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The Barcode Podcast is presented by Titanium CPG Insurance. Titanium protects forward-thinking consumer brands with a range of commercial insurance products and risk management services designed specifically for natural and organic food and beverage companies. Learn more at

On this episode of The Barcode Podcast, Ben Ponder interviews Ryan Gravelle of Kastner Gravelle. The goal of this conversation is to help entrepreneurs learn more about the important legal decