5 lessons learned from our first acquisition
Yesterday we made one of the biggest announcements in ConvertKit’s 8 year history. When I teased it on Twitter a few people correctly guessed it was an acquisition. But they assumed that ConvertKit was the one being acquired.
Nope, around here acquisitions only go one way: with ConvertKit as the acquirer.
In our fully transparent style I wanted to write a blog post sharing how it all started. While I can’t share every detail (like terms of the deal), I’ll share as much as I can.
How it all started
Over the last two years we’ve been bringing more and more musicians onto ConvertKit. That started with Tim McGraw and then this last year we expanded with Drew Holcomb, Josh Abbott Band, Mary Lambert, and many more. A lot of that driven by Creator Sessions, our pivot to virtual at-home concerts when COVID ruined our event plans.
With our initial traction we started forming partnerships with agencies, managers, artists, and other music industry veterans to get more artists on ConvertKit.
In September 2020 we recorded a ConvertKit Creator Session with Mandy Moore. She had released a new album, that was really personal, and she wanted the opportunity to share more behind-the-scenes stories. After watching a rough cut, I was thinking about how amazing it would be to have her on ConvertKit. So I did what I always do: go to the creator’s site, then open browser dev tools to see what email platform they use.
That’s when I saw FanBridge. I’d first heard of FanBridge back in 2017 when I met with the music team at Paradigm, a huge talent agency. In a world where marketing platforms try to serve every kind of customer, I really admired how FanBridge focused specifically on musicians.
After digging around on the FanBridge website for a while, I found a phone number. Without thinking much I just dialed it.
I’m not sure what I expected. Maybe a voicemail box or a phone tree to navigate for each department. What I didn’t expect was someone to answer right away—requiring me to think fast and make up a reason for my call.
I said I was a manager, representing a few different artists, looking for a new email platform. A very helpful person named Scott—who I later learned was FanBridge’s general manager—talked me through the platform and answered my questions about the benefits, types of clients we serve, and their long-term development plans.
I later heard from Scott and Noah (FanBridge’s co-founder) that after I got off the call Scott thought something seemed odd about it. A music manager in Idaho? My 208 area code had given me away. He did some digging and quickly tied the number back to me and ConvertKit (yes, I called from my cell phone).
If you ever need to hire someone for corporate espionage, I’m definitely not your guy.
A week and a half later I sent an email to Scott (as me, not my music manager alter ego) to see if they were interested in an acquisition.
Scott got back to me right away and said he’d talk it over internally. Just after that we scheduled a call.
On that call I learned that Noah had two companies, FanBridge and Stensul (which spun out of FanBridge a handful of years ago). So while he focused on growing Stensul and was still on the board, Scott was running FanBridge. I later learned that while Noah was talking with me about FanBridge he was also in the middle of raising a $16 million Series B for Stensul.
While Noah and Scott were open to selling, FanBridge was a steady, profitable company putting off plenty of cash. They weren’t under any pressure to sell, but if we could make a compelling enough offer they would be open to discussing.
The next step was a mutual NDA and for them to share company financials so that we could put together a serious offer and start to value the company.
On November 16th we talked again and I made a verbal offer (there was a delay because of the funding round Noah was closing and all the projects we had going on the ConvertKit side). Noah said it was lower than they would consider, but that he felt it was still worth continuing the conversation. Knowing that the FanBridge team was at least generally interested, we dove back into the numbers to better understand the value and how it would fit into our long-term strategy.
As a bootstrapped company we were spending our own money for an acquisition. That means we don’t have a big war chest from a funding round or an IPO to go on an acquisition spree. Every dollar was earned from customers, then we paid expenses, then taxes, and what was left was available for this acquisition. So while we could pay a significant amount for FanBridge, we discussed if it could be paid out over time or if it all had to be up front.
