Because what we see in these reps and warranty deals, particularly if it's 100 % reps and warranty, the seller's like, yeah, I'll give that rep. I'll give those reps, that's fine. And unless it becomes a burden on disclosure, schedules like you know the seller kind of like puts its arm into the air and is like I don't need to negotiate these because it's covered by the insurance policy and So it puts a lot more work on buyer counsel, but that means buyer's gonna be in the weeds with you a lot more than they might be on another deal where they get to put 10 % of the cash in Asgrave. And to Stephen's point about cash is key and it's all about securing as much cash or consideration if they're stocking the deal upfront as possible. I always tell my clients if there's a structured deal, if there's an earn out, you need to be comfortable that you're not gonna get it. And if you're comfortable that you're not going to get it, you should consider not doing the deal. Because most buyers I found play fair and they actually, if the earnouts made, everyone's won and so they're happy to do it. But there's certainly buyers out there or circumstances where the buyer might not want to pay it. so they're going to figure out, they're really hard to negotiate. They're very, you We've got to think about up front every little hole that could a buyer might find to try to avoid it. We often tell buyers, can't do anything to harm our ability to get the earn out. And their response is, well, what if it's in the best different interest of our stockholders as a whole to do that thing that's going to cause you not to make your earn out? We can't agree to that because we have to think about our stockholders. And it doesn't mean that you were going to lose that point. It's all about leverage as is everything. Hari Vasudevan (57:38.894) Yeah. Scott Craig (58:05.234) It can be a really tense negotiation. And I just think that, you know, it doesn't mean you shouldn't do an earn out. You just need to understand that, what are the possibilities of getting it? Because I think that, I would say more often than not, they're not hit. mean, there's a million permutations of what an earn out can look like. And so some are more certain than others, depending on the terms, and some are meant to be more certain. Hari Vasudevan (58:08.482) Yeah. Scott Craig (58:33.344) But I think it's still, you've got to think of it as contingent because that's what it is. And some of it is kind of out of your control post-closing. Stephen Day (58:39.548) Yep. Hari Vasudevan (58:42.466) Yeah. Stephen Day (58:42.556) I agree with Scott's perspective on lot of things in her now that in Hari, we could do a whole session on earnouts. Okay. Cause we're incredibly passionate. Hari Vasudevan (58:49.388) Yes, I know. I read your beautiful piece on Navidara's website by Tim Walsh for people considering an earn out. I really encourage them to go to Navidara's website and I read it to educate myself. But you know, when my buddy went through this deal, I really questioned the wisdom of the advisor. But you keep going, Stephen. Stephen Day (59:10.416) Yeah, so here's what I'll say about earnouts. And I'll say a couple of things that are gonna be very controversial and a little bit of a lightning rod, okay? But that's okay, because I want entrepreneurs to really listen to this. At Navidar, over our 15-year history, 90 % of available earnout dollars have been paid to our clients and in our clients' pocket. And that's an incredible track record. And we brag about it and we're proud about it because we put so much work into it. But here's what I'm gonna say about earnouts. When earn out is not earned, usually the fault can lie with the banker or with the seller or a combination of the two. It's very seldom an issue with the buyer. I have found most buyers are highly motivated to want an earn out to work. They want those companies to hit those projections. And some of it starts very early in the process when the banker doesn't prepare valid projections. and then you get to the end of the deal and you want to set an earn out on those projections, which are pie in the sky and not valid, you can't then say, hey, we're just kidding about those projections. We want you to bring those projections down and set an earn out on a lower number. They're not gonna do that. So you're stuck with them. And now you gotta live with them. And whether you put a sliding scale or an all or nothing, they're still unachievable. And I just want to tell you the power of this, the entrepreneur who's selling Hari Vasudevan (01:00:22.702) Yeah. Stephen Day (01:00:38.198) needs to be an honest participant in the development of the projections. And I'm gonna tell you there's some case studies where Navidar has had an incredibly confrontational discussion with a founder about the projections. I'm just gonna give you one that really highlights, was a, about 35 % of the deal was in an earn out, okay? And the earn out was gonna be based off of revenue growth and eva da. And the founder really felt like his company was going to achieve a 19 % EBITDA margin in his business. And that would obviously been a lot better for his earn out value, right? And we said, no, we don't see this business getting past 12%. and huge fight over the set of projections. You're costing me money. I'm not going to get the valuation that I deserve because you're, you know, you're taking money out my pocket. Anyway, we won the battle, if you will. And fast forward at end of the two years, we got his two earn out payments. He got a