What every startup founder should know about exits?

Łukasz's Bio

Łukasz Pawlik is a CEO and founder of lunching.pl. Lunching.pl subsides one of the crucial, daily-used employee benefits - warm and healthy work meals. And recently, they sold part of their startup to a company called the Benefits Systems, one of the biggest companies in Poland providing employee benefits. 

Do you want to know how much one can earn from selling a startup? And, more importantly, HOW can one do so? Our today’s guest, Łukasz Pawlik, is a startup founder who recently completed the tricky procedure of startup exit and managed to sell a part of his startup with a great profit. And in this blog post, we’ll uncover his crafty ways, which determined the success of his startup exit strategy. 

Questions

Nat: How did you build your startup? What were the milestones that ultimately ended up with a successful exit? And do you actually consider it successful?

Łukasz: Of course, but our story is not quite the standard one. Firstly, Lunching was kind of a hobby project. But one day, my brother and I (who is running Morele.net) were speaking at a family dinner about how teams waste 30 minutes or more of their work time just to organize lunch. And it was my brother's spouse who came up with this business model. This process could be done by the system actually, so we first introduced it at our companies - a simple thing that worked quite fine. 

For the next two or three years, it was developed by the founders, who were not very involved in it. The first CEO was my colleague, and the team was very small; we didn't invest too much, and we didn't think about scaling or a VC path/VC track at all. So that really was only a hobby project. 

But, at some point, the other company's executives who were using our system came to us and asked if they could pay for a part of the employees' lunches. It was quite easy to implement our platform for them, and it was even more helpful and welcomed by employees. Soon enough, we noticed that we are actually doing breakeven, serving 2000 meals daily. And that's when we decided to scale it up. 

At this point, I officially joined the firm to help make the first round with VC, which got us the money to start building a team, etc., in just half a year. 

‍Nat: What was the main reason you decided it was the right time to exit? 

Łukasz: Unfortunately, we lost like 90% of the demand, and eventually, revenue, because of the pandemics. Our product worked for offices, and people stopped coming to offices at all. We had to pivot quickly - we added industry clients to our portfolio and also started delivering to homes. While we succeeded for over a year afterward, we are growing rapidly now; the pandemics caused us to fall out of the VC path, which means that we couldn't raise money from VC funds, and create accessible conditions anymore. 

At this point, we had two choices: 

1. to scale down and go for profitability, 
2. or carry on with rapid growth, but with some other strategic investor. 

The strategic investor turned out to be the Benefit Systems company. 

For over a month now, we have been in the Benefit Systems group, developing new strategies and goals to grow fast and to ensure that as many people as possible in Poland can eat a healthy and real meal at work.

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Nat: What was your exit plan or strategy, and how close is it to be to reality?

Łukasz: I got quite lucky because it was at the same time I started considering my options that the Benefit Systems were actually looking to invest in this area. So, the fact that we met them drove further events more than some strategy. 

Remember those two options I had to decide on? I have decided to go with downscaling and achieving profitability with the money I have left. So, I haven't started looking for strategic investors yet. But then, Benefit Systems came by, one thing led to another, and there we are.

“So from the buyers’ perspective, it’s what a startup company has right now: its revenue, clients, stability, and growth. So work on those things before pitching to an investor. ”

Nat: What should be a startup's go-to list of things to consider while preparing for a successful acquisition? 

Łukasz: To start the acquisition process, you need to talk to lots of people and work on being networked. Of course, it may occur that you have such a unique product that strategic investors will come to you (as it was in our case). But, even in such circumstances, you should talk to more than one potential buyer.

1. Plan in advance. I would give myself from nine months to a year just for networking, for talking to everyone that is a good potential acquirer. Firstly, you need to think about where you fit, which strategic investor could benefit from acquiring you, which strategic investor is buying right now, etc., forming a list of as many options as possible for you to pick the best one. 
2. The other thing is the completion of the acquisition. So firstly, you need to think about what the buyer is actually buying. So from the buyers' perspective, it's what a startup company has right now: its revenue, clients, stability, and growth. So work on those things before pitching to an investor. 
3. Make sure you have all the rights to your technology. When starting or running a startup, check all your contracts for how the IP rights are written down there. Then, spend money on a lawyer to audit it. It's crucial for you to prove that every line of code in your platform belongs to you legally. If you're neglecting this at the start of your company, it'll be really hard to go back and repair it. And that's what a bigger company would definitely consider while buying a startup.
4. Keep in mind that what investors are buying is actually your team, too. They will conduct an audit, considering how good your people are and how probable it is that they will stay. You're good to go if you have some rare talents in your IT team and in other departments. 
5. You're going to need an excellent transactional lawyer on your side. In theory, founders like me can deal with contracts by themselves. But those have so many clauses that are not in use every day that really, so there was a lot of correspondence and work between legal teams on both sides. And if I didn't have good support, I don't know where we would be now. 

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Nat: How much did you earn from your startup exit? 

Łukasz: Lunching’s valuation was around 17 million PLN. Not a unicorn, but considering how pandemics influenced the company, we were really happy with that. 

Also, it wasn't a complete exit - Szymon (the other co-founder) and I still have a substantial part of the shares. They are transactional constructions called "earn-out," which means that the investor can buy those shares in the following years based on company performance. 

That's a great motivation to ensure that the main team is intact and doing a good job. Because if we replaced the highest managers, who didn't know the company and the market that well yet, it would be a major setback. 

Nat: If you met 10-years-old Lukasz, what would you tell him?

Łukasz: I guess I would tell him to train more and do more sports. I was very active as a kid but wasn't actually training in any sports. So, I would work on hand, eye, and movement coordination. Because now, even though I do like sports, I'm really bad at them. 

Rapid-fire round

Your biggest regret?

The first thing that popped into my mind was when I was studying, there weren't any programs like Erasmus that let you study abroad and travel to other countries. I wish I had that opportunity because I'm pretty sure that I'd use it to the fullest. So that is really a big chance that students have today.

Three main qualities you have to see in a person to hire them. 

1. Ambition to develop, to grow, to learn. 
2. Honesty. Just be transparent. I have trouble communicating with people who are not direct.
3. People who have made up their own minds, which are not dependent. I believe such people have a big potential to become someone, become good employees, advance at work, and bring benefits to the team. 

Who is your business hero?

I think that would be my brother Michał. We talk about business a lot, and he has an entirely different personality than me. He does things differently than me, in other ways than I do, and he achieved a lot. For example, he created Morele.net, a billions-of-revenue company. It's an e-commerce site in Poland. They built it from scratch with his business partner, Radek, whom he knows from school. It started with just two people, and now there are 600 employees in the organization. And he did it with such honesty and ethics that it really inspires me. I believe that you really should know a person for them to become your hero. 

So, potentially Steve Jobs or Elon Musk is good enough to inspire, to show some ways, but I don't think that reading their biographies or tweets can show you who they really are as a person. And if I don't know what kind of person they are, they cannot be my hero.

Get to know Łukasz

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Did you enjoy this interview? Make sure to check out: Investing in startups: The Magic Formula

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