Putting the deal together
On our side I worked with our CT (VP of Growth), Caitlin (Finance Manager), and Ashley (Director of Operations) to figure out our formal offer. We ended up floating two potential offers to Noah: 1) all cash up front or 2) half up front and the rest paid out over time (on a larger multiple).
The FanBridge team said that if we wanted to pay out over time (much better for our bootstrapped cash flow) then they also wanted ongoing upside if they exceeded revenue targets. While totally fair, that started to complicate the deal.
We ended up settling on everything paid up front to keep everything clean. After sending over the LOI it took a week or so of back and forth on small things, then we all agreed and signed on December 24th.
Due diligence & closing
After the holidays we picked up due diligence. Caitlin took the lead on this and it was so helpful. I’d focused primarily on getting deal terms together and now with Caitlin taking over I was able to focus on the rest of the business.
We wanted to keep due diligence lightweight, but our attorneys made sure we covered everything. Ultimately with FanBridge having investors (they raised $2.4M from Angels and VCs) and operating for 14+ years there were quite a few contracts and financials to review.
Originally we targeted closing on January 31st, but had to push it back and ended up closing on February 17th. More on that in our lessons learned.
One minor annoying point was that the amount far exceeded the wire limits we could send online, so Ashley, our director of operations, had to go into a branch to send it. But with COVID she had to schedule an appointment in advance. Every time we rescheduled closing she had to set up a new appointment with the bank.
- September 17th — I called FanBridge and talked to Scott.
- September 29th — Emailed to float the idea of an acquisition
- October 9th — Official call with Scott and Noah
- October 25th — Mutual NDA signed, we start sharing more serious data
- November 16th — ConvertKit shares initial offer
- December 24th — Letter of intent signed
- December 29th — Due diligence started
- February 17th — Transaction closed
All told it was five months from the day FanBridge came back on my radar to having the transaction closed and two months from a signed LOI to close. Part of that delay was that we signed the LOI right before everyone went on vacation for Christmas and New Years.
- It never hurts to ask — When I reached out cold I didn’t think there was much chance of FanBridge wanting to sell. But the only way to know was to ask.
- Due diligence and contracts will take longer than you think — I thought that the bulk of the negotiations would happen as we agreed on the Letter of Intent and then after that would just be making sure things were as they were represented, then we’d close. Unfortunately I was wrong and it took quite a bit more time and effort with attorneys to get all the purchase agreements and assorted documents worked out.
- Give on the little things to create goodwill — Our goal all the way along was to create the simplest process possible. So whenever something came up that the FanBridge team wanted, we tried to give it to them. I think they appreciated that and it helped smooth things over when our contracts and due diligence process was rather heavier than any of us wanted.
- A great relationship with the seller is most important — There were a few times both pre and post-LOI where negotiation around different points would impact the ultimate cost for us. On most of these points, even though the amount of money at stake in some of the items was significant, we decided that it was more important to cover the cost on those to generate goodwill. Ultimately Noah and I had a great relationship and were able to text each other or jump on a quick call whenever things got stuck with the lawyers.
- Schedule quick check-in calls — In the name of efficiency and saving expensive meetings we tried to do as much as possible over email. Ultimately that ended up being a mistake as there were plenty of things that could have been resolved in 10 minutes with a quick check-in call. If I were doing it again I would have scheduled a 30 minute block each at the same time every week for everyone to check in and share notes to keep the deal moving. We should have also started with a kickoff call with attorneys on both sides to set expectations, a lot was lost in interpretation of written communication.
Transaction details & what’s next
While I can’t share the transaction terms and price, I can say that FanBridge is bringing well over a thousand new artists to ConvertKit and 25 million email subscribers (for reference ConvertKit has just over 100 million engaged subscribers—not quite an apples to apples comparison, but you get the idea).
Over the next 12 months we’ll work to migrate FanBridge artists to ConvertKit and build out more features specific to musicians.
If you want to read more about the transaction and our plans I recommend the article in Billboard.