WEBVTT - How to Win the Startup End Game 0:00:00.160 --> 0:00:04.160 This is Bloomberg Business Week with Carol Messer and Bloomberg 0:00:04.240 --> 0:00:08.119 Quick Takes Tim Stinovic on Bloomberg Radio. Well, I'm really 0:00:08.119 --> 0:00:11.440 excited about our next guest. Tarage Parong has seen a lot. 0:00:11.560 --> 0:00:14.640 He's been working in Silicon Valley since the late nineteen nineties. 0:00:14.960 --> 0:00:17.919 He's been involved in hundreds of M and A transactions 0:00:17.920 --> 0:00:21.920 and venture capital investments. Right now, he's the CEO at 0:00:21.960 --> 0:00:24.920 Server Robotics. You might recall this spun out of Uber. 0:00:25.200 --> 0:00:28.680 It focuses on sustainable self driving delivery. He's also got 0:00:28.680 --> 0:00:31.440 a brand new book out. It's called Exit Path, How 0:00:31.480 --> 0:00:35.040 to Win the Startup Game. Tarage joins us this afternoon 0:00:35.240 --> 0:00:40.080 from Palo Alto, California. Tarage, how are you. It's good, 0:00:40.520 --> 0:00:42.400 very good. Good to be on the show. Yeah, it's 0:00:42.440 --> 0:00:43.440 good to have you with us. Hey, I want to 0:00:43.440 --> 0:00:45.080 get to the book in just a second. But but 0:00:45.240 --> 0:00:47.360 before we get to that, I want to just hear 0:00:48.159 --> 0:00:50.680 what the environment in Silicon Valley is like right now. 0:00:50.720 --> 0:00:53.640 As I mentioned, you have experienced there through several economic cycles, 0:00:53.640 --> 0:00:56.000 including the dot com crash of the late nineteen nineties. 0:00:56.520 --> 0:00:58.639 What do you see when you look around the landscape 0:00:58.720 --> 0:01:01.840 right now? Give us your your take, Yes, it's like 0:01:01.920 --> 0:01:05.800 deja vu all over again. Rightly, So we've been through 0:01:05.840 --> 0:01:10.240 this a couple of times, as you said, yes, late nineties. Uh, 0:01:10.680 --> 0:01:13.400 this feels a bit more like the two thousand and 0:01:13.400 --> 0:01:16.120 eight two thousand nine downturn. We're kind of venture capital 0:01:16.200 --> 0:01:20.360 funding a bit dried up. There was no end in 0:01:20.400 --> 0:01:23.160 sight for the doom and gloom, and you know, there 0:01:23.160 --> 0:01:25.880 were all sorts of memos issued by venture capital firms 0:01:25.920 --> 0:01:29.520 about you know, rest in peace, good times, right, So 0:01:31.280 --> 0:01:35.960 it's very reminiscent of that and layoffs unfortunately, you know, uh, 0:01:36.240 --> 0:01:39.320 companies cutting costs or being advised by their boards to 0:01:39.480 --> 0:01:42.399 cut costs so that they can extend their runway. So 0:01:42.480 --> 0:01:45.360 bring this deja vu that you're feeling. And this landscape 0:01:45.360 --> 0:01:48.600 that we're in, we're funding is drying up. What does 0:01:48.680 --> 0:01:52.160 that mean for startups and the business of startups because 0:01:52.160 --> 0:01:54.640 I mean even in the public equity markets, you know, 0:01:54.760 --> 0:01:58.360 companies that are well established, feels like a very rocky time. 0:02:00.720 --> 0:02:04.000 It is, it is at certain times. The thing about 0:02:04.000 --> 0:02:05.600 startups is that a lot of them are in the 0:02:05.760 --> 0:02:08.840 value creation business. There they kind of have a longer 0:02:08.919 --> 0:02:12.280 term horizon, especially the earlier stage startups. I feel that 0:02:12.840 --> 0:02:17.959 earlier stage investors actually continue plug away and continue investing 0:02:18.400 --> 0:02:21.000 their activities. You know, we've seen in other downturns and 0:02:21.080 --> 0:02:24.800 a lot of valuable companies were created are founded during 0:02:24.840 --> 0:02:28.079 the downturn, So there's no reason for early stage investors 0:02:28.120 --> 0:02:31.560 to kind of pull back. The problem is with a 0:02:31.600 --> 0:02:36.520 bit of later stage investors who have invested a very 0:02:36.560 --> 0:02:41.560 healthy valuations and now they're facing down rounds or sort 0:02:41.560 --> 0:02:44.960 of uh have there's a reckoning that has come to them, 0:02:45.000 --> 0:02:49.679 and um that's impacting you know, the moral uh of 0:02:49.800 --> 0:02:53.520 the teams, of their founders, of the investors. So in 0:02:53.560 --> 0:02:56.920 the later stage games, it's a bit of a hard time. 0:02:57.120 --> 0:03:00.120 What's interesting, though, Tarage, is what's happening right now now. 0:03:00.120 --> 0:03:04.200 I mean the Nazdak nearly in just a couple of months. 