Ep 488 Exit Story: Garren Hilow on Selling for $190M, Taking Stock, and Missing His Earn-Out
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Hi there, and welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in a negotiation to sell your company. I'm the executive producer, Colin Morgan, and this week we bring you another exit story.

A conversation with Garen Hillo, who co-founded Averis, a company that helped pharmaceutical firms discover new drugs. Now, Garen bootstrapped the business with $200,000 investment from his co-founder's parents, grew it slowly, bought out his partner using personal guaranteed debt, and then sold the company in $190 million all stock deal. But the story didn't end there. The stock dropped by nearly 90% before Garen could sell.

He missed his earn out, forfeited his role over equity, and still hit his number. If you're interested in founder buyouts, productizing a service, and learning how to survive the emotional roller coaster of selling your company, this one's for you. Without further ado, here's John Morlow and Garen Hillo. Enjoy.

Garen, hello. Welcome to Built to Sell Radio. Thank you for having me, John. Tell me about Averis. What did you guys do? We were an antibody discovery service company.

Oh, my God. Now I'm lost. What is happening? Right. So I knew drugs have to come from somewhere. Big pharma or small pharmaceutical companies need to. Their option is either hire and train their own scientists, equip them with a million dollars, millions of equipment that they need to discover their own drugs or they can outsource it. And increasingly over the past decade or two, they've been outsourcing a lot of discovery research, right?

If you're a company that's raised 50 or 100 million to try to make new oncology drugs, it's more efficient for you to outsource a lot of that R&D than it is for you to hire and train your own scientists. So that's what we did. You guys were the outsource partners for these big pharma. And would they come to you with, hey, we want to test...

with these specifications to treat this disease, go out and figure it out? Or are you basically Greenfield bringing them ideas? Like how involved are they at

bringing you the idea? They would bring us a pretty well-cooked idea. A lot of this is coming out of academia. A new receptor was discovered on a cell, on a cancer cell. And we say, if we drug this, maybe it will kill the cancer. So what we would do is give them 100 or 200 versions of drugs that meet the specification that they gave. And they would go and do all that advancement. So we were just fee for service, as they say. They pay us to do the work. We give them the drugs. They advance it.

The best way that I like to think of it is like the gold rush in California. So many people were rushing out to California to try to find golds.

Very few of them actually hit golds. A couple went home rich. Most of them went home broke. Making drugs is the new modern gold rush. And so the people in the gold rush that made money consistently were the people selling picks and axes to the prospectors. And so that's what we were doing. We were supporting the modern day gold rush in drug development and saving lives along the way. Great. So you've got a pharmaceutical company that hires you and are

They're doing the clinical trials and the tests, but you are formulating the drugs like you're basically getting the very – I don't know anything about pharmacy. Sure. Early stage. Let's oversimplify it. Let's say there's 20 steps between an idea and having a drug that's ready for the market. We would do step two.

maybe step two and three by the time we exited. And then they would take it and do the additional 18 steps required to get that on the market, getting it formulated, manufactured, taking it through clinical trials. So we were very early stage research.

Okay. And so how did you finance it? I mean, are you using cash flow that the pharmaceutical company would pay in advance? Or what was the cash flow model? So, yeah, I mean, we bootstrapped it. My partner's parents, who's my partner, his parents were a firefighter and a real estate agent, gave us a couple hundred thousand dollars by selling one of their retirement homes, income homes. And we...

With $200,000, we got it started, which in biopharma is nothing. They would tell you that $5 million is too small. And so, yeah, and then we cash flowed it. The company would come to us and say, hey, you know, we want these antibodies. We'd say, okay, it'll cost, whatever, $100,000 for us to run that study. You pay us half up front and half when we're done. And...

That's more or less how the business would work. We were very small for a very long time. For the first three years, it was just three of us. Before year eight, we sold at 45 people. So it was a very slow growth in the beginning, but that allowed us to maintain ownership entirely internally.

And was one of you a doctor or pharmacist? Yeah. So I'm an economics major. I'm a sales guy. And I had done five years in the business. And my co-founder was a immunologist, PhD out of Harvard, super bright guy. He ran the lab. And him and I had worked together. We worked together for three years at another company before we launched at Veris. And he had run the lab and I ran sales. So we knew each other. We knew the industry. We knew we could do this. Did you feel vulnerable initially?

To his expertise, and I don't mean this in a disparaging way, but there's lots of sales guys out there. There are very few Harvard trained immunologists. And so I would imagine that the balance of power in that relationship was tilted towards him. Did you feel that? Sure. It also goes both ways. First off, and he his parents put up the cash. I had no money. My family didn't come from any money. So he owned everything.

the entirety of the business, I had like 16% stock options. So the power was all his until year five when we made a big move. But I would argue, John, that there are very few people in the sciences that understand business really well. To get a PhD, you don't understand sunk costs. You don't understand the basics. And they look at sales and marketing and finances like,

below them or sleazy. It's not something they want to do. And so there are very few people who can understand science and how to create a business on top of that. So we were well balanced. Like I couldn't operate the lab and he wasn't going to get $1 in sales without me there. And so we were a good partnership. Got it. Okay. So that's nice to hear. But in the early days, you

He, through his parents' investment, owned 100% of the stock. You had stock options equivalent to 16% of the business in the early days. Okay, great. And so you truck along, walk me through...

The business evolution from there, I understand you reached a point where you wanted to kind of change the capital structure, buy out your partner. Maybe walk me through what triggered that event. Yeah. We had years of slow growth. We were...

