The Exchanges

Q Can I ask, you mentioned there the no waste, uh, investment, uh, and then kind of thinking about the acquisition strategy also. I'm intrigued. How does the investment and acquisition decision-making process look like for you?

A They're very intertwined in the way I kind of look In retrospect, I think it was especially so, is I, I view it as what I call slow motion M&A, and the idea is you're acquiring a piece of the company during the investment, and during that process, you're doing the normal diligence that you would if you were going ahead and making an investment. You're getting to know the company, you're doing, executing on the partnership so that you're seeing how things integrate in there. We wouldn't have made the investment had we not been interested in a Acquiring the company, but this really allowed us to test a lot of our theories related to the product experience and also just integration of the technologies and basically making sure everything worked as well as we thought it could.

AI assessment note: “I view it as what I call slow motion M&A”

Q does M&A, you said about kind of, uh, high market caps, meaning kind of, obviously, stock deals more attractive. I'm intrigued. How does it vary in terms of M&A between public companies, maybe your Yelps of the world, versus your private companies with, with now very big balance sheets being your Airbnbs and Ubers of the world? Does it vary dramatically between the two, given the public to private status?

A Yeah, I think, I think those are very different scenarios. It's For an entrepreneur or shareholders and investors to consider, because you have the certainty of a publicly traded stock that gives you that liquidity where you really know what the valuation to cash out will equal. That's, that's very predictable, but in, in a world of large private companies that we all of a sudden find ourselves living in in the last Few years. You have a, a lot of uncertainty there. I think, you know, you mentioned Uber, and that's, that's a good example. What, what people were valuing Uber at one year ago was higher than what people are valuing Uber at today, and that seems surprising to a certain sense because it's a, you know, a large successful machine, but the uncertainty can certainly hurt. So as an entrepreneur is thinking of selling their company or investors are thinking about selling to a A public company where you have the instant exit from a liquidity of your investment standpoint to basically getting shares of a company, although highly valued, doesn't have that liquidity, there's, there's a different risk profile. On the flip side of that risk, obviously, you could be selling to a company that's, say, worked two billion dollars today as a private company, and they go public in two years at eight And you could forex your exit price. So I think in a situation where you're selling to…

AI assessment note: “you have the certainty of a publicly traded stock that gives you that liquidity”

Q some of the meat of your activities, though, today, and discuss kind of two different elements, and separate hats. So first, discussing from the point of view of the acquirer, and then switching hats, and putting on the founder perspective. So starting point being looking for potential M&A with Yelp, and building out the pipeline. How does this process look for you from the beginning, then, building out the pipe?

A That's a great question, Harry. One of the things I really love about my job is I manage both our corporate development efforts as well as our business development efforts, so simply put, it's partnerships and M&A, and what's really great is when you have an opportunity to work with companies in a partnership before you go ahead, consider M&A activity with them, and sometimes it's not even just working with them as active partners, but just talking Through partnership opportunities, really lets you get to know the people in the company better, get to understand their business models better, and maybe most importantly, understand how what they're doing would pair up with what you're doing. The ideal way to build the pipeline, first and foremost, is by being out there, talking to potential partners, working with them, and integrating them into our products and services. And the models that you build during M&A inherently have a lot of made-up numbers in them, but once you have worked with someone in a partnership, you're replacing a lot of the guesswork with real actual numbers based on a live implementation, which helps in a big way. We also, you know, rely on networking within the industry to meet companies that maybe we're not as familiar with, or taking a look at Things that are maybe not directly related to what we're doing, but they could be good new growth arenas. So it's …

AI assessment note: “The ideal way to build the pipeline, first and foremost, is by being out there”

Q But with regards to the internal investment decision making in terms of from corp dev to sign off, how does that look in terms of going from pipe to validation building to To signing in terms of the kind of acquisition strategy, maybe especially, how does that look internally getting that investment decision making?