0:03:04.200 --> 0:03:06.560 I'm wondering if the worst is behind us right now. 0:03:06.960 --> 0:03:09.359 And I know we're talking private versus public, but there 0:03:09.440 --> 0:03:13.520 is some connection here. There is a connection. Especially you know, 0:03:13.760 --> 0:03:15.880 at the end of the day, you know, companies either 0:03:15.919 --> 0:03:19.400 want to get public or be acquired, right, Yeah, the 0:03:19.480 --> 0:03:25.120 public market definitely has an impact private markets as well. Um, 0:03:25.280 --> 0:03:30.320 you know, it's hard to tell, but my hope is 0:03:30.360 --> 0:03:33.480 that the worce is behind us for sure. Okay, well, 0:03:33.520 --> 0:03:35.560 let's get into the book a little bit and talk 0:03:35.600 --> 0:03:38.720 about exit path. Because you have personal experience with trying 0:03:38.760 --> 0:03:41.520 to sell a startup of yours that didn't end up 0:03:41.520 --> 0:03:43.760 working out the I p O route or the sales route, 0:03:44.000 --> 0:03:46.280 why do you argue that founders should be less focused 0:03:46.280 --> 0:03:50.200 on I p O s and more focused on being acquired. Yes? Absolutely, 0:03:50.320 --> 0:03:53.160 um So you know, if you look at the stats alone, 0:03:53.400 --> 0:03:56.840 most startups don't make it. You know, over seventy actually 0:03:58.400 --> 0:04:01.040 venture back startups who have rates more than a million 0:04:01.680 --> 0:04:06.360 don't end up returning the money to their investors. So 0:04:07.000 --> 0:04:10.480 the chances of success are very slim. Now, those who 0:04:10.520 --> 0:04:14.640 do manage to make it through are either acquired or public. 0:04:15.560 --> 0:04:19.000 For every I p O there's dirty acquisitions. So odds 0:04:19.040 --> 0:04:24.200 are your chances of uh actually making it and surviving 0:04:25.320 --> 0:04:30.279 is through a strategic sale. Um. I experienced that with 0:04:30.360 --> 0:04:34.040 my first startup because we were single, singularly focused on 0:04:34.560 --> 0:04:38.240 just that I p O. We ignored really any strategic 0:04:38.279 --> 0:04:42.160 conversations building relationships with potential acquires. At What ended up 0:04:42.279 --> 0:04:44.599 is that in two thousand and two tho nine, during 0:04:44.600 --> 0:04:47.520 a time very similar to now. Um, we had to 0:04:47.520 --> 0:04:49.960 sell because we couldn't raise any more money and we 0:04:49.960 --> 0:04:52.960 didn't have those relationships to fall back on, and um 0:04:54.880 --> 0:04:57.560 it was a failure because of that, right, And I 0:04:57.560 --> 0:05:01.000 mean it's a really interesting point that odds are you're 0:05:01.040 --> 0:05:03.880 probably going to get acquired, You're more likely to do 0:05:03.920 --> 0:05:06.240 that then go public. But it still feels like going 0:05:06.320 --> 0:05:08.920 public a lot of people sort of regarded as sort 0:05:08.920 --> 0:05:11.240 of the holy grail for a lot of these startups. 0:05:11.279 --> 0:05:14.360 But if the case is that you know your company 0:05:14.400 --> 0:05:17.440 is much more likely to go bought, I mean, should 0:05:17.480 --> 0:05:22.159 founders be sort of preparing for that possibility and trying 0:05:22.160 --> 0:05:26.760 to line up chips for that possibility. That's what I've 0:05:26.800 --> 0:05:30.440 seen workouts really well for founders. UM, you know, in 0:05:30.560 --> 0:05:34.320 my next startup after that failure, I actually the first 0:05:34.360 --> 0:05:37.279 thing we did, we we created our eggit strategy and 0:05:37.720 --> 0:05:40.480 we did an outside and by doing so, just that 0:05:40.600 --> 0:05:44.479 act alone set in motion a series of events that 0:05:44.920 --> 0:05:48.200 led to a very successful exit. UM you know, web 0:05:48.240 --> 0:05:49.920 stuff Come was the name of the company we sold 0:05:49.920 --> 0:05:53.480 to visit the print and more than tenets, multiple revenues. Um, 0:05:54.200 --> 0:05:58.159 it was a very good outcome, and I credited because 0:05:58.240 --> 0:06:01.400 we did take those steps. Now it had to be 0:06:01.440 --> 0:06:04.400 even gone forward. We decided not to sell and had 0:06:04.680 --> 0:06:08.200 gone uh you know, with another round of financing and 0:06:08.480 --> 0:06:12.440 gone all the way to IP. Having had acquirers would 0:06:12.520 --> 0:06:14.719 make our IP a lot more successful because now we 0:06:14.760 --> 0:06:19.719 have actually leveraged in those conversations with investment banks. Turage, 0:06:19.800 --> 0:06:22.680 we only have about forty five seconds left. But how 0:06:22.680 --> 0:06:24.400 do you know when to walk away from an offer 0:06:24.560 --> 0:06:25.960 when you know that you can get a better offer 0:06:25.960 --> 0:06:29.720 because you just don't know. Yes, that's why you know. 0:06:29.800 --> 0:06:32.559 There is a lot of upsites optionality. So the only 0:06:32.560 --> 0:06:34.839 way you can walk out from an offer is if 0:06:34.839 --> 0:06:38.159 you have Bible strategic alternatives. And what I advocate in 0:06:38.200 --> 0:06:40.720 my book at great length is how to create those 0:06:40.760 --> 0:06:45.160 strategic optionality for yourself so you can walk out all right. 0:06:45.240 --> 0:06:49.400 Turage Parong, chief operating officer at Serve Robotics, author of 0:06:49.400 --> 0:06:51.960 the brand new book Exit Path, How to Win the 0:06:52.040 --> 0:06:54.560 Startup end Game. Joining us this afternoon on the phone 0:06:54.600 --> 0:06:58.240 from Palo Alto, California. Tarage, thank you so much for 0:06:58.320 --> 0:06:59.840 taking the time and joining us.