It's 2018, so we're four years in. And in March of 2018, a competitor, someone's like a billionaire came up and he wanted to buy us. He was creating a competitor and he pretty much said, I'm going to start a competitor right up the road, invest over $100 million in it. Either you sell to us or we're going to put you under. And through the M&A process, he ended up offering us $2 million in stock, which we were like, no.

not taking stock for the company. But in that process, which was a couple of months, I realized that my business partner and I were just vastly, we were on different pages. We were in different books. Like at the end of the process, he was like, you know, I'm never going to sell this. I want to, I want to give this company to my daughter who was like five at the time. Um, and I'm like, Hey, I'm the CEO of this business. Like I'm getting paid mostly in stock options. I can't be working for a company that's never going to sell. Um,

And so that was March. And then and we were hitting ahead. I wanted to grow it in best scientists we could. Top of the line technology. He wanted to keep it very small and manageable. He was not willing to raise one dollar from external funds. I wanted to raise a little bit that we kept control. It was enough that we were butting heads and it wasn't working. And so that's a pretty big.

Delta in vision, but one where he wants to pass it to his daughter, five-year-old daughter, God knows what she's going to be interested in 20 years later. But anyway, that's another point. And you're wanting to kind of build to sell and build a valuable, sounds like you. Interesting. Okay. So yeah, I mean, it worked in the beginning. It's like, I can run sales and finance and be the CEO and he can run the lab. Perfect fit, right? But we were just off in our overall goal and mission. And that didn't come out for like a couple of years.

Yeah. Wow. Okay. But it did come out. And I'd be curious to know, you mentioned you were taking some of your compensation in stock options. Did you have any salary or was it you were totally being paid in stock options? For the first two years, it was entirely stock.

options and i took a little bit of commission like a tiny i was going to be paid 10 or 20 000 a year for a full-time job i had another full-time job i worked two full-time jobs for two and a half years in the beginning i was a salesperson for an internet tv company it was like um but i was able to be the top salesperson at that company and run a virus they both knew about each other ruined everything was above board but i was working like crazy through my 20s there

Okay. And so towards at this point, you're 2018 in March. Are you drawing a salary yet or is it still just commissions on sales? There would have been a salary when we had the money to pay it, but we usually didn't have the money to pay it. And we had employees to pay. So I would always go without pay. And my business partner had a family. He was reliant on the income there. So yeah.

But if it was a salary of like $40,000, it was like very, very small. Okay. So you're probably paying yourself under market. And in return, you've got 16% of this company, the option in this company. And so what happened next? You go through this process. They offer you $2 million in stock. You realize that you're way off the same. I think you said you're on different books with your partner. What happens next? So...

I ultimately tried to buy the business from him. I, um, we did a valuation and it came back at 2 million. We're like, okay. What was the valuation based on? It was based on, at that point we had revenues. We were doing a few hundred thousand dollars a year of revenue, maybe half a million in revenue. We were technically profitable, especially since, you know, I was barely getting paid and he was barely getting paid. And so, um,

And based on projections, but we've been a business for four years at that point. So there was enough math to do some sort of a back and envelope evaluation. We had a third party do that. So it wasn't like my opinion or his opinion. So June 2018, I offered him $2 million cash. And I was at no idea where I was going to find it. I'd go raise it. He was like, no, that's not enough. I need to see more. July, six weeks later, I come back. All right. $3 million written offer, full, full fleshed out.

He's like, you know, that's not enough. I would need to see five. I'm like, five? That's ridiculous. And this whole time, I'm like recruiting the leadership team and we're building the team. The team's going from five to, what, nine in this period of time. So come November that same year, I was like, all right, final offer.

$5 million. I'll buy you out. And if you don't take this offer, I'm taking the leadership team and we're going to go start a competitive business doing the same thing. And Garrett, just for clarity, are you offering a $5 million in cash? I am. Or...

100% cash upfront. Like that sounds crazy to me. Was it 100% cash? It was, but I had no finance for the offer. I didn't have the cash yet. I was going to have to go raise it, figure that out. But I needed a price from him to go do that. And at that point, I was the CEO of the business. I had recruited almost the entire team. I knew this business. I knew that I could overpay for it and turn it into something great if we did the fundraising and the investment in technology.

pretty much doing the mission that we did for the following few years. And have you got investors whispering in your ear at this point saying, Garen, we'll back you, don't worry? Yeah, I'd had a few meetings with venture capital in the area and it was a hot little area. I could have financed it for sure. I had multiple conversations with VCs and they were happy. I was trying to raise like a million, 2 million, 5 million, maybe,

And they were like, no, no, no, no. Let's take 20 million and go buy something else. Go big. And so I knew that I'd be able to find funding if I wanted to. And I'm really glad I never took that VC money because that would have just totally changed the ownership structure in the culture and what we were doing there. OK, but all right, let's go back. So so you offer him two. He says no. You offer him three. He says no. You offer him five. And what does he say? OK.

He he was like, Matt, he said, no, absolutely not. And do not ever bring this up again. And I was like, I just need to be clear that like at this point, he was personally guaranteeing over a million dollars of debt in the business. His house was totally collateralized on the line like this is it. And he didn't believe me. He was like, no way. I'll talk to the rest of the leadership team. There's no way they're going to follow you. Like, all right.

So at that point, after that conversation, I filed the business. I worked through the end of the year. December 31st, I resigned as CEO. Jared, did you have a non-compete? Nope. Okay. You resigned as CEO. Yeah, okay, cool. And it took like a week for him to come back and be like, he met the rest of the leadership team, realized that I was real, that I was leaving and taking them with me. And...

He gave me a call. All right. So five million dollars. It's like, absolutely not like, no, I'm out. And so he went out and tried to find other bidders. The business was just struggling at this point. We were barely there was not enough money for me to pay my own salary as CEO. So like just struggling. And it wasn't it wasn't until February 2019 that he finally came back to the table and was like, all right, Garen, you buy this.