hundred percent of his earn out. You know what his EVA dial margin was? It was literally like 11.95%. He never got above the 12 because Google marketing, online marketing, the success of of continued to change, the algorithms continued to change, and he couldn't get the return off of his investment that he was hoping to get. And we've seen this in the Google algorithm world in our 25 year history, and we knew that this would be a potential risk, although we didn't know for certain. So the bottom line is by holding firm on the EBITDA, he got 100 % of his run out, and ultimately got more in valuation than he would have gotten had he gone with his 19 % margin. So the bank and the entrepreneur must have a trusting relationship, they must be honest with each other, they must work hand in hand, and really set that foundation at the beginning of the deal, for the earn out at the end of the deal. Hari Vasudevan (01:02:34.764) Yeah, and at the end of the day, there should be an unheld amount of ego on the entrepreneurship part, but not too fragile to say, hey, you know what, I'm going to make a 30 % even on margin on a business that's potentially going to make half of it. Right. so, no, it's really a great segue into the next piece of the puzzle, right. Which some of it, you know, Scott, you hit on, which is the networking capital if you will. Right? Some of these things get super, it's super near and dear to your heart. So maybe I'll let you go first. Right? So networking capital. How can deals fall apart? this is why is it so important? Scott Craig (01:03:25.342) From my perspective, a lot of it ends up not being legal, but it is a question we ask when we draft. If we're doing sell side and we're putting an agreement into the data room for people to mark up or if we're buy side and we're drafting the first draft of the agreement, it's like, what's gonna be in working capital? I think the typical way to look at it is most of these deals are what we call cash-free, debt-free deals. So you take the equity value, you add the cash at closing, and you subtract the debt, which there's a lot of different components. of debt from and that's the enterprise value of the excuse me the equity value of the transaction and you take yes so the enterprise value plus cash minus debt so that's the equity value that's what the shareholders are going to get and The question is, okay, the working capital is basically assets less liabilities. So you take cash out of the assets and you take indebtedness out of the assets or out of liabilities. And so the question is, what is a liability and what is indebtedness? And that's where we see the most negotiation as it relates to the definition of working capital. A lot of people look at, and I think market's pretty much gone here, that any taxes that are owed for pre-closing periods are actually part of indebtedness and come off the purchase price dollar for dollar. Liabilities like, you payables and things like that, that's part of working capital. But there's things like deferred revenue, deferred purchase price, deposits that folks will try to argue belong in indebtedness and not working capital. And at the end of the day, it really depends on the business. It's very business specific. Like how long is that revenue deferred out for? How long are the deferred purchase prices out there for? And I think in SaaS software, that stuff becomes very, it can be heavily Scott Craig (01:05:18.808) negotiated. I'd like to think that everyone understands what working capital is and what the components are and what the components aren't, but it can be very business dependent. Things that look like debt, even if it's not traditionally thought of as debt, the buyer wants to treat that like debt and you got to convince them otherwise. Hari Vasudevan (01:05:39.468) Yeah, yeah. Steven? Stephen Day (01:05:42.351) Networking capital is the biggest boogie man in any deal making. It's very hard for entrepreneurs to get their heads wrapped around it when they're not experienced sellers. We spend a lot of time on it. To Scott's point around SaaS software, a lot of the stories that we come to, they don't have gap financials. So they're not even familiar with the size of their deferred revenue on their balance sheet. And then they come into to the situation and a buyer is trying to treat it like deferred debt. And we can have some pretty small SaaS software companies and they'll have $5 million of deferred revenue on their balance sheet. Or they didn't know that they did, but they do. And then somebody tries to treat that as a debt like item and it's $5 million of the purchase price. like, whoa, how did I just lose $5 million? So we obviously try to put into working capital. We also try to negotiate that it should not be a one for one hit because there's not, 100 % of the deferred revenue is not required to be there to support those accounts. So to Scott's point, it's heavily negotiated. We try to get that on the deal. That's a total technical nuance point that we try to flush that out at the LOI stage, which again, I think is much earlier than most bankers would try to flush that point out. But to us, it can be the real difference. On networking capital, we like to joke is, we're fighting for the beach house for you. It's not a deal mover overall, but we've had deals where we've been really fierce negotiators and it ends up being a million dollars extra to the purchase price to the founder by setting an appropriate networking capital target. So it's something that we think about early on. We think about