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The founders who stayed on | Sidharth Rao, CEO & Co-founder, Dentsu Webchutney

21 Jun 2018

When a startup is acquired, their dilemma is whether to continue or exit. Meet two entrepreneurs from the digital media world who stuck with their ventures

Some years ago when Harvard Business School professor Noam Wasserman, author of The Founder’s Dilemmas, surveyed startups in the US for his research he found that “four out of five entrepreneurs are forced to step down” from the CEO’s post once they cede control of their firms. Often, founders are pushed out by investors. But some founders exit on their own as they are serial creators and feel the urge to start a new thing. However, there are also founders who have stayed on amicably in the new entity and helped parent their babies. What motivates them? Are there any lessons to learn from their journey?

Sanjay Mehta who along with Hareesh Tibrewala cofounded Social Wavelength, a social media agency that was acquired by advertising giant JWT, and Siddharth Rao, who teamed up with Sudesh Samaria to start Webchutney, acquired by Dentsu Aegis Network, are two entrepreneurs who have stuck on with their ventures.

In Rao’s case, acquirer Dentsu had made it a precondition for him to stay for a few years. In 2017, Rao was free to exit yet chose to extend the contract. Says Rao, “We were still having a lot of fun and both parties – DAN and us – decided to extend this for another three years till 2020.” That would be the 21st year of starting Webchutney, points out Rao, adding that he continues to be excited about the future.

For Mehta, Social Wavelength was the second startup with Tibrewala. Their first venture Homeindia.com, he admits, was aimed at building quick valuation and exiting. Though with the dotcom bust, he ruefully says, the planned outcome did not happen. However, with Social Wavelength, Mehta says he was clear right from the beginning that this was not a valuation-driven game but a business that he could potentially retire into. “In Social Wavelength (now called Mirum), I see the work being the kind which I enjoy doing, and something I could do, for as long as I choose to work,” he says.

So, obvious question. Why do they shed control of their businesses? Mehta openly admits that personal financial goals which they could not meet in their first startup were a motivation. “We did not want to let a good proposal go by.” Then again, he says, the way the acquisition structure was done with JWT was interesting. “In addition to giving some capital for your equity upfront, it also builds in the earn-out, which assures that you get adequately rewarded over the next few years, for the better performance that you might deliver,” he says. In a way, the deal was giving them “tomorrow’s valuation” too, if they performed well.

That settled it.

For Rao, there were two compulsions – first, as responsible entrepreneurs, he says, they wanted to give a meaningful exit to their investors. Second, it was necessary for growth. As he says, “Networks do provide scale and opportunities with globally aligned clients, large central resources like HR and finance and yes, synergies with other group companies.”

But what about culture match and new house rules? After all, there is more discipline and process in larger firms as compared to startups. Mehta says these as positives. “As entrepreneurs, one could easily NOT have financial discipline or one could end up with loose governance, and both of these can be damaging to the business.” As for the culture, he says, there was enough common ground. “And over time, we have adjusted to the rest of the culture. It was different, but not something that we could not adapt to,” he says.

Rao says the good thing about DAN in India under Ashish Bhasin (chairman of the network) is that once they trust their extended leadership they let them do their own thing. “The one thing we thrive on is our own unique style,” he says.

Haven’t either of them got the entrepreneur’s urge to start a new thing? Why abandon a path which is offering enough of an upside for “an elusive new new thing”, says Mehta. “If one had saturated a current choice and then run to something new, it would be a different matter. That is far from the case, for us,” he says.

Rao endorses that, adding that “in an industry as dynamic as ours, I think there is a lot to be fullfilled in Dentsu Webchutney. So I can fend off that temptation for a few years now. I do love to experiment with ideas from time to time and for that DAN allows us to be angel investors if we chose to be.”

To sum up, while entrepreneurs need to be adaptable, a lot hinges on the acquirer too, who has to repose trust and faith.

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