And there was a lot of back and forth negotiation that kind of got yucky. But I ended up buying it for $2 million.

but there was only 25k cash. I paid him 25k cash, a note for a couple hundred thousand dollars. And then I personally guaranteed my wife and I's house to cover the loans. So at that point, we had over a million and a half of debt, which was personally collateralized by him. So I took over that debt, gave him a note and a little bit of cash up front. He kept 10% of the business. And

And he moved on. So I had a great lawyer who helped me do the deal. I just want to understand the math. So $25,000 cash, a $200,000 note from a bank or- Just a personal note from me to him to be paid over the next few years. Okay. And then, sorry, the $1.5 million was a bank loan or- It was a series of bank loans. It was multiple bank loans that were backed by the SBA. And then there was another loan to-

essentially a loan shark that allowed us to lease equipment. Okay. And you were personally guaranteeing that $1.5 million. Yeah. Like my wife and I saved for like seven years to buy our house. And with a one-year-old, like six months later, we collateralize it to the bank. Like we had a hundred K in equity and they let us do almost a million and a half of debt collateralized on a hundred K of equity in the house. I was blown away that that was even possible, but it was all above board and it worked out. Yeah.

Wow. And the seller kept 10% of the business, which is below, I think, the threshold in the United States for the SBA to personally guarantee. So he was off the hook effectively. You had a $200,000 note to him that you were paying off.

Effectively, if everything went terribly, the bank was first in line to get the $1.5 million and they would have gone after your home presumably if that was necessary or tried to work it out. That's all there was. This sounds crazy. It was nuts, man. My friends thought I was nuts. What do you mean? What is your spouse saying at this point? Everyone should have a spouse like my wife, Katie.

She was all in. She was with me. She believed in it. We, we, there was a decision we made together. And part of one of the things that we did was to plan our bankruptcy. Like, all right, this could happen. What's going to happen. We had a one-year-old, we plans for more. I called my parents up in New Hampshire. It was like, if this goes under, can I live in your basement for a while? And like, I'd go work for somebody else for a while. And, um,

Fear of bankruptcy is one of these irrational things that a lot of us carry around. Bankruptcy is this beautiful gift from society to entrepreneurs to encourage you to start businesses. And as soon as you stop being afraid of it, you're able to execute really well. So we planned our bankruptcy. Tell me more about your bankruptcy plan. So you said you could go live in your parents' basement. You had a one-year-old at the time. Was your wife working? Yep, she was working full-time the whole time at a tech company.

Okay. So did she, if dire straits, was she earning enough to kind of keep you guys afloat? Almost. Okay. Okay. So there's sort of a little bit of security there. You've got your parents to lean on if need be. Okay. That makes sense. So what happens next? So you buy your partner out for a couple million bucks, most of it's debt and a note from him. Yeah. What's next?

We executed the plan at that time while all that mess was going on. One of my friends introduced me to your book, Built to Sell, and I loved it. Because I, at the time, I was building the business around myself. I was the CEO. I was critical to all of these things. And so we just grew the business in such a way that it could sell. We...

So first, I raised a million dollars after going out to look at venture capital and money. I decided that is absolutely not for me and it's not for most people, in my opinion. I ended up raising a million from what I call dumb money. They're not not dumb people. They're just people who are not professional investors. So I have five investors to put in a total of a million dollars.

We did a safe safes weren't a thing back then. So it was convertible debt. They got a 12, 12 percent of the business for that investment. We invested in next generation technologies and hired some great scientists. I went all in on the whole built to sell model. I was the top salesperson. I would present at conferences. I was I was a lot of the business.

year after I bought it, I promoted my COO to be the CEO. Like the, if a business can thrive without you, you need to just prove to a buyer that this business can thrive without you. I was like, let's go all in. If it's someone else is running it, that's the best proof that it's sellable someday. Um, instead of me doing all the sales presentations, we put other people up there, um, productized our service, spent a couple of years getting our foundation, right. And, uh,

That was transformative for our business. And we were almost doubling every year at that point. And we were up to just under $10 million before we went to go sell. Okay. I want to get to the sale in a moment. But for folks, I just want to dig into sort of how you went from being the hub and spoke in the business to being built to sell. So what I've heard so far is you promoted your CEO as a CEO. Impressive.

In part to optically show to the world that you had someone else running the company. You brought in professional salespeople to replace yourself as the rainmaker for the company. These are two great points. You also said in passing, you productized your service. What do you mean by that? And what specifically did you do? I didn't even really know that was a thing until I read your book. So what we were doing as a service, right? Companies would come to us and say, we want these antibodies made. We'd make them and then we'd take the money.

by making packages of our custom service offerings. Instead of everything being custom, we had three packages, good, better, best.

People would show up and be like, I'll have the better, please. And they'd expect to pay much more upfront. Early on, we were charging a little bit upfront. Later on, we were getting half upfront. Billing as we go instead of at the end. We added a little guarantee. And that guarantee was just like, if it doesn't work, we'll try again for free, which is something that we would have always done anyway because you have to make customers happy. But that little guarantee allowed us to charge like

20% more and then like 50% more. People loved it because we were doing a science. You can't guarantee science. But our guarantee, again, it was just like, we'll try again if it doesn't work. And those things really changed from what felt like a custom product, sorry, custom service to a product that they could buy. Our marketing made things much more simple. We had case studies out everywhere. And those changes allowed us to do, again, higher price, more upfront,

much more referral business. My salespeople went from explaining what we do and how everything goes to picking up the phone and being like,

Taking orders, more or less. And it's still a very complex business, but it vastly simplified the sales process for us and our customers. Got it. And so you had these three packages, good, better, best. And just for folks who might want to pursue the same sort of strategy, what was the biggest difference between the good, the better, and the best plan? Hmm.

It was a scope of work. It was a different scope of work. We would try harder, more or less, between good, better, and best to not get into the simplicity.

