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Term Sheet Negotiations: The Exit Story of Philipp Millar (Elohna)

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So far in this series, we have introduced the basics of term sheet negotiations and asked our investors Cédric Köhler and Andreas Goeldi to share their experiences. In this post, we discuss another exciting part of a startup’s life—the exit.

As well as considerations for future financing rounds and voting control, a term sheet’s structure will be motivated by the possibility of an exit. One of the ever-present terms is the definition of an exit event. There are multiple events that qualify: mergers, acquisitions, sale of voting control or assets of the company, IPO, etc.

The exit and its execution strategy are on the investor’s mind from the beginning and it's guaranteed that there will be multiple terms in the term sheet related to exits. For the most important terms, you can refer to our first blog post.

Most often investors agree to give money to companies with one objective in mind: to get out more than they invested. They don’t expect an exit in the first year or two, but they do after 5-10 years. The most common ways for shareholders to “cash-out” are:

- Acquisition

An acquisition is the most common way for a startup to generate a liquidity event for investors. An acquisition is when one company purchases another and assumes control of it.

- Merger

In the event of a merger, two existing companies merge into one new company. Mergers are most often done to expand market share, gain new territories, grow revenue, etc. To see the largest M&A (merger and acquisition) transactions worldwide, check out this link.


An IPO is the most widely known exit strategy, not because of its frequency of use, but because of the large numbers involved. Not every company is mature enough for an IPO, but those that are will have a high valuation tag attached to them, which generates a lot of buzz in the media. If you’re interested, this article sums up all the launched and upcoming IPOs in 2019.


1. Can you tell us in short your entrepreneur-story?

With pleasure. In late 2015 I was working for a startup in the automotive industry in Berlin. It didn't really have a proper product yet, but was seriously well funded and could afford a whole bunch of bright people. We all were rather interested in topics around founding and of course the latest tech hypes at the time. I especially got in contact with Marius. One day he told me that he was in contact with the Doodle founders Myke and Paul, who would be willing to fund a team of founders for a payroll SaaS startup. Both of them being Swiss, they hoped it would be for Switzerland first, but were open to suggestions as well. Marius also told me that he wanted me on board for this experiment.

You would think that getting funding and an idea from two experienced business angels is an offer that would be jumped at by everyone. But luckily for us, there weren’t any real contesters. The only other guy who gave them strong signals was Thomas, who also lived in Berlin at the time. We met with him for dinner and both liked him as well, so we were ready for a trip to Zürich to talk to Paul and Myke in person for the first time. Turns out, this would become one of the most influential weekends of my life I would say. We held workshops and a little hackathon at Myke’s place. And in the end—were ready to say yes. To our relief, Myke and Paul said yes as well and we signed a term sheet.

What followed should sound familiar to most founders, and I'll shorten the story a bit. We had week-long discussions about all the things. Especially of course on the name. We settled on Elohna in the end. With that and many other things in place, we were finally ready to found the company for real, which happened in January 2016. One of our marketing strategies was to cater to the existing customers of bexio, a company providing various accounting related services for SMBs which, notably, was lacking a payroll solution at the time. To get into contact with those customers we became one of the first companies to have a partner booth at the bexio Community Day 2016, a yearly customer event.

We were greeted very warmly by bexio, could win over some early customers, got an impression how relieved people were that someone was building an easy to use payroll solution, and had the chance to get some drinks with the bexio team after the event. Because this collaboration had worked so well, we tried to get some more technical integrations working, most urgently the automatic transfer of payroll bookings to the bexio accounting system, which was the most requested feature from the people we spoke to at the Community Day.

To get API access to the accounting system we scheduled a meeting with bexio. Oh boy, were we unprepared for the opening sentence of Jeremias, then the CEO, now the managing director of bexio: “The thing I’d really like to do, is to buy you.” We didn't quite know what to think of it. Especially since Jerry just went back to the agenda, discussing some more technicalities of the API access. In the end weren’t too sure if Jerry had been serious about offering to buy us, but agreed to come back to bexio HQ with Paul and Myke at a later date. What followed was a lengthy discussion on the train back to Zürich about this one sentence, if it was serious, what consequences this would have for us, and what we were to do now. We already had some traction and a working product, but it was still a long way to go, we had barely started thinking about our series A round, let alone selling the company.