A Yeah, I think it's a pretty standard process in that what we really do is I like to work with my, my peers who run product here at Yelp. I report to the CEO who's very active in our product and our general strategy, and then also looping in people who are really thinking about the future direction of the business, you know, our CFO and our COO, and making sure that You know, that these, these key leaders in the company are very excited about this type of opportunity. M&A causes a lot of headaches, so you need to be very excited about the, the potential outcome, because it's always going to be a crazy process getting there, so making sure everyone's excited for the journey up front is really important, and then once you have that group excitement and enthusiasm for the deal, Then it's working closely with the CEO of the target company so that the basic package of price, compensation, geography, all the factors that are going to come into play to, they're going to really matter to both the entrepreneur and their investors are worked out. And then it's obviously important at that point to really bring in our Our board of directors makes sure they're really backing the strategy as the management team sees it and getting input from them, and then it's really just driving through to that final closure, which ends up being, being a lot of, uh, diligence and negotiating the actual agre…

AI assessment note: “bring in our Our board of directors makes sure they're really backing the strategy”

Q Can I ask, does that product-driven M&A strategy differ widely from alternative strategies, maybe like the one that you've got at Yelp, or is it not always about bringing on great founders and great teams, or are there other methods such as revenue collection that are important?

A Yeah, I think it's a great question. I think Apple's a little unique because the business model has traditionally, and at the time especially, was a hundred percent Driven from selling high margin hardware. You were never looking to acquire someone's, you know, even if someone had 50 or a hundred million dollars in revenue associated with the service, it would be such a small revenue stream that it just wouldn't matter on the Apple P&L, and we would never cloudy the business model with trying to introduce these kind of, what might have been perceived as nickel and dime upgrades. Upgrades to hardware through kind of service upcharges, whereas I feel a lot of other companies have a different business models that are more appropriate for adding on other business units where you're acquiring, let's say, a high growth revenue stream that's different than your primary business model, but you see high growth opportunities with it to start a secondary stream that could I mean, you know, surpass the primary stream someday, or be a nice augmentation to it, at least.

AI assessment note: “whereas I feel a lot of other companies have a different business models”

Q Can I ask, you mentioned there the no waste, uh, investment, uh, and then kind of thinking about the acquisition strategy also. I'm intrigued. How does the investment and acquisition decision-making process look like for you?

A They're very intertwined in the way I kind of look In retrospect, I think it was especially so, is I, I view it as what I call slow motion M&A, and the idea is you're acquiring a piece of the company during the investment, and during that process, you're doing the normal diligence that you would if you were going ahead and making an investment. You're getting to know the company, you're doing, executing on the partnership so that you're seeing how things integrate in there. We wouldn't have made the investment had we not been interested in a Acquiring the company, but this really allowed us to test a lot of our theories related to the product experience and also just integration of the technologies and basically making sure everything worked as well as we thought it could.

AI assessment note: “I view it as what I call slow motion M&A”

Q does M&A, you said about kind of, uh, high market caps, meaning kind of, obviously, stock deals more attractive. I'm intrigued. How does it vary in terms of M&A between public companies, maybe your Yelps of the world, versus your private companies with, with now very big balance sheets being your Airbnbs and Ubers of the world? Does it vary dramatically between the two, given the public to private status?

A Yeah, I think, I think those are very different scenarios. It's For an entrepreneur or shareholders and investors to consider, because you have the certainty of a publicly traded stock that gives you that liquidity where you really know what the valuation to cash out will equal. That's, that's very predictable, but in, in a world of large private companies that we all of a sudden find ourselves living in in the last Few years. You have a, a lot of uncertainty there. I think, you know, you mentioned Uber, and that's, that's a good example. What, what people were valuing Uber at one year ago was higher than what people are valuing Uber at today, and that seems surprising to a certain sense because it's a, you know, a large successful machine, but the uncertainty can certainly hurt. So as an entrepreneur is thinking of selling their company or investors are thinking about selling to a A public company where you have the instant exit from a liquidity of your investment standpoint to basically getting shares of a company, although highly valued, doesn't have that liquidity, there's, there's a different risk profile. On the flip side of that risk, obviously, you could be selling to a company that's, say, worked two billion dollars today as a private company, and they go public in two years at eight And you could forex your exit price. So I think in a situation where you're selling to…

AI assessment note: “I think those are very different scenarios. It's For an entrepreneur or shareholders and investors”

Q And then last question before we move into the quickfire, you mentioned the investors there. Obviously, I've spoken to over a thousand VCs now, if you can believe it, but they always place the notion that they can help dramatically with M&A. I'm intrigued. From your perspective, how do you think about VCs in the M&A process, and how do you like to engage with the venture community?