Bigger packages. So you productize your service, you get the CEO in place, you get salespeople, and you're growing. You mentioned you were doubling each year. How big did you get the business before you decided to sell? We were between $8 and $10 million in 2020, which was the year that we decided to sell. And we went through the sales process in 2021. Okay. And what triggered that decision?

The market was ridiculous. Like all of our competitors were selling for way more than they should have. There was a big COVID had just happened, right? People went from not knowing what an antibody was to all of a sudden, everyone in the world needs antibodies. Like the primary treatment for COVID were antibodies. And in order to move any vaccine forward, you need a bunch of antibodies to be able to pass that through the FDA. So we were massively in demand. The whole market went crazy. Um,

I was also tired. I was eight years in. I was carrying this massive amount of stress because we had barely any cash ever. And if the business went under, I would lose everything. You're still personally guaranteeing the debt on the business? I went in deeper. We kept deeper, deeper, deeper. Once we were all in, we might as well just like keep going all in. Every time the bank will let me take out more debt, I'd take out more debt. Yeah.

And personally guarantee that. Had to. No one would give me money unless I personally guaranteed it. Because I didn't.

the business wasn't good enough to be able to get more debt without a personal guarantee. But there is a point where with a personal guarantee, it kind of becomes moot, right? Like if your home is worth 2 million and your stocks or whatever, eventually if that personal guarantee exceeds everything you've got, it's kind of infinite. Right. And that's what I'd explain to people. It's like when you're all in, why not go further all in? Like our options are this succeeds and we hopefully hit our goal. We had a goal of making $20 million. Right.

Or if it fails, we go back to zero. So like taking out more debt is just an obvious yes. Our downside is exactly what it was before we took out more debt. Yeah. And you're right. The first time I think I've really thought about what an antibody is, unfortunately, it was around COVID. And I was thinking about it because you're bringing, triggering back all those memories from like April of 2020, right?

where everybody was talking about antibody treatments and this must have been, you know, in some ways a windfall for you. What did you, were you offering to work on COVID related drugs? Was that part of your offering? Yeah, absolutely. I mean, we ended up working on 12 different vaccine programs, including some of the ones that were eventually marketed. Wow. Okay. Yeah. Yeah.

When COVID hit, I had two weeks of cash in the bank. We had just spent a bunch of money on to prepay for a bunch of marketing that summer to go to conferences that never ended up happening.

a lot of my competitors and a lot of my customers closed their doors. They said, everyone go home, come back in a couple of weeks when this is all over. Um, and I was like, I can't close my doors. If I close my doors for a week, we go bankrupt. And so it's like, everyone has to come to work tomorrow. We're mandatory. It's like nurses not going to work. You have to, we are the people that will solve this. And, um,

Almost all of our orders went away when customers closed and financiers got nervous. And then a couple of weeks later, people were like, wait a second, someone needs to go to work to actually solve this. And my whole team was there. And so we went from having a lot of access capacity to being 100% booked at full price, a waiting list. We were the people doing a lot of the heavy lifting that got the vaccines approved and a lot of the treatments moved forward.

Got it. So you're around $10 million in revenue at this stage. Do you hire a banker to take you to market? Are you fielding? How did you mechanically go out and get offers for the business? Yeah.

We did hire a banker. I'm like a great sales guy. And I always pictured that my biggest deal my whole life would be selling the business. And I'm so glad that we hired a banker because my goal was to sell the business for like 50, $60 million. And I thought that was ridiculous at 10 million in revenue. Our IP wasn't patented. It was a trade secret because we didn't have the money to pay for a patent in the beginning. And so I just didn't see that as possible. And then we went out to bankers and the banker was like,

We interviewed three and the lead one who is just clearly understood our business and had sold service companies in biopharma before it was like, we could sell you for 120 million. And I was like, that is ridiculous, but let's go. And they overachieved on that. I'm so glad that I hired a professional banker to handle that process because

And I would suggest that for anyone running a real business that you do that. Yeah. Yeah. Well, let's get into that. So you hire the banker. What was the most surprising thing about the way they marketed the business? Again, you're a sales guy. So I would imagine that not much would have surprised you. But was there anything that you saw in the way they positioned the business or the way they sort of talked about the business, the narrative they strung together that we were like, ah, why are you doing that? Or what's behind that?

Yeah, there was a lot trying to put my finger on a few things. Like we worked with them for almost six weeks of intense work. And they, the, the deliverable of that was like a one page description of our company. And we looked amazing when they were done. It was like profitable and growing. And they did write-ups on our team and our team was like a lot of elite people, a lot more than me. And they looked amazing. Like they made our company look so good. Um,

And then they brought it out to just a vast number of people. I figured that we'd go to a dozen competitors and we went to 30 competitors and 100 private equity firms. And they did like 60 or 70 NDAs. So they got to see all the information. So they made us look amazing.

And then they brought us to so many people that I wasn't even aware of and ran this huge process, which resulted in, we got 12 bids, which is a lot. And then we're done. And are you, do you tell your employees that you're going to market at this point? No, at that point, it's a really small circle. It's the CEO and I, her and I knew that this was happening. And then it was extended to the leadership team once it got real, but

And then I was too loud in my office one day and my sales team figured it out because we were all in one little sales pod. And so eventually the sales team was brought in and sworn to secrecy. But everyone had stock options. All 45 people in the company had stock options. So they were incentivized to sell hard and keep their mouths shut, which was good. Got it. Got it. Okay. That's helpful. I was wondering about that. So you've got a team that's kind of pushing towards this goal and

Tell me about the kind of reaction from the marketplace. You mentioned they went to a lot of potential acquirers, everyone from strategics to private equity. How many LOIs did you get? What was the reaction like? The reaction was bonkers. This was right after there was a major IPO in our market, Abcelera, which is a company that only had tens of millions of revenue and IPO-ed for $5 billion valuations.