it before we get to the LOI stage and we try to flesh out. If we think there's going to be issues around it, we try to flesh it out at that stage. So again, we don't get to the back end of the deal and somebody like my gosh I just lost one to five million dollars in my purchase price and didn't even see it coming Hari Vasudevan (01:07:48.14) Yeah, yeah, no. Scott Craig (01:07:48.638) I think the other component. that, and Steven was alluding to it, is not necessarily the components of working capital, but how the target's calculated. usually, if a company's got pretty steady state revenue, you just look at the last 12 months, come up with an average, or the last six months, come up with an average, but some companies have very lumpy revenue, and it's hard to, on a month-to-month or quarter-to-quarter basis, and it's hard, are we looking at the right 12 months? Are we looking at the right period? Are we calculating it right? Hari Vasudevan (01:08:17.742) And some companies may have had a rapid growth, which we, you when I went for a deal, ThinkPower had a super rapid growth in 2021, right? And it's hard to calculate, right? So. Scott Craig (01:08:21.536) Yeah. Scott Craig (01:08:28.852) Yeah, and so when you come up with the target, what's gonna happen in the transaction is you're gonna have a target that's based off of some pre-closing period. And then at the closing, you're going to say, this is our estimate of what working capital is at closing. And at the closing, if that estimate is below the target, your purchase price is gonna get deducted by that much. And if it's above the target, it's gonna get increased. So for a seller, the lower the target, the better. But then what's going to happen post-closing typically is there's going to be a true up because we're just estimating it at closing. And then there'll be another true up. So as a seller, you don't want to cook the books at closing to make it look good. You want to get it as accurate as possible. There's not this like big post-closing adjustment. But to the original point, the reason the target is so important is the target isn't what it is at closing. It is a target based and that's how the buyer theoretically valued the company. you know, that's why that discussion happens pretty early. Because like we value this company at $100 million based off a working capital history of this. But that doesn't have to be the right answer when you go to the definitive docs. If as a seller, can give it some like you calculated that wrong. So it's it's it's a discussion. But to Stephen's point, it's a it's a big deal, but it shouldn't be a deal breaker. unless for whatever reason it's a small enterprise value and very, very significant deferred revenue, for instance. Hari Vasudevan (01:10:03.298) Got it, got it. No, it's good stuff. So, I know we talk about earn outs, but another piece of the puzzle which is important for many entrepreneurs is roll over equity, right? Why is it important? When should somebody roll over a lot of equity, which I did, right? In the Think Power deal. know, maybe you can, Steven, can go with that in the thought process behind how you negotiate that piece of the puzzle. Stephen Day (01:10:29.958) Sure. Well, rollover is one of those things that Scott mentioned this earlier about things being highly deal specific. And that is one where I would say is really incredibly deal specific, not only to just to the seller, but also to the buyer. There are some buyers in the private equity world who will only want to buy 100 % if it's coming into a platform company. And that's just the rule. Of course, if you're selling to a publicly traded company, there's no such thing. You're selling out 100%. And so now you're kind of into this middle ground of of private equity firms who have a portfolio company or they're investing in you as a platform company. And a lot of times if they're investing in you as a platform company, they want to see you stay and they want to see you roll over a lot of equity. And so just to clarify for people what a roll over is, you're still selling 100 % of your company, but what you're doing is you're at the time of closing, you're taking part of your proceeds and you're buying back in to your own company. at the share price that you just sold at. That's basically what you're doing. And there's a lot of times where if you are the platform investment that a private equity firm is making, they would love to see you continue to own upwards of 40, 45 % post-closing. And they certainly would love to see you own 30%. Now I would say kind of at the low end, Hari Vasudevan (01:11:53.827) That gives them the confidence that you believe in your company. Stephen Day (01:11:56.477) that gives them the confidence that you believe in it, that you're gonna stay around, that you believe in them and their plan. I'd say that the minimum, if it's a platform investment, the minimum that they'd want you to roll is probably 10%. I mean, 10 to 20 % is kind of that minimum range that we would guide people to expect. And if they're gonna stay on board, perhaps as much as 40, 45%. Now, our advice to entrepreneurs, again, it's very highly case specific, but if I had a general rule, I would say, if you're staying and you believe in the plan and you believe in what they're bringing to the table, then rolling 45 % can make a lot of sense because your second bite at the apple, which we like to say is the second sale down the road, three to five years down the road, a lot of our clients have made more in the second transaction, even though