A I think it really depends on deal to deal, but I do find that VCs can be very helpful within the process. They tend to know the entrepreneurs well and can give a lot of insights onto strengths and weaknesses of the entrepreneurs and also the business as a whole. I think, you know, M&A is an interesting process because people always want to go ahead and put their best foot Forward, and that's important, but it's really a process of just truly understanding the business, and everything's going to come out at some point, and the more upfront that a company who's being acquired is about their strengths and weaknesses of their people and their business model and their business relationships, I think the more credibility they build up, and if the VCs can kind of step in as a more seasoned, maybe less emotionally attached person, Player at the table to really help get to those truths and understanding earlier, it can be really beneficial for the shareholders of the company that's being acquired because they build up that credibility.

AI assessment note: “I do find that VCs can be very helpful within the process.”

Q some of the meat of your activities, though, today, and discuss kind of two different elements, and separate hats. So first, discussing from the point of view of the acquirer, and then switching hats, and putting on the founder perspective. So starting point being looking for potential M&A with Yelp, and building out the pipeline. How does this process look for you from the beginning, then, building out the pipe?

A That's a great question, Harry. One of the things I really love about my job is I manage both our corporate development efforts as well as our business development efforts, so simply put, it's partnerships and M&A, and what's really great is when you have an opportunity to work with companies in a partnership before you go ahead, consider M&A activity with them, and sometimes it's not even just working with them as active partners, but just talking Through partnership opportunities, really lets you get to know the people in the company better, get to understand their business models better, and maybe most importantly, understand how what they're doing would pair up with what you're doing. The ideal way to build the pipeline, first and foremost, is by being out there, talking to potential partners, working with them, and integrating them into our products and services. And the models that you build during M&A inherently have a lot of made-up numbers in them, but once you have worked with someone in a partnership, you're replacing a lot of the guesswork with real actual numbers based on a live implementation, which helps in a big way. We also, you know, rely on networking within the industry to meet companies that maybe we're not as familiar with, or taking a look at Things that are maybe not directly related to what we're doing, but they could be good new growth arenas. So it's …

AI assessment note: “The ideal way to build the pipeline, first and foremost, is by being out there”

Q Do you find founders get concerned that by signing a strategic partnership with you, there's kind of exclusivity around it, and then they won't sign with other potential partners and kind of vendors?

A I think it's a very real concern that entrepreneurs need to consider. Once a company is so deeply associated with a strategic Strategic investor that there's such an active dialogue and hopefully an active partnership such as the one I just described. You're choosing a camp, and it's probably hard to remove yourself from that camp to go sell to a direct competitor. So as entrepreneurs are considering strategic investment, I think it's something that they should do in later rounds of financing, and they should only do it if If they know the company pretty well and feel very comfortable that that's where they would like to be their home someday, doesn't mean there wouldn't be other outcomes, but you're dramatically increasing the likelihood that that is where you'll, you'll end up landing.

AI assessment note: “I think it's a very real concern that entrepreneurs need to consider.”

Q But with regards to the internal investment decision making in terms of from corp dev to sign off, how does that look in terms of going from pipe to validation building to To signing in terms of the kind of acquisition strategy, maybe especially, how does that look internally getting that investment decision making?

A Yeah, I think it's a pretty standard process in that what we really do is I like to work with my, my peers who run product here at Yelp. I report to the CEO who's very active in our product and our general strategy, and then also looping in people who are really thinking about the future direction of the business, you know, our CFO and our COO, and making sure that You know, that these, these key leaders in the company are very excited about this type of opportunity. M&A causes a lot of headaches, so you need to be very excited about the, the potential outcome, because it's always going to be a crazy process getting there, so making sure everyone's excited for the journey up front is really important, and then once you have that group excitement and enthusiasm for the deal, Then it's working closely with the CEO of the target company so that the basic package of price, compensation, geography, all the factors that are going to come into play to, they're going to really matter to both the entrepreneur and their investors are worked out. And then it's obviously important at that point to really bring in our Our board of directors makes sure they're really backing the strategy as the management team sees it and getting input from them, and then it's really just driving through to that final closure, which ends up being, being a lot of, uh, diligence and negotiating the actual agre…

AI assessment note: “Then it's obviously important at that point to really bring in our Our board of directors”

Q Now, talk to me, Chad. I always see acquisitions, and some say, you know, all cash deals, some say cash plus stock. How does one think about this, and what determines each outcome, maybe more broadly in the broader environment of M&A?