So there were a lot of bidders, a lot of people I think had missed out on a few of our competitors that have sold and they jumped in. So I think we had 12 LOIs, letter of intents, proper bids. I'm going to maybe mess up some of my terminology, but it was a massive amount of demand.

And we went through multiple rounds of bids and they were like, the first round of bid came in like 50 million to 80 million for people to buy the business. And I was like, sweet guys, let's go. And the banker was like, Oh no, we're pushing for more. And the next round came in at like a hundred to 120. And I was like, all right, cool. Wild. Let's be done. The bankers were like, absolutely not. And we went out and they pushed the bids higher and they came in between, you know, 120 and 180. Um,

So then we did management presentations with six companies, with six potential buyers, which was like a lot. So that means you spend four hours going through diligence. You spend four hours having a fancy dinner. It was a lot over the course of two weeks. It's just like wore me out. But then they all bid up again and we ended up taking these higher bids. And so what was the toughest question to answer during management presentations? Like what was the zinger? What was the most surprising question that caught you off guard?

Everyone wanted to know whether or not I was going to stay. And that was a tough one for me to answer because I wasn't really sure. I was pretty burnt out and had no idea how burnt out I actually was. And then... How did you answer that question?

I tried to be a little truthful, but I also like in my heart, I knew that I was done, but I knew they wanted to hear that I was going to stay. So let them know, hey, I'm going to stay for a while. I'm sure we'll have an earn out period. I'm going to stay through that. Like, I love this business. This business is everything. It's the most proud of anything that I've built other than my kids. I want to see it succeed. And so I felt a little disingenuous here and there.

I wish that I would just been more honest because I think the buyers would have been okay with it. Well, who they really wanted was my CEO. She was exceptional. Like MIT trained scientists, they wanted her. And I could have been more, the outcome would have been better for me if I had been more honest with myself and the buyers, I think. How did she answer that question? Well, she was stoked to continue to keep going. I mean, she had a solid amount of stock options. She was going to do fine in the deal. Yeah.

She was excited to grow. She was excited to grow the business, excited to grow inside of a bigger organization, whether that was PE or strategic. And that's how it worked out. Got it. So you go to these management presentations. Out of interest, what proportion of these deals, I guess it would be different based on all six of the finalists, but are they offering you cash or stock? You mentioned $100,000 to $180,000. What do they offer? What's the currency?

A lot of them were cash and one of them was stock. And I chose the highest cash bid initially. It was $140 million cash, like 120 upfront, $20 million earn out. And we jumped into diligence. We did the full... There was a 60-day diligence period. And on day 59, they backed out of the deal. Oh, wow. What was their...

What was their rationale for backing out? We were a little bit behind on our sales numbers and, um,

I mentioned earlier that our core IP was a trade secret, genetically engineered mouse that we use to make antibodies faster. It's kind of the core of the business. And we didn't patent it. And the day before closing was the day that we revealed to them what our IP was. And they were like, that's too simple. Like CRISPR had come out, there were advances in science. So it would have been relatively easy to recreate that trade secret. So it was a combination of faltering on our sales, which is partially because my team and I are focused on other things, and that they didn't like the trade secret.

That was a tough day. I was at the end of my rope. So I was burnt out when they backed out of that deal. I would imagine. And did they try to retrade? Did they say, hey, we can't pay 120 and 20, but... No, they just peaced out. They were like, nope, done, not touching that. No retrade, nothing. That was on my son's birthday. My son turned four that day. That was like one of the hardest days of my life. I was like...

We're going to close on this. We're going to change his life forever. No. What would you have personally stood to gain on that offer? I own 62% of the business. Right. So a lot. Yeah. Yeah, for sure. That's incredible. So then like the bankers went back out to the other bidders that...

you know, that didn't, that we didn't move into diligence with and twist biosciences was the only one who was still interested in their deal was all stock. It's like, all right. Okay. Let's talk about that. So, so, so you had this kind of feeding frenzy, 12 offers, uh,

We went on down to six management presentations, six LOIs. You go with one and they back out at day 59. Some people listening would be like, well, why would the other five all of a sudden get cold feet if they were so hot to trot before bidding up from 60 to 100 and 107? Why would they all of a sudden get cold feet?

I'm not entirely sure. That's one of the things that drove me a little nuts about the process is that my bankers had all those conversations and I didn't get to be totally privy to them. My understanding is they went back to the other five and said, you all need to up your bids like substantially and you get a chance to buy this again. And I think they went in a little strong, but twisted. They upped their initial bid was 170. They upped it to 190 and we marched forward and the other ones didn't.

Either weren't willing to move fast or weren't willing to come up. And they were not viable options a couple – like a week later. Interesting. Okay. I think that's one of the dangers of a broken deal, so to speak, is that everybody's kind of radar goes up when a deal breaks because they're like, okay, what did they find in diligence that was –

that caused the buyer to get cold feet. And I mean, Twist was a major competitor and somewhat a partner. We'd done projects for them. They knew our technology worked really well and we were beating them to deals left and right. And so for them, I think it was less risk than a lot of the other, all the other ones were private equity bidders at that point. Um,

Okay, so they offer you $190 million, but it's all in Twist stock. Yeah, which is a publicly traded stock. So I was supposed to be able to liquidate within like three weeks. So I assumed that that was a low risk situation for me, but that didn't quite pan out as the story goes on. Okay, what happened? The day before their deal closed, they waited three months of diligence with Twist. The day before signing...

They came back and said, you guys are a little bit soft on your revenue. And Garen, the only change that we're going to make to this deal is that all of your employees can sell their stock as soon as they can. But you, Garen, will have to be locked up for 18 months. I could sell some every three months for 18 months. And their stock was about $120 when the deal was closing.