they only own 45 % of the company, they make more money in their second bite at the apple in those scenarios. Now, if you, for whatever reason, you're ready to retire, you're worn out, you're not that confident in competitive landscape, you're not going to have that much control inside the private equity firm to operate in the way you'd like to operate, you're worried about cultural changes, things like that, then roll 10%. And if it's really important to you that you roll zero, well then you need to know that that's going to reduce the number of buyers, it's going to reduce the competitiveness of your process. It may result in you getting a lower purchase price as well if you do that. But that's basically how we think about rollover and our general advice around it. Hari Vasudevan (01:13:30.431) beautifully eloquently put out there. Scott? Scott Craig (01:13:33.719) Yeah, I mean, think if you're getting acquired by private equity, you're going to be expected. to roll something as management almost certainly, particularly as to Steven said, if you're a new platform company, unless you're just gonna completely replace management, which I guess happens, but I wouldn't say in the middle of the markets, it's typically what they want. mean, they're going after these founder backed companies and there's a lot of successful private equity firms that do this. They don't want a venture, a company that's been venture backed and had three rounds of capital. They want these founder backed companies and they wanna continue to support the founder to grow the company. The The thing you have to worry about is, as a rolling stockholder, and I'll caveat this, is all about everything's reliant on your leverage in the transaction, is okay, what does my equity look like? And there are a few things that, from my perspective, are fair in our market for rolled equity. Some private equity firms would disagree with me. Some private equity firms might go differently just based on the leverage of the transaction. distress deal or if it's there weren't as many buyers for the seller as you know and they knew that but one is you should get the same equity that the private equity funds putting in. Hari Vasudevan (01:14:53.39) Yeah, that's a very important piece of the puzzle because, know, just if I can pause you there just a little bit. I remember, you know, Steven, Scott, you and I, the three of us evaluated multiple private equity partners and there were a couple which we kind of weeded out because they wanted to issue me a different class of stock. Although they wanted me to roll significant piece of the puzzle, right? 40 percent, something like that, 30, 40 percent, which is a deal breaker, right? Which actually happened more often than people imagine it's not a good situation to be in at end of the day, right? Scott Craig (01:15:27.306) Yeah, and like I want to again, it's all about leverage. It's all about who wants to buy your company. It's all about who's going to be the best partner for you. And there are funds out there that that's just that's part of their internal controls is we have to be senior. And so you're going to choose that fund. Well, the valuation is going to need to be higher. You know, maybe my role is a little less than it would be because I don't want to and and maybe I want some other protective terms as a result of that. So I don't want to say like don't do that deal. Yeah, maybe you don't have to, but there's other reasons that maybe that deals better or, you know, or maybe you're, it is a tuck into already their existing platform company that's just a super, but circling back. So there's that, you want the same type of equity. The other piece is that stuff, that equity has been fully vested for you almost all that's almost in every case. Hari Vasudevan (01:15:57.206) Or maybe you don't have a choice, honestly. Scott Craig (01:16:23.038) It's fully vested equity. That should continue to be fully vested equity when it rolls. It should not be subject to clawbacks outside of you being a very bad actor. We see private, the first draft of like LLC agreements for the platform company for private equity funds that her founders will say, look, I know you're rolling 40%, but if you leave, I get to buy it back from you at cost. Stephen Day (01:16:40.828) Thanks. Scott Craig (01:16:51.112) or I get to buy it back for you at the lower of the fair market value. And you want to avoid as many those clawbacks as possible. Now, in the private sector world, you're not going to avoid the clawback for being a bad actor. But there's all these different things called good lever, bad lever. There's even, I've seen, intermediate levers recently, which is super interesting, where there's different levels on how they can claw back your stock if you leave the company based on how you leave the company. The reason they want to do it is like, if you roll 40 % and then you leave a month after the deal, you're on their cap table for 40 % now. And it's similar to what we talking about with founders earlier, is like now they've got this cap table. So there's going to be a negotiation there. And you want to try to limit the ability to claw back that stuff that you've already earned. You've already earned that equity. And it's just rolled into a new company. Now, other equity you might get, you might get grants out of an employee equity plan as a founder under this new platform company. those are subject to different rules. Those are subject to vesting and maybe more intense clawbacks. So I think, saying it again, it's all about