A Yeah, I think, I think of that in a couple ways. First and foremost is, what's the currency that the An acquirer has to play with is, do they have a large cash position on the balance sheet that they need to put to work relative to the size of the purchase price, or are they a company that maybe has a very sweet market cap at the moment that they think is a great currency to use in the acquisition? So it's, I think it has a lot to do with the percentage of the market capped To cost of acquisition, and then also, you know, getting that cash to work. The last thing any of us want to see in technology and in high growth environments is just a lot of cash sitting around on the balance sheet. There's, uh, there's too many good places to put the money to work to continue to build value for shareholders. So I think a lot of people, you know, prefer to get their cash to work if they have a lot of cash building up. But again, if, if your market cap is feeling pretty sweet at the moment using the stock, Works well, too.

AI assessment note: “what's the currency that the An acquirer has to play with”

Q And if we switch perspectives now and put on the founder hat, I spoke to Rishi Gog before the show, and he told me that founders should really, really build that pipe of M&A targets themselves. I'm intrigued. When do you think is the right time? And do you think this is the role of the founder and the startup to build that pipeline themselves for potential M&As?

A Yeah, I, I actually like that strategy, and in my entrepreneurial phases of my career, I've, I've always sort of executed on a similar mindset. I think the, the reason I believe in it is similar to why I like running both partnerships and M&A here at Yelp, is I think they should be one and the same, hopefully. So I would almost revise that a little bit of build a Great relationships with important strategic partners who could potentially become acquirers someday. So if you're able to grow your business through great partnerships and become indispensable to those market leaders, they will most certainly want to acquire you at some point. And the other reason I think it's important, making sure you're When it's time to sell, that you're having meaningful and vibrant dialogues with multiple potential acquirers. So if you execute on that strategy that Rishi suggests, you will have a long-term relationship, and these companies will have understandings of you and your business, and you're not starting from step one when someone reaches out and says, hey, are you interested in selling the business? You can get Three to five meaningful dialogues going on at the same time, and that's almost certain to lead to a better outcome for you and your investors than just having the dialogue with one company.

AI assessment note: “I actually like that strategy, and in my entrepreneurial phases of my career”

Q Can I ask, how do you position yourself in terms of partnerships and investments in terms of kind of preventing founders and VCs from whining, that it's just a step to the acquisition?

A Yeah, For us, we traditionally do not make investments. We made our first investment that would be considered a venture investment last year in a company called No Wait. In that case, this was a company we were interested in partnering with. We realized that they were out raising around, and we got intrigued to explore that and see if there was a And the reason we stepped up and made the investment is we really felt that we had a lot of value that we could bring to the company, both as a distribution partner to expose the no wait service. It's a service that helps you get in line at busy restaurants, and you can get in line remotely. We integrated it into the Yelp app, and of course, we have a large audience of people who are looking for restaurants. It was this great We brought a lot of value to the company as part of the investment, and for us, it was this proving ground of being able to work with the team and make sure everybody played well together, make sure the service actually really resonated with our consumer audience, and so for us, it was bringing a lot of value to the table that made the existing investors very excited to have us come join them. It was It was the right time for a strategic to join, and we were the appropriate strategic investor to step up to the table.

AI assessment note: “bringing a lot of value to the table that made the existing investors very excited”

Q Do you find founders get concerned that by signing a strategic partnership with you, there's kind of exclusivity around it, and then they won't sign with other potential partners and kind of vendors?

A I think it's a very real concern that entrepreneurs need to consider. Once a company is so deeply associated with a strategic Strategic investor that there's such an active dialogue and hopefully an active partnership such as the one I just described. You're choosing a camp, and it's probably hard to remove yourself from that camp to go sell to a direct competitor. So as entrepreneurs are considering strategic investment, I think it's something that they should do in later rounds of financing, and they should only do it if If they know the company pretty well and feel very comfortable that that's where they would like to be their home someday, doesn't mean there wouldn't be other outcomes, but you're dramatically increasing the likelihood that that is where you'll, you'll end up landing.