Like, all right, deal. There was no other option at that point. And so I ended up saying yes to that change the day before signing, which just slowed down my ability to sell.

Okay, so we're going to give you stock. Originally, you thought I can sell this within three weeks. And so it's effectively like cash, as close to cash as possible. It's a publicly traded company. How, I don't know, twist. So how thinly or heavily traded is the stock? Like if you had sold whatever $60 million worth of stock, would it have tanked the stock? Yes, that's why they didn't want me to do it. Yeah. Okay, got it. Got it. And their stock was very...

Their valuation from COVID went from like $2 billion to $5 billion very fast when the biotech market just got ridiculously hot. Yeah. Yeah. Okay. So they're like, we're going to lock you up here for 18 months. But your employees could sell because, of course, they had lesser amounts. It wouldn't tank the stock. What about your CEO? How did they handle her? Yeah.

They loved her. I think she was one of the primary reasons why we got such a great valuation of the deal. And rightly so. She's one of the most capable people that I know, Tracy Mullen.

They almost immediately promoted her. When we were integrated into Twist, it was like two months later, the COO of Twist ended up leaving the company and they promoted her to go manage a lot of what he was doing. So they took her away from us during our earn-out period, which I got very frustrated with. But it was great for her career. She went from a world where she was getting...

A salary that was below market through stock options to just this ridiculous package for her to go be a senior executive inside of Twist. And so it was a great thing for Tracy. Great for Twist, too. Yeah, amazing. How did they handle her stock options? Was she able to sell? She was able to sell. Everyone but me was able to sell right away. Okay. That's interesting. Okay, so...

What happened to the stock during the 18-month period? That went from $118 a share from closing day to $18 a share the day that I was allowed to finally sell. And I sold it all. And the stock now is at $50. So that was like a pretty poor financial decision for me. But I just wanted to get out and take my cash and be done with the ride.

Yeah, yeah. And just walk me through, you said it nonchalantly, I mean, that can't have been...

a good feeling to see the stock dropping every time you open your web browser during the 18 months. Like what was that period like for you? It was one of the more difficult periods of my life, John. I had built this business. It was everything. I was working six days a week, sometimes more than that to keep it going. And then even more to sell it. I didn't give up my baby. I was like a piece of my identity. I lost when I sold it.

And then, yeah, to watch the stock fall every week was tough to watch my team struggle to get integrated. Well, we went from one tight knit team to like the marketing team reports here and the sales team reports here and ops is over there. And so like everyone, even though we're all in one building, we all now had different bosses scattered across. It was just a very challenging time in my life. I, I was burnt out. I, uh, yeah, it was not a great time. Um,

financially we were doing great. Like it's like a first world wine problem. Okay. Garen. Yeah. You're a millionaire now. And you're like having a tough time. Okay. You know, um, but it was a different world. Right. Like you're a million on a paper and that. Sure. As soon as I was able to sell my first tranche, I was a, I was a wild millionaire. And so it was great. Yeah. Uh, yeah. Difficult time. I could have handled it better for sure. I should have taken more vacations. Um,

But you live and you learn. What was the earn out tied to? Like, what was your... The earn out was entirely tied to revenue. And we needed to hit a revenue target in order to get there. And if we got within 75% of the revenue target, we got 75% of the earn out. And we got to way beyond 90%. We were beyond 95% of the revenue that we needed to hit to get our earn out. But we didn't hit it. So we didn't get any. You got zero? Yeah.

Zero. Yes, we got zero of the earn out after hitting. Yeah, we were very close. So Torrey, maybe I misunderstood. I thought you said if you hit 75% of the revenue, you'd get 75%. And we fell just short of that 75% number. Okay, got it. Okay. Just like a hair short and you got nothing. How long was your earn out period? One year. One year. Okay.

And I've rolled over 30% of my equity and I needed to stay for two years to get that. And after a year there, I was done and I left. So didn't get either of the rollout or the earn out. The lesson there is that like just to be...

Be okay with whatever you get up front. And I was glad that I was okay with what we got up front. My stretch goal for my wife and I was to make $20 million. We needed to sell the business for $60 million to hit that goal. And so, though, sure, maybe we could have done many times more than that. Where we ended up finishing was about where our goal was. And I was upset for a while. But then you look back at this life-changing decade where, I mean, we went from...

Neither my wife and I came from money at all or lower half of middle class at best to being able to buy new cars, whatever we want. Like it's just a total life changing intergenerational wealth was provided. And so though I could be sour that it wasn't more during that time and I was now I'm like that was the best experience of my whole life. Not only do we.

make serious money, but it provided such great experience that I'm 36 right now. I can go do whatever I want. It's fantastic. It just took me a little while to get past that. Yeah. Yeah. No, for sure. You mentioned something in passing that I wanted to begin to do further. So with regards to the earn out, you didn't get anything for that because you felt just short of the first sort of tranche or threshold. Yeah. I understand that. Then in passing, you mentioned that you chose to roll some equity and

And you gave up that as well. Was that tied to your employment in the company? It was tied to my employment. Oh, okay. So you rolled this equity, which was going... Were these stock options or true equity? It was restricted stock. So it was 30% of my take home. And it wasn't my choice. They made me roll it over. Tied to employment for two years. And after almost a year there, not hitting the earn out and just... I was burnt out. I needed to go. It was the right move for me to go. Though financially, it was a hit.

You mentioned also that you're CEO. And again, the reason I'm asking is many of our listeners will have to sign up for an earn out and the best...

we can do is sort of educate them about things to avoid or things to sort of try to negotiate for. You mentioned that your CEO was removed from your company and moved off. It was good for her, but it's bad for you. Maybe walk people through like, how is that possible? If it's your company, you're running, you're trying to hit an earn out. How is it possible that she could be removed without your blessing?