leverage, but these are the things you should be trying to ask for if you're rolling. It's like, want equal equity and I don't want any clawbacks on this rolled equity. Hari Vasudevan (01:18:15.608) put yourself in a good position where you have more leverage. Scott Craig (01:18:18.996) Yeah, well, I mean, because the other things that come down to it are governance controls, because you no longer control your company. And the private equity fund, as they should, needs to be able to operate the company the way they want to operate it. But you want to protect yourselves against self-dealing, pushing, smashing together two portfolio companies. want to protect yourself against maybe there's a management agreement with the PE fund, and the portfolio company's paying fees. If you own 40 % of the company, that's 40 % of that value going back up to the PE fund is your money. So if they want to amend it and increase the fees, you should have to be able to approve that. Anything that's like a related party transaction with the portfolio company and the PE fund or the PE fund's other portfolios, I want to have a blocking right on that if I'm a founder that's rolling a significant amount of And it's all again, it's leveraged. How much are you rolling? If you're only rolling 10%, you're going to have a lot less to argue about and you're going to have a lot less leverage and you're going to get a lot more pushback. If you're 40, 45%, you should be really concerned about these things. Hari Vasudevan (01:19:28.59) Yeah, no fair point on that. mean, you know, those are all things that I'm obviously super familiar with and thanks for negotiating a great deal for me. Right. So on the, you know, we're kind of 1055 mark, right. So let's talk a little bit about disclosure schedule because, know, candidly, first time entrepreneur me when I was going through this deal, I really did not know what the hell disclosure schedule was. Right. And I had to understand that. Scott Craig (01:19:50.112) Mm-hmm. Hari Vasudevan (01:19:57.775) explain to an average Joe out there, shouting at a new company what it is and why is it so super important. Scott Craig (01:20:05.27) The best analogy is if you're selling your house and you have to do a seller's disclosure for your house and everything that's wrong with it. It's pretty much the exact same thing. And so you're making a set of reps and warranties in the purchase agreement. And there's two types of disclosures. Sometimes those reps and warranties say, list every contract that's more than $100,000 in revenue. And it wants you to list those contracts. The other disclosure would be, Like the company has no current ongoing litigation. Well, you do. So you list those litigations in the disclosure schedule. And from my perspective, there's a balance there. Buyers should be able to flush out as much as they can to a reasonable level. Stephen Day (01:20:42.172) you Scott Craig (01:20:57.354) particularly if it's a reps and warranty insurance deal where they're gonna want more reps and warranties, you're gonna care less about the reps you're giving because it's covered by their insurance policy. But you don't wanna have to force a seller to disclose a thousand contracts. And I think from a seller's perspective, when we're negotiating and it's a reps and warranty deal, what we're really focused on is just sort of beyond the pale on the amount of disclosure we're gonna have to provide. that's just like not worth it. And it's just a waste of time. if it's not a reps and warranty deal, we may be a little bit more, we're gonna negotiate the reps harder and maybe avoid making some reps that we prefer not to make that might be riskier. But from my perspective, the disclosure schedules are a process that you wanna get started as soon as you're able to. Usually that means if you're doing a process with Stephen, we've drafted a seller friendly agreement with some reps and warranties that are middle of the because we want reps and warranty insurance, so we're not going to throw up seller-friendly reps just because we can. We want something that a buyer isn't going to mark up heavily. And we get started on disclosure schedules before we even have a buyer in the door so that we have something that's already a working document. There's other deals where the buyer sends you the first agreement and it's got the worst reps and warranties you've ever seen. And we want to kind of understand maybe a turn or two where we're going to land before we start disclosure schedules. But it can be a very intensive process. There's going to be a long call with your counsel to walk through all the reps and warranties with different members of management so we can flush out things. Because, you know, ultimately if something happens, it wasn't disclosed. A buyer's first inclination is you hid it from us. You did it on purpose. That's fraud. Hari Vasudevan (01:22:41.176) Yeah. Scott Craig (01:22:41.496) And usually that's not the case. Usually it's just got missed and we, you know, and somebody at the company knew about it or forgot about it and forgot about it. And then when we had the call and, you know, we didn't know that there was this email threatening litigation about this certain topic. And, you know, you want to avoid that. But, you know, ultimately that's why we have those sort of intensive calls. wait, know, are we sure we don't have anything else? But it can be a, it can be a gating process. Hari Vasudevan (01:23:06.701) Yeah. Scott Craig (01:23:11.436) in a deal if you're not working on them early and if