AI assessment note: “I think it's a very real concern that entrepreneurs need to consider.”

Q And if we switch perspectives now and put on the founder hat, I spoke to Rishi Gog before the show, and he told me that founders should really, really build that pipe of M&A targets themselves. I'm intrigued. When do you think is the right time? And do you think this is the role of the founder and the startup to build that pipeline themselves for potential M&As?

A Yeah, I, I actually like that strategy, and in my entrepreneurial phases of my career, I've, I've always sort of executed on a similar mindset. I think the, the reason I believe in it is similar to why I like running both partnerships and M&A here at Yelp, is I think they should be one and the same, hopefully. So I would almost revise that a little bit of build a Great relationships with important strategic partners who could potentially become acquirers someday. So if you're able to grow your business through great partnerships and become indispensable to those market leaders, they will most certainly want to acquire you at some point. And the other reason I think it's important, making sure you're When it's time to sell, that you're having meaningful and vibrant dialogues with multiple potential acquirers. So if you execute on that strategy that Rishi suggests, you will have a long-term relationship, and these companies will have understandings of you and your business, and you're not starting from step one when someone reaches out and says, hey, are you interested in selling the business? You can get Three to five meaningful dialogues going on at the same time, and that's almost certain to lead to a better outcome for you and your investors than just having the dialogue with one company.

AI assessment note: “I actually like that strategy, and in my entrepreneurial phases of my career, I've”

Q Can I ask, does that product-driven M&A strategy differ widely from alternative strategies, maybe like the one that you've got at Yelp, or is it not always about bringing on great founders and great teams, or are there other methods such as revenue collection that are important?

A Yeah, I think it's a great question. I think Apple's a little unique because the business model has traditionally, and at the time especially, was a hundred percent Driven from selling high margin hardware. You were never looking to acquire someone's, you know, even if someone had 50 or a hundred million dollars in revenue associated with the service, it would be such a small revenue stream that it just wouldn't matter on the Apple P&L, and we would never cloudy the business model with trying to introduce these kind of, what might have been perceived as nickel and dime upgrades. Upgrades to hardware through kind of service upcharges, whereas I feel a lot of other companies have a different business models that are more appropriate for adding on other business units where you're acquiring, let's say, a high growth revenue stream that's different than your primary business model, but you see high growth opportunities with it to start a secondary stream that could I mean, you know, surpass the primary stream someday, or be a nice augmentation to it, at least.

AI assessment note: “a lot of other companies have a different business models that are more appropriate”

Q Now, talk to me, Chad. I always see acquisitions, and some say, you know, all cash deals, some say cash plus stock. How does one think about this, and what determines each outcome, maybe more broadly in the broader environment of M&A?

A Yeah, I think, I think of that in a couple ways. First and foremost is, what's the currency that the An acquirer has to play with is, do they have a large cash position on the balance sheet that they need to put to work relative to the size of the purchase price, or are they a company that maybe has a very sweet market cap at the moment that they think is a great currency to use in the acquisition? So it's, I think it has a lot to do with the percentage of the market capped To cost of acquisition, and then also, you know, getting that cash to work. The last thing any of us want to see in technology and in high growth environments is just a lot of cash sitting around on the balance sheet. There's, uh, there's too many good places to put the money to work to continue to build value for shareholders. So I think a lot of people, you know, prefer to get their cash to work if they have a lot of cash building up. But again, if, if your market cap is feeling pretty sweet at the moment using the stock, Works well, too.

AI assessment note: “what's the currency that the An acquirer has to play with”

Q And then last question before we move into the quickfire, you mentioned the investors there. Obviously, I've spoken to over a thousand VCs now, if you can believe it, but they always place the notion that they can help dramatically with M&A. I'm intrigued. From your perspective, how do you think about VCs in the M&A process, and how do you like to engage with the venture community?