Yeah. You're poking on a real sore spot, but you're, that's a great question. Right. Um,

What they ended up doing was to say they moved her across the country from here in Boston to Portland, Oregon, to go run the role that they needed. But they said she's still responsible for all of the work. She's just got to do two jobs. So on paper, it looked like she was doing both. It put her in a tough spot. And yeah, I mean, my legal team was rearing to go to go after them to go get some of that funding. But it would have been...

millions of dollars of legal fees for me to try to sue that out of them. And that just makes me angry. It's not a good look to sell a business to someone and then go sue them. So I didn't... I have aspirations of going on to do more businesses. I don't want a future buyer thinking, hey, Garen's going to sue me after he just made life-changing money out of this. So there was definitely...

It got a little messy. There was the potential for a suit, but I just decided not to go down that path for the reasons that it's described. Yeah, yeah, for sure. When you agreed to the stock deal, what was your calculus? Like, how were you thinking about once you'd agreed that, yeah, you would take that money over 18 months? Like, walk me through your headspace. Like,

what are you thinking at that point? Yeah. At that point I'm thinking, Hey, I put one more year into this and it was a hittable number in my opinion to hit the earn out. And I mean, obviously we almost did, um, that I would just go for it. And, um, I was tired. I knew that I was tired. I thought that I was probably a little burnt out. I had no idea how bad that was for me. Um, until later on, um, I figured we'd go for it. I thought it would be all right. And then, um,

But I was very frustrated. I was like hurt. Like when when the buyer would make decisions that I disagreed with, I was I'm very bad at being quiet. And I ran my mouth way too much, which just put me in a terrible position with the buyer. So one thing that I wish that I had learned earlier was that as soon as I closed that deal, it wasn't mine anymore.

And I can have an opinion, but I can't be disrespectful and I can't speak the way that I would speak when it was my business. And I was better off just being quiet and going back to do my job. I fought all these fights that I lost and didn't even come close to winning. And I just got totally, I mean, it was a thousand person company. I got totally demolished in the political game in the first month and a half. And I didn't even know that I lost until like nine months later. Yeah.

That's funny. I guess my question was more around the stock itself. Okay. Did you, like, what was your diligence against the value of the stock? Did you do anything to understand? I think you said it was trading at $118. Like, the intrinsic value, you mentioned it had gone up. Like, are you starting to think maybe it's not worth $118, but it's got to be worth $50? Or like, are you doing any of that math in your head? Yeah.

Yeah. Yeah. I mean, it was clearly a little overvalued. The entire market was overvalued. It's like two weeks after we closed, we closed on December 4th. By the end of 2021, the biotech market had collapsed. It cratered. We got in just in time. And yeah, I thought, you know, there's no way, there's no way it's going to go below 80. And then it did. And I was like, there's no way it's going to go below 60. And then it did. And I was like, there's no way it's going to go below 30. And then I was like,

But the day I could sell, it was 18. And I was like, get out, get out. And I just, it was not entirely rational. My financial advisors were like, we could hold on to a good chunk of this because it's likely to come back. I was like, get out, get out. They were right. But who's to know, it might have gone nine or it might have gone to 90 cents. I mean, biotech is notoriously-

very, very speculative in large measure. So, okay. That's helpful for sure. Got it. Okay. So you mentioned burnout. I'd just be remiss not to ask you, like, what happened? You came to some realization? Did you go to therapy? Like what happened that enabled you to kind of reflect on how burnt out you were?

I've been working with the same leadership coach for years and done a little bit of therapy. But really, the year that we sold the business, the business COVID hit. We barely kept it together, forced all my employees to come in. At that point, I had a second child. So I've got a baby and a three-year-old at home.

And for almost an entire year, I didn't take a vacation for through 2021. I was like scaling the business as fast as I could. And then we're going through diligence with the bankers and fixing our books because we sold like three years before I imagined we possibly would sell. So the business wasn't ready to do all this accounting work. I worked Saturdays like the entire year. My family went on vacation. My family went to Disney World and I stayed here and I did my work. And, uh,

And then when we finally, then we finally got through the first diligence period. And I'm like, thank goodness. Now I get to take a vacation and the deal fell apart. And we went into 90 more days of diligence and I'm,

I just gave it my all. I didn't have the staff to rely on. I had to continue to help contribute to sales, keep the business running, not let most of the employees know, try to be a decent dad and husband at home. It was a lot. It was a lot. And then as soon as we sold, I was like, hey, new boss.

I am the definition of burnt out. I need some serious time off. And his answer was, sorry, you're a new employee. So you actually haven't invested any in any, any time yet. So you'll be allowed to take a two days off at the end of your first month. I was like, no way. And I just took a week off and that came, that was really bad. They did not like that. Um,

And then like every six months after the deal closing, I was like, whew, I used to be burnt out. And then like, again, six months later, I was like, wow, I'm really coming back. And it took me almost two years of...

fishing and farming and dadding to kind of come back to where I am now, ready to be back out into the world. And I didn't even believe in burnout. I thought that was just tired or people whining. But it's real. Oh, yeah. Yeah. Yeah. Yeah. Well, listen, I appreciate you sharing the story with us. It's a great story. And there's lots of twists and turns and a ton of lessons for my listeners. So I appreciate it. Are you up for a quick lightning round of questions before I let you go? Oh, that sounds like fun.

All right, let's do it. So what was the slimiest trick an acquirer tried to play on you, preying on your naivete in the process of selling a business? Yeah, it was like a competitor who was like, I need to see your top 20 customers. And we were like, we gave it to them. And that was so dumb because then they just tried to poach them.

competitor in the process of the 12, as part of their research, they wanted to understand who the 12 was. Yeah. And they were like, well, if we have all of our customers overlap, we don't want to bid. And I was like, it doesn't... Anyway, I should have just said no. Okay. I think I know the answer to this question, but I'd be curious to know your answer. What was the biggest mistake? If you could do it all over again, the process of selling from start to finish, what would you do differently?