Back in Zürich, we met with Paul and Myke. This was extremely important. They managed to calm us down a little by focusing our attention away from the question if this was serious and towards if we actually wanted to sell, leaving both options very much on the table. We, the founders, were already thinking, that if this was serious we’d be dead if we refused since bexio would effectively become a competitor then. They furthermore managed to give us a feeling for our pain threshold with regards to the price bexio would have to pay.

After having slept one or two nights on all of this, we were ready to schedule the follow-up meeting with bexio. There, they made it much clearer, that they actually wanted to buy us and that they wouldn’t agree to any other form of collaboration.

After that, there was a true marathon of negotiations, offers, and counter-offers. But in the end, we signed the acquisition contract exactly one day short of a year after we had founded Elohna.

As part of the contract, we continued working on our product. We still operated as a separate legal entity and could stay in Berlin. The plan was of course to integrate more and more until we would become effectively one entity. This was at times much harder than anticipated and the source of quite a bit of frustration and conflict. It did pay off, however, we could still bring in some of our ideas and plans for the product while tapping into the impressive sales and marketing capabilities that bexio brings to the table. After a seemingly endless certification process, with lots of all-nighters and missing weekends, we finally managed to get the “Swissdec” certification, which opened up a strong collaboration with SwissLife, an insurance company from Switzerland.

And then, in July 2018, bexio got acquired by “Die Mobiliar”. I like to think, that the payroll solution bexio provides played no small role in that acquisition, but opinions differ of course. We, as the Elohna founders, weren’t deeply involved in this second acquisition. We were, however, also shareholders in bexio and could watch this second acquisition unfold from the sidelines.

2. What was the first thing you had to do after the verbal acquisition agreement?

After the second meeting with bexio, we were only talking ballpark terms and prices, so nothing was really fixed yet. The first thing we had to do there was to prepare for due diligence. So we had to hand over our books to bexio and answer a lengthy questionnaire about our tech stack, which was mostly my domain. This lead to a follow-up meeting where we talked about technical abilities and the state our product was in, both feature and technology-wise.

It was rather obvious that they especially wanted to acquire us as a team, so we also tried to squeeze some of our own due diligence in there, by exploring their development models, team structure, tech stack, and so forth.

The first thing after the actual acquisition I don't quite remember to be honest. For me, it was mostly integrating the technical aspects—hosting of our product, code repositories, communication channels, these things. Oh, and we had to shut down our signup until it was integrated with bexio, so we couldn’t take on new customers for quite a while. This was done mostly so we had a chance to train the support staff on the new product and to get our signup integrated with the bexio booking systems.

3. How long was the process from the first agreement to the final one?

This took forever. The complete process was about 6 months from start to finish, which turned out to be quite a problem for us. We were getting dangerously close to the end of our runway and had to cut all spending to a minimum, starting with ourselves. We were living either on our savings or on borrowed money during this whole process, which obviously didn’t help with pressure. We tried to keep up our marketing efforts as before, but I’d assume they also took a hit.

We were also simultaneously preparing our series A, in case we couldn’t get to a final agreement with bexio, which bound more time, that couldn’t be spent on the product, further increasing the pressure to actually come to an agreement. On the other hand, having a plan B is an absolute necessity I’d say. This gave us the option to actually abort the negotiations if things went sideways. This, we actually had to do once, only to show how serious we were.

Not exactly easy times, but very exciting as well.

4. Who took care of the negotiations, and what do the negotiations even look like?

Myke and Paul, our business angels. Mainly to free some of our time for preparing the possible A round and to not neglect our product. It was a good decision for another reason. You have to go to your limits during those negotiations and the other side will ask ridiculous things of you and most likely vice versa if you realize it or not. This will poison your relationship and could harm the actual goal of the whole negotiations: to get to a collaboration phase, that actually helps the product.

I think it would have been much harder to work together with the very people I had to negotiate the valuation and terms of the acquisition, given that those are very emotional issues. Instead, the latest offer or counter-offer was brought to us by Paul and Myke, after a lot of back and forth with bexio and with their very insightful commentary on top. We could then discuss this internally and present a unified front. You also got to play good-cop bad-cop then and if both sides do it, you can have the people that would be working together later always be the good cops. Not as much bad blood afterward.

The valuation was a bit complicated of course. We didn’t even get to an A round so there was no prior valuation to lean on. This meant we basically pulled numbers out of thin air and tried to come to an agreement. This is a bit exaggerated of course, but what I’m trying to say is, that yes, we were very much negotiating the valuation.