A I think it really depends on deal to deal, but I do find that VCs can be very helpful within the process. They tend to know the entrepreneurs well and can give a lot of insights onto strengths and weaknesses of the entrepreneurs and also the business as a whole. I think, you know, M&A is an interesting process because people always want to go ahead and put their best foot Forward, and that's important, but it's really a process of just truly understanding the business, and everything's going to come out at some point, and the more upfront that a company who's being acquired is about their strengths and weaknesses of their people and their business model and their business relationships, I think the more credibility they build up, and if the VCs can kind of step in as a more seasoned, maybe less emotionally attached person, Player at the table to really help get to those truths and understanding earlier, it can be really beneficial for the shareholders of the company that's being acquired because they build up that credibility.

AI assessment note: “I do find that VCs can be very helpful within the process.”

Q Can I ask, how do you position yourself in terms of partnerships and investments in terms of kind of preventing founders and VCs from whining, that it's just a step to the acquisition?

A Yeah, For us, we traditionally do not make investments. We made our first investment that would be considered a venture investment last year in a company called No Wait. In that case, this was a company we were interested in partnering with. We realized that they were out raising around, and we got intrigued to explore that and see if there was a And the reason we stepped up and made the investment is we really felt that we had a lot of value that we could bring to the company, both as a distribution partner to expose the no wait service. It's a service that helps you get in line at busy restaurants, and you can get in line remotely. We integrated it into the Yelp app, and of course, we have a large audience of people who are looking for restaurants. It was this great We brought a lot of value to the company as part of the investment, and for us, it was this proving ground of being able to work with the team and make sure everybody played well together, make sure the service actually really resonated with our consumer audience, and so for us, it was bringing a lot of value to the table that made the existing investors very excited to have us come join them. It was It was the right time for a strategic to join, and we were the appropriate strategic investor to step up to the table.

AI assessment note: “made the existing investors very excited to have us come join them”

Q Can I ask, you mentioned before about product-driven acquisitions. And then you mentioned there about kind of assembling the package. I'm intrigued. How does packages vary, especially with like product driven acquisitions, whereby there's no price to earnings ratio to measure it on? And how does that kind of valuation sensitivity look with regards to the acquisition and determining the right price?

A I think, you know, I think Harry, you're dialing in on probably one of the hardest pieces of the whole process in my mind, because there's no one size fits all solution. I think It really has a lot to do with the funding structure of the company and what the cap table looks like. It has a lot to do with the enthusiasm of the entrepreneurs and the team for what they're doing and where they are in that process of bringing it to market. But for, for us, which I think is pretty common, we're really focused on buying a team of great people who want to continue doing what they've been doing and just at a larger scale. So making sure there's Proper incentives in place for key team members that will be sticking around, and it goes beyond financial remuneration, obviously. It has a lot to do with alignment of mission and excitement about our culture. If you don't genuinely see that alignment and enthusiasm, it won't be as great as it is before you write them the check, right? So you have to make sure that it's Truly and sincerely there, because it will probably only diminish. You need to make sure that you're acquiring a team that's excited about the journey ahead.

AI assessment note: “It really has a lot to do with the funding structure of the company”

Q Can I ask, you mentioned before about product-driven acquisitions. And then you mentioned there about kind of assembling the package. I'm intrigued. How does packages vary, especially with like product driven acquisitions, whereby there's no price to earnings ratio to measure it on? And how does that kind of valuation sensitivity look with regards to the acquisition and determining the right price?

A I think, you know, I think Harry, you're dialing in on probably one of the hardest pieces of the whole process in my mind, because there's no one size fits all solution. I think It really has a lot to do with the funding structure of the company and what the cap table looks like. It has a lot to do with the enthusiasm of the entrepreneurs and the team for what they're doing and where they are in that process of bringing it to market. But for, for us, which I think is pretty common, we're really focused on buying a team of great people who want to continue doing what they've been doing and just at a larger scale. So making sure there's Proper incentives in place for key team members that will be sticking around, and it goes beyond financial remuneration, obviously. It has a lot to do with alignment of mission and excitement about our culture. If you don't genuinely see that alignment and enthusiasm, it won't be as great as it is before you write them the check, right? So you have to make sure that it's Truly and sincerely there, because it will probably only diminish. You need to make sure that you're acquiring a team that's excited about the journey ahead.

AI assessment note: “funding structure of the company and what the cap table looks like”