I'd let less people know inside of the business and I would keep some gas in the tank at the end. By the time the deal with Twist was buttoned up, I didn't love it. But our leadership team had no gas in the tank. I had no gas in the tank. We like had to sell or everything was going to fall apart. So it would have been nice to have optionality. By the time we sold, we had to sell or it would have fallen apart.

On the show, we hear this idea again and again that selling a business is an emotional roller coaster. It's very high highs and very low lows. Can you remember the moment in time where you were what you were doing that you would describe as the highest high you experienced and what was the lowest low? And again, I realized there was sort of this burnout period, which was...

But I'm looking for like a moment in time, like what you would describe as the highest high. The highest high... Well, the lowest low, I'll start there, was on my son's birthday when the private equity firm backed out. And I just went from thinking that I was going to change his life on his birthday to just absolutely being crushed because I thought that the whole thing was going to go under and no one would buy it. The highest high came before that. It was...

we started with a, in April, we started with the banker and in,

July would have been July. We got bids. And I just didn't believe that anyone was going to pay. And when we got bids ranging between $100 and $120 million, John, I went home to my wife and I showed her. And I, yeah, I cried harder than I think I've ever cried that night. I was just like thrilled. It was like the weight of the world was off of me. And I had a clear path to getting out of this business, which had been a

of proud, but an immense amount of stress. It was like when those bids came in, I was like, this is gonna happen. And I still remember that joy. - That's so cool. That's so cool. I'm so glad you shared that. I think, you know, we work so hard

to build a business. And then that letter of intent comes in on the, like with the logo at the top and it's very official sounding language. And it puts a number on your life's work. And all of a sudden it's real. It's more than I thought it could be. It was like, it was an amazing day. Yeah. Yeah. Yeah. Of course, as we learned as in your story, it's not real yet. Yeah.

You were already very generous about Built to Sell. So thank you for saying that. But were there other resources you could point our listeners to that you found helpful kind of preparing yourself for this process? Any books, audio books, you know, courses, speeches, YouTube, anything that you could point our listeners to?

I'm an avid reader. I've probably read over 200 business books. And there isn't other than Built to Sell would be right up there. Pitch Anything by Oren Klaff is another one of my favorites.

It's super basic, but how to win friends and influence people because it's easy to get overworked and kind of nasty during that period. Just remind yourself to be a good person. Nothing, though, is more helpful than my peer network. I'm part of an entrepreneurship group. There are 10 of us. We've been together for eight years now. There are bigger national of these, but it was put together by one of my professors. And that group called Imprenditory was so helpful for me.

To keep it together, there's no way I would have bought the business as well as I did or scaled it as well as I did or sold it as well as I did if I didn't have a group of peers. And the key thing there was that they were not in my industry. So I could be totally honest with them.

in a way that I couldn't be honest with anyone. I can't just go vet this to my wife every day. I come home and she's working full time. We've got two kids. I can't vet this to my leadership team because I need to be confident for them. Having a group of peers was everything, everything. Yeah, huge. And we're huge proponents of this idea of having a mastermind or peer group. And so that's fantastic.

Tell me you bought yourself some sort of trophy to commemorate the win. Oh, absolutely. It's a boat. It's a big old fishing boat. I love ocean fishing. I can fish ace and striped bass and tuna. So yeah, I bought this big 30-foot boat with two 300-horsepower engines on the back. And the year that we sold it, I think I spent 60 days fishing. A lot of those with the kids and the wife and with friends. And so...

And we bought our forever home where I am now. Those are the two real, like when we planned our bankruptcy, we also planned, what are we going to do if we actually made $20 million? What would we do with it? Like buy a compound where we could have our whole family for any, any event and a boat and a college fund for the kids. We're going to be good. And that's a good feeling. Check all boxes. Amazing. The boat brand, is it a whaler? I went with a greedy white.

Say it again. Grady White is the name. Grady White, 30 foot, two twin three. Could not suggest it more. It's a fantastic vessel. All right. Well, we'll, we'll look it up and. When you do a deal, we had to come up with like a fake name for the process. We called it the, the Nautilus project. And that was our like, so it's on our calendars that people could see. And so when it was time to name the boat, that was super easy. It's called the Nautilus. Yeah. Awesome. All right. Well, we'll look forward in the, uh,

in the waters around Boston. I, uh, I appreciate you taking the time to share your story. If folks want to reach out and say hi, Darren on, on social media, what, where's, where's the best place to do that? Yeah. Hit me on LinkedIn. I'm posting a lot now. I'm working on a book to share a lot of my story and the entrepreneurial lessons. So I test a lot of my content on LinkedIn while I'm writing it. So hit me on LinkedIn. I'd love to connect. Great. Darren. Hello. Um,

Sounds like pillow spelt a little different in the show notes at built to sell.com. Garen, thanks for doing this. Thanks for having me, John. This is a blast.

And there you have it for today's episode between John and Garen. If you enjoyed today's episode, then be sure to hit that subscribe button wherever you're listening to today's show. And if you want to help support this podcast, I encourage you to leave a rating and review. Also, as a reminder, you can watch this full video interview over at our YouTube channel at Built to Sell, where there you're going to be able to see all the interactions between John and Garen. For

For show notes, including links to everything referenced in today's podcast, you can visit Garen's episode page, which you're going to be able to find over at builttosell.com. Special thanks to Dennis Labataglia for handling today's audio engineering. And thank you to our community of certified value builders who help us bring our message to you. Our advisors are experts in helping you build the value of your company. To get in touch with an advisor or learn how to become one yourself, head over to valuebuilder.com. I'm Colin Morgan, and I look forward to talking again next week.