A few weeks ago, we looked at the challenge of navigating mergers as an entrepreneur. This post looks at the same story of Pretio Interactive from the perspective of an investor, Owen Matthews.
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The relationship between an investor and an entrepreneur is a complex one. The parties will navigate the good and the challenging stretches of the investment relationship together, overcoming the obstacles that get in their path. The key to reaching calmer waters is developing this relationship in a way that sets it up for success through clear, honest communication, respect, and trust.
But what happens when the relationship issues get multiplied with multiple investors, multiple entrepreneurs, and multiple opportunities? The boat suddenly gets a lot bigger and the various parties are not always paddling in the same direction. This situation creates an even more complicated relationship that must be handled delicately in order for everyone to make it out of the boat in one piece, ideally with a smile on their face.
This more complicated scenario was the situation as Alacrity began working with Pretio Interactive. At that time, Pretio was a different company called RewardsDen. Founded and headed by Tyrone Sinclair, the company was already an established entity with shareholders, a board of advisors, and a lots of promise in an exciting market. Tyrone (Ty) was young, but had already found success as an entrepreneur, selling an earlier venture and establishing a few more before founding RewardsDen.
While part of the Viatec accelerator program in Victoria, RewardsDen was introduced to Owen through Jim Hayhurst. Jim was involved with both RewardsDen and Alacrity in an advisory capacity and knew Owen through other initiatives that they had worked on together.
After the introduction was made, both the Alacrity and RewardsDen teams seemed interested in pursuing a way to work together. For Alacrity, RewardsDen presented an opportunity to learn more about the adtech space while also giving a team of engineers that Alacrity had already assembled from UVic a new opportunity to work on. For RewardsDen, the manpower and resources that the Alacrity team could offer was invaluable. A handshake agreement to explore the relationship was made, and the teams began to work together in a more concrete capacity.
“The Alacrity team was excited about the opportunity and, more importantly, they got along very well with the founder, Ty Sinclair. We wanted to study the space at a more practical level, and determined that working with RewardsDen was a means for us to better understand the opportunity and see where it might take us.” -Owen Matthews, The Alacrity Foundation
Opportunity Begets Opportunity
Challenges presented themselves from the beginning of the collaboration, but they were the kinds of challenges that any investor and entrepreneur would find themselves happy to have. Things were going well at RewardsDen. The teams worked well together, the marketspace was growing, and the company was attracting new clients. In fact, things were going so well that everyone was excited to have the two groups merge and continue as one.
Merging the Alacrity and RewardsDen teams into a new company resolved two of the biggest challenges that the teams faced. The first was that Ty was relying on a team of developers and IP that was not the outright property of RewardsDen. Second, the Alacrity team, still enamoured with the opportunity and happy to work with Ty, were not, in fact, shareholders and were working to develop a product that was not entirely their own.
Even though this was an abnormal model for Alacrity’s Entrepreneurship program, the opportunity was promising enough that Owen wanted to be flexible in its pursuance. Like everyone else, he was pleased to see that the team was motivated and committed to the project in a growing space and, therefore, was excited to help the teams join to form a new company.
“I changed the equation by taking a lot of the risk on myself, knowing that we could execute successfully on a merger and all the things that I believed would come to fruition.” -Owen Matthews, The Alacrity Foundation
As the details of the merger were being drawn up, with the Alacrity organization focusing on the paperwork so that the team could focus on the company, new complications arose. As an established business with investors and board members, RewardsDen had to address a restructuring of the existing company, and a recapitalization of the share structure to address both old and new shareholders and participants equitably. The challenge was not in the actual agreement between the teams and various stakeholders because everyone was on board with the transition. The real challenge was in managing the expectations of both sides and making sure that everyone was getting a fair deal.
“Nobody was against the notion of taking the dilution and starting another team. Nobody was fighting about ownership, but even with everyone in agreement, it was still challenging to take the time to explain that someone’s ownership was about to get cut in half for this new team. At the same time though, this team was likely to be successful because they were working on a project that they were excited about with a great market opportunity.” -Owen Matthews
This was a classic challenge that many investors have faced. How could Owen get the various shareholders to recognize that their percentage of ownership was going to drop, but that as a result, the value would go up? The outcome would be that they would have a smaller part of a more valuable entity, but this outcome would take some time to get used to while expectations were aligned. So many entrepreneurs fall into the trap of being a big fish in a small pond that they often do not realize that being a small fish in a big pond is the better position. After all, Steve Jobs owned less than 1% of Apple when he died and Bill Gates has just ~2.8% of Microsoft.
The merger between the teams brought more changes to RewardsDen as the company transitioned to form Pretio Interactive. Ty grew into his current role as Founder and COO, Jim became CEO of the new company, and one of the Alacrity team members, Rob O’Dwyer, became Pretio’s CTO. With these changes, Pretio Interactive was officially born.
Pretio’s foundation of relationships built on trust, transparency, and flexibility facilitated a smooth transition and set the company up for further success.
Pretio Accelerates, Full Steam Ahead
As the turbulence of the merger settled, more opportunities arose for the Pretio team. A local company, Tap for Tap, became available for acqusition. Tap for Tap was a mobile app ad exchange network and Pretio’s team had determined that their technology was a perfect addition to the roadmap for the direction that Pretio was heading in.
Owen, Jim, and Ty sat down with Tap for Tap’s principals and began discussing the possibility of a closer relationship, and after some discussion, a deal was arrived at that saw Pretio acquire the company.
Young companies with young entrepreneurs are free to define themselves, which is a great thing from a management perspective. The trouble comes when companies grow, but they are not prepared for that growth, and that is where the need for experienced management comes in. Normally, Alacrity advisors are available to play a significant role in providing mentorship and assistance as needed by the companies within the portfolio. However, Jim’s presence and involvement with Pretio from its earliest days provided the necessary guidance to create a strong company culture organically as the team has grown and developed.
“My philosophy is to be available to support the entrepreneurs when they need me. Jim is very experienced so they, I would say, need me less than other companies.” -Owen Matthews
Jim’s experience, Ty’s trust, and Alacrity’s flexibility created a winning combination, contributing in equal parts to making Pretio a success. The ability to coach young entrepreneurs, to trust their decisions, and to negotiate fairly was crucial for Owen as an investor in this company.
“If we all focus on the goal to create a successful company, and not personal domains, we can succeed. But the discussions about levels of ownership and who plays what role in the company can be quite emotional. It’s important to manage expectations and, at the same time, be respectful of the fact that it can be an inflammatory discussion. You have to mitigate the emotions by keeping everyone’s focus on the goal. We all need to work together and trust each other to build a successful company, so we all need to be fair. We all need to give a little to make it work.” -Owen Matthews
Setting Up for Success
Since its early days, the various parties involved were able to quickly align to protect the best interests of the company and that why this particular transition was so smooth. Every shareholder was taken into account, egos were left at the door, and a principle of fairness guided the changes as they occurred.
Ownership in a company is only worth something if that company succeeds. In Pretio’s case, the company and its stakeholders were able to navigate a challenging situation to exit on the other side with a strong foundation that geared them towards success. And they’ve been carrying on in that direction ever since.