Painting a fake retail store and our first exit to Agora Brands

For those unaware, Alex (my partner) and I owned a D2C reseller business called EBC in the electric mobility space (e-bikes, e-scooters etc). We sold the company to Agora Brands (NYC based aggregator), in 2021. They were and still are an awesome bunch, and it’s opened more doors than I thought possible in such a short space of time. From co-founding Igloo Media Group, meeting over 700 founders, consulting for prospective acquisitions, personal finance lessons and more, the list goes on. Their founders are also big tennis fans…so I felt like we were off to the races early.

Nonetheless, there’s definitely a few things I’ve learned from selling EBC that may be of value - especially for those hungry for an exit for the first time.

My 5 takeaways from the exit process

1. Negotiate: Cash is Gold

Playing chicken with investors isn’t fun, and if you ask for too much cash and less incentive based pay (like earn-outs), they can start to doubt your commitment to the business. Remember, cash invested will compound interest, and the more salary and the more cash up front, the faster that compounds. So don’t go to war over a few %. Take the deal if it’s reasonable, because you have NO IDEA what could happen in the public-markets and investor sentiments in the future.

1. Get a lawyer

Lawyers are expensive (no shit). But don’t overspend on lawyer fees. Contracts at the end of the day are about as valuable as toilet paper, until the unlikely scenario where you find yourself being sued (highly unlikely) or negotiating payment terms. Your contracts will almost never be perfect, but there job is to get you close. Negotiating a fixed up front cost to work with you through your primary documents is also important, and I’d recommend avoiding fees on an hourly or a “percentage of the deal” basis. Granted the above applies mostly to smaller exits. If you’re a Unicorn, or a massive business, paying lawyers will far exceed the needs of just a few contracts and it’s likely at that point I’ll be reading your newsletter instead.

1. The value in add-backs

An add-back is a one-off expense incurred by you as an owner that won’t take place under the new ownership. Like a truck for the warehouse, an old employee salary, or paying your lawyer to draft prior employment agreements etc. Add-backs are added onto the EBITDA of a business prior to the exit multiple. For example, if you bought an asset that’s $10,000 and it’s a one-time purchase, request to have that added back onto the valuation. Because $10,000 at a multiple of 3x is $30,000 added to the valuation in the APA (asset purchase agreement). So add-back as much as you can in that first round of negotiation, to help you take home more cash in the first instalment.

1. Talk growth

Investors are hungry to learn more about what business has planned for growth, almost over anything else. Sometimes (actually often), at the cost of your bottom line. This needs to be discussed at a macro-level, not about the product itself, because chances are they won’t know much about the product anyway. Tell the investors how your space is growing, your plans to launch new SKUs, the demand you get from your customers etc etc. The investors want to know your business is going to expand, and quickly. Keep everything positive.

1. It’s always transactional

You must assume that as soon as you sign on the dotted line, you are at the mercy of the new entities investors, NOT the founders themselves. Investors care about the value of the assets (your business) and the stability of their portfolio. A lot of the decisions made by the parent company regarding the direction of your brand, is dictated by the policies and requests of their lenders or equity holders. If your salary, your team, or the business hinders their ability to meet their portfolio’s goals, you’ll find it challenging to prove your role worthy if it means they can reduce their fixed costs.

You can’t control timing…

I was much more optimistic, idealistic, and admittedly naive back in 2019 when we started our first venture. My assumptions about e-commerce landscape were so far off that I can’t imagine having a conversation with my 21-year-old self without thinking he was a complete idiot. But how could I have known any better? The saying "I don't know what I don't know" certainly applied. I’d flown to Houston to stay with friends at the end of 2019, to look for a new job. The business wasn’t making any profit, and I was tired. Eleven months of signing brands, speaking to reps, uploading products, designing the website, running ads, learning SEO, designing graphics, it was all for a $0 return. At the time, I was a graduate student, balancing tennis, my social life, my studies and the newly growing business from my student accommodation at Durham.

But shortly after the pandemic hit, the business grew massively, going from $150k in our first December to $1,000,000 the following March. It was undoubtedly the most chaotic moment in my working career. We were getting up every 90 minutes to check our brands inventory levels, to ensure we could buy all their remaining stock to keep up with demand. We even had requests from our brands themselves, who we were actively competing against from branded terms, to help them run their ads! It was one year later we were approached by Agora with their interest to buy the business. It’s what happened after our exit, that we didn’t see coming.

18 months later, demand for our products fell dramatically. The decline in e-bike demand post-COVID, combined with inflation rates, a drop in consumer sentiment, and rising interest rates, sent many businesses, including ours, into the red. We had been riding the high of what we assumed was an everlasting trend and we were wrong. I probably wouldn’t have gained the same understanding and pragmatism about building a business and recognizing our constant vulnerability to factors beyond our control, if this hasn’t happened. Luckily, our timing was great.

But isn’t it better to be lucky than good? Perhaps it’s best to be both? Lesson learned: TAKE THE DEAL.