you're not working on them with the right people at the company. Stephen Day (01:23:11.548) you Hari Vasudevan (01:23:19.788) Yeah, no. Stephen Day (01:23:19.898) I would say, Ari, on this topic, before Navidar, it's more. Yeah. Hari Vasudevan (01:23:22.978) But hey, Steven, I just want to jump in here just one minute. Scott says, real estate, I compared you to a real estate agent, so he's doing the same thing there. Stephen Day (01:23:32.348) Not much difference for sure. So that's funny. So, let's just say on this disclosure schedule is before Navidar, we did more buy side than sell side. So I went to Goldman Sachs. We did mostly buy side and A in, and from that experience, what I say to sellers is when you go into exclusivity with a buyer, you're starting with a jar full of trust. And each time that you miss something, each time you fail to disclose something, you're distracting, you're taking away from that jar of trust. Right. at some point, the trust level will get to a spot where they'll just walk away, right? And so the importance of this preparation from the legal, the accounting, and the banking perspective upfront, the importance of starting with disclosure schedules early, the more that you're prepared, we have a goal at Navidar, it may be sound unrealistic, but we literally have a goal that we don't want a buyer to find out anything about our company that we don't already know. That's rule number one. That's our bar. that into due diligence, in a disclosure schedule, no new information. The second thing that we do that I do think is very unique is we want all of that priced into the bid. The good, the bad, the ugly, we want all that in. There's very seldom any situation that we don't make sure that's baked into the bid price. And I think that's a fundamental flaw of most bankers. think, number one, they don't even know what they don't know because they haven't prepped properly. And then number two, they're like, well, we'll deal. that a due diligence, let's not disclose that now. You know, I think that's a fundamental flaw and it gets to that erosion of trust. And so that's what it's all about getting from the signing of an LOI to closure is about maintaining that trust level. Hari Vasudevan (01:25:20.59) Yeah, no, it's a beautiful, beautiful analogy. said, jar full of trust, and then you kind of started erring that. So final question here, guys. You know, it's a super great conversation. A little bit about AI, right? I know we're living in the age of AI, if you will, you guys are dealing with it from a tech basis, and you may be representing a lot of the key players here, Scott, so I don't want to make it hard for you to respond here. So how do you think it'll impact your industry, the world in general. Scott Craig (01:25:53.362) I'll start really briefly. think it's already creating efficiencies for us. mean, just even with various software packages to help with diligence, to help with document preparation, to help even with research. I think the way I look at it is, and the way I've talked to our team is... For us, it's sort of like a junior associate that is very earnest and is really, really smart and really, really good, but they're still a junior associate. And so you just really need to verify. it's, from my perspective, it's great at doing the first draft of things. It's great at making the first pass through things. And... That's really in anything, even outside legal. But at least now, and at least as it comes to, as it relates to deals, I think it can create tons of efficiencies, but you still have to bear with it. But look, I think it's gonna be a very helpful tool to make lives of all of us a lot easier in transactions. We need to learn how to use it the right way. Hari Vasudevan (01:27:07.628) No, you're right on that. So what about junior associates though? mean, just curious because, know, entry level jobs, how do you guys deal with it? How should the world look at it from that perspective? Scott Craig (01:27:18.266) I just think from my perspective it's gonna make their jobs easier. I just think that whether it's accounting, it should allow you to do more without working more hours. And I think there's gonna be two types of people. There's gonna be the folks that rely on it as the truth, and maybe I'll use the word lazy and just say. here's the answer, and then there's gonna be people that use it and then look at it and build from it, and they're gonna be the ones that are successful. But the things that it can do right now across the board, even like my clients that are trying to do pitch decks, you know, and some of the software that can put pitch decks together or business plans or things like that, the ability to get to that first draft in a half an hour instead of two weeks, that's huge. I mean, that's really what, I think it's the first draft that I think, whether it's legal business, The ability to get the first draft done in minutes instead of days is the biggest thing that I've seen. Hari Vasudevan (01:28:23.182) It's actually really super well put because, know, does the first draft and then you still have to apply the knowledge you have earned in school, work and whatnot to refine on it. I'll tell you what, I've had an interesting experience with that. Last December, we went on a trip to New Zealand with family and I, and I did a planning on one of the AI software. But you know what I missed was we rented an RV in New Zealand. and you know it didn't necessarily give me the extra time it'll take to drive an RV and we drove the entire both islands New Zealand