So, in the first meeting, we dropped a number which was of course on the high side. They countered with a number that was far below our threshold. What followed, is basically each side making arguments why their valuation is closer to the truth and making concessions or further demands from there. To give a more concrete example: we agreed to bind the full price to a set of milestones, that needed to be achieved within the next year or so, in exchange for a higher valuation. Ultimately our goal was to demonstrate that we were in for the long haul and actually wanted to continue developing our product. This was very much the truth, but even then it can be quite hard to demonstrate that.

5. What did the due diligence process look like?

From my perspective, it was mostly on the technical side, since I mostly left our own books to Marius and Thomas. They certainly had to send them over, but since we were barely a year old, there wasn’t much to see I guess. On the technical side, we had to pull up the licenses for every single dependency, to demonstrate we don’t violate the GPL (General Public License) for example. We also had given them a very thorough insight into our product. How it’s hosted, what our disaster recovery looked like, who has access to what, which languages are in use, what are the long term goals and how our architecture accommodates that, which features are missing for certain kinds of companies, etc.

For us, we were most interested in how working for bexio would look like. So we wanted to know how the development process looked like, who’s working on what and so forth.

6. If you look back now, how could you have prepared for the acquisition better? What advice would you give to your pre-acquisition self?

Don’t underestimate due diligence and be clear to yourself and the others on all of your expectations. Especially, if you’re planning on staying with the acquiring company.

We were developing in a Kanban-style, no fixed releases, no deadlines, no estimates. bexio at the time did Scrum and had fixed releases. We didn’t think much of it and didn’t ask if it was expected, that we would change to adopt Scrum. This lead to seemingly never-ending conflict, as we were fighting to keep our proven model, while bexio tried to get us in line with the rest of the company.

And for due diligence, we did not verify well enough how bexio was hosted, but agreed to move our hosting over to their provider. This meant we were losing our lovely CI/CD/CD pipeline and suddenly had to do manual releases, which didn't mix too well with our Kanban model. That, in turn, didn’t help to convince bexio of the advantages of our model.

Also take what is said in the negotiation meetings with a grain of salt. Don’t let it get too close to you emotionally. Most of it is tactics and the same people, that were fighting you super hard might be fighting for you just as hard after the acquisition.

7. Do you think any term sheet agreements from the investment rounds made the acquisition process harder than necessary? If so, which one?

Hmm, nothing comes to mind to be honest. It did raise eyebrows, that we voted by heads instead of shares though. But this was only a technicality to give Paul and Myke Veto powers since they are very generous and didn’t take a lot of shares.

8. And now the opposite: which terms from the fundraising process were very helpful to have?

We gave ourselves a pretty long vesting period for our own shares. I think this did help with demonstrating that we weren’t looking for fast money, but wanted to create a wonderful product.

9. Do you have any other thoughts connected to the whole experience and you think every founder should hear?

Don’t agree to milestones! In general, but certainly in the acquisition contract. Some smaller ones, that help with integration into the new company might be fine, but the ones requiring fixed features will bite you hard.

We most notably underestimated the Swissdec certification, which was much more work than we could foresee. This lead to a lot of pressure to finalize it, which in turn resulted in the most horrible pieces of code in our product. It took us much longer to clean that up and to actually get it into production than to write the code in the first place. And all the technical debt we took on at that time also slowed us down with other features. This problem goes both ways of course.

I think there’s a more general theme there. Having milestones that can’t be altered doesn’t really fit into the real world, where requirements change constantly—especially for young products or companies. We spent all our time on features, that seemed important at the time we agreed to the milestones, but that close to none of our customers actually needed. This problem got even worse since we took on a whole bunch of new customers directly after the acquisition and they brought in new requirements, that we couldn’t fulfill since we had to stick to our milestones.

The second reason to avoid milestones is social. It’s very easy to get into a us-vs-them mindset, since the other side can’t seem to see reason, or can’t seem to look beyond the milestones. This makes collaboration harder than it needs to be. Let alone it raises your general stress level and simply makes your work less enjoyable.

Thank you very much for these great insights Philipp! You can find him on Twitter: @p0xar

Stay tuned for more interviews and deep dives into term sheet negotiations.

For the purpose of this blog post, we talked with a fellow startup founder Philipp Millar, whose company Elohna was successfully acquired by bexio in 2017. In this interview, he told us his story in great detail. He shared his invaluable experience, as well as the ups and downs of the whole process. Phillip’s narrative style brings the reader along his journey and offers raw insights into the exit proceedings.

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