A company with a successful trajectory uses an exit for its next phase of growth.
Cultural anthropology, the study of human societies and cultures and their development ‒ it's not a subject usually associated with corporate business. However, Ujwal Arkalgud and his business partner Jason Partridge had the insight to see that cultural anthropology is an excellent way to understand cultural trends that companies can use to their advantage. In a recent interview with Corum, Arkalgud noted that this information can be extremely valuable for large corporations, most of whom have innovation departments. "They’re tasked with understanding what’s happening in culture, trends, how they are affecting their business,,” Arkalgud said, “It’s not just how they can react, but how they proactively can create new solutions that are going to enter the market anywhere between two-to-five year windows."
That insight was the genesis of MotivBase, a research technology company that Arkalgud and Partridge co-founded in 2015. The company was unique in using cultural anthropology and artificial intelligence to extract meaning from what people discussed on the Internet. As an example, Arkalgud pointed to a discussion on the Internet about gut health. "A discussion of gut health,” he said, "Leads to a conversation about immunity. Immunity leads to a conversation about chronic health conditions, which eventually leads to a conversation about toxins in the body. Understanding that the entire conversation is really about toxins in the body and about a shift in managing chronic health conditions, and realizing that it’s shaping the future of gut health, is really important. That’s what we do. We help recognize those implicit systems of meaning and then quantify them.”
Growth causing problems
MotivBase prospered. By 2021, the sixth year of the company, revenues were over $947 million. But Arkalgud and Partridge realized that the company's growth was also causing problems. Arkalgud recalled, "We were on a great trajectory. Our technology was really setting the stage for great years of growth. But we also realized that we were getting tired, and the stuff making us tired was stuff that we liked the least: people management, processes, finances and financial management. A lot of that stuff was just starting to bog us down. We realized that this was not a Mom & Pop shop any more. And that was the moment in time where my co-founder Jason and I acknowledged that we've got to start thinking about what’s next. We didn’t want to be in a situation where we’d go from waking up excited to go to work, to hating it."
Finding a buyer
That realization set Arkalgud and Partridge on a path toward an exit with the objective of finding an acquirer who could take the company to its next phase. So in mid-2021 they approached Corum to assist in finding a buyer. By December of that year they received a Letter of Intent (LOI) to acquire the company from Lux Research, a research and advisory firm, focused on sustainable innovation. And by April 2022, they closed the deal.
Arkalgud highlighted Corum's value this way: "We chose to hire an investment banker because we felt having Corum on our side helped give us leverage and give us better negotiating power because then we weren’t just talking to one buyer. We’re talking to a multitude of buyers. And we needed to understand how we were valued in the market. You’ve got to learn what the market will afford for what you’ve built. So that helps you figure out if it’s worth it to go through the exercise."
Asked what attracted Lux and other potential buyers to MotivBase, Arkalgud noted that in conversations he had with potential buyers they felt MotivBase was unusually attractive for two reasons. First, MotivBase had grown without relying on outside capital ‒ they were completely bootstrapped. "The potential buyers hadn’t come across a company that was bootstrapped and that had scaled to our level,” according to Arkalgud. The second factor was the company’s profitability. Because MotivBase was a completely bootstrapped company, Arkalgud pointed out, "We were pretty much profitable from day one." Beyond these reasons, Lux Research saw the acquisition as a good strategic fit. Lux has expertise in detecting emerging technologies, as well as predicting market trends and needs, for sustainable innovation. Acquiring MotivBase would combine the technologies, research, and conversation-based insights of both companies, enabling Lux's clients to make informed innovation strategy decisions.
Some challenges along the way
Although the process of finding a buyer was successful and accomplished in a short amount of time, Arkalgud did find one step in the process particularly challenging: due diligence. “People warn you,” he said. “Other entrepreneurs, friends, tell you it’s very hard. You’ve got to be prepared. It’s going to be a lot of late nights and spending a lot of emotional energy.” He continued, “As a founder, you are deeply emotionally tied to your business and you’re giving your baby away. And in the process you’re getting scrutinized for doing that. And every single business decision is questioned. The buyer wants to understand every intricate detail. It is exhausting. “
Another challenge was the lack of a CFO. Arkalgud admitted that if he had to go through the process of selling his company again he would have hired a CFO, even for a short period, before going through the process of pitching his company to potential buyers. "Basically,” he said, “It would have tightened everything up. It would have helped us understand our own business through a CFO’s perspective. That was a huge learning lesson for me. It took me a long time to wrap my head around that."
Some advice for entrepreneurs
Having gone through a successful exit of his company, Arkalgud had some advice for entrepreneurs regarding exits. "I often tell people to keep an open mind. I think most people are terrified of being undervalued. And I think what they don’t realize is an offer is an offer. There are ways that you can manage that. And certainly one way is to have an investment banker like Corum on your side."
The other piece of advice Arkalgud offered is this: "A lot of entrepreneurs think that selling the company is somehow letting go, and they don’t want to let go. I think there’s a window where you can sell it. And after that, you’ve just made life difficult for yourself because you’ve got to think through the lens of somebody who’s buying you. I genuinely believe there’s a sweet spot where you can get maximum value for what you’ve built. And if you miss that sweet spot, you miss getting what you want."
But for Arkalgud selling his company wasn't necessarily about finding that sweet spot. He recalled, "Every other entrepreneur I spoke to kept saying why do you want to sell? You have a profitable business. You live the life you want to live. People would almost try to make me feel guilty for selling." He continued, "To be honest, it’s really rare to find an entrepreneur who has the strength and the energy to cope and go through this for 30 years and scale it. There are a lot of entrepreneurs who retain their business and they flatten out for 20 years. But that wasn’t what we wanted. We wanted to kind of own the world of corporate research. It’s a different goal."
Life after the deal
The acquisition of MotivBase by Lux Research has been a positive one for Arkalgud and his team. Arkalgud said, "We’ve been very lucky because the company that acquired us, they’re a wonderful group of people. They’ve just been very patient with us. And our team has been very patient through all the change." Now an Executive Vice President at Lux Research, Arkalgud, spent most of the first year after the acquisition getting things organized and integrating his team into the new company. In fact, only two people from the MotivBase team left during the transition. Arkalgud added, "We’re now refocused and reenergized in terms of the next phase of the business, both in terms of technical and IPO development and in terms of growing our client base."
And as time permits, Arkalgud said he might pursue writing another book, noting that he's already written a few of them.