right it is it became painful for me because it is like at some point like man Chad GPT told me it'll take four hours it's actually taking seven hours right didn't necessarily take into account lesson learned Steven from your standpoint Stephen Day (01:29:14.47) Yeah, so in the deal making standpoint, we see AI being a great tool to get through a lot of contracts. We have a client right now who has 700 clients, right? And it's not clear contracts. There's some order forms, there's some purchase orders, there's some master service agreements. It's just kind of a mix of different contracts. And so we want to go through there quickly and figure out are there approvals required for change of control? Are there approvals required for contract assignments? And so there's things like that where AI can be very helpful to get through just a great volume of documents and look for those key paragraphs and pull them out. So that's part of it. With respect to doing valuation work. So in our business of downloading publicly traded comps and doing valuation work, it helps to accelerate that. You can use that when it's a loose requirement. If you're doing a fairness opinion, you wouldn't rely on it. Right. And so it kind of depends on what your purpose of that is. So that's helpful there for sure. In terms of creating pitch decks, we haven't personally gotten leverage out of it. And one of the reasons why is the hallmark of Navidar is telling an investment story, which is often very different than the customer story. So our clients are used to really a pretty radical retelling of their story. None of it's on their website or in their marketing materials. It's all brand new. Once we do that though, then AI can be helpful to come up with graphics. or some buzzwords for us once we get that framework created and kind of pointed in the right direction. But it can't do things from scratch for us. mean, if we give current website information, sure, it could do that, but we're typically not using that. So for us, it's a little bit of a hybrid use. And then certainly in marketing and outreach, there's applications there of how it can automate email and outreach and telephone calls and stuff like that where it's interesting. Hari Vasudevan (01:31:13.422) Awesome. Scott Craig (01:31:13.43) One thing I want to add real quick is just on the flip side of this and another reason to hire someone like Steven earlier than you would think is that the private equity funds have these applications now that are helping them find companies in ways that they couldn't find them before that are potential platform tuck-ins all of that and as a result they're cold outreaching to these companies that might not even be thinking about a process. AI is helping them find it. Hari Vasudevan (01:31:37.452) Yeah, I did that. When I was running ThinkPower, I used a website, think it's clay.com if I remember right. And I actually, you it actually, you put in the company, you know, information and say, hey, find similar companies. And it'll kind of mimic it. It is not bad. I mean, if it gave me 100, five of them are all right, which is all right. Scott Craig (01:31:54.708) Yeah. Scott Craig (01:32:01.366) It's even better now and so I think companies are going to get more inbounds than they ever have. Now lot of those inbounds aren't going to be worth pursuing but you just never know when you're going to get that one that, oh man, I really need to think about this. And having a banker at your side ready for that is important. Hari Vasudevan (01:32:19.054) Yeah, Steven, you know, has anybody changed the website after you came into the process and told them this is how you push in the company? I did, honestly, it was great. Stephen Day (01:32:26.524) Yes, our favorite clients always do that Including you Yes, it's so often we we're having clients modify websites I don't want to scare anybody that has to be a whole website rewrite But we often do have people modifying some language or modifying that the opening pages Yeah, just the position of companies better Hari Vasudevan (01:32:45.262) positioning the company better, right? At the end of the day. So, awesome. Hey, Scott, Steve, and seriously, I I know it's a little over time. Deeply, deeply appreciate the words of wisdom you've shared. And I know from my personal experience, it is phenomenal experience working with both of you, Latham and Watkins and obviously Navidar and, you know, Super thankful to have you guys on the team. Hopefully we'll do one more deal together. thank you for helping all the entrepreneurs who may be listening to the show and maybe we'll do one more down the road. Thank you so much for joining the show, my friends. Stephen Day (01:33:28.177) Thank you. Appreciate it. Have a great day everybody. Bye. Scott Craig (01:33:28.374) to go. Thank you. Bye. Hari Vasudevan (01:33:31.17) Bye.
ABOUT THE GUEST
Scott Craig and Stephen Day

Scott Craig is a partner at Latham and Watkins, one of the world's highest-grossing law firms. He specializes in helping emerging companies navigate growth, capital raises, and tech M&A. Stephen Day is the co-founder and managing director of Navidar, an investment banking firm and trusted advisor for M&A and capital raises. Together, they bring decades of experience in shepherding entrepreneurs through life-changing transactions. They are known for their collaborative approach, prioritizing client protection over quick fees, and maintaining deep, long-term friendships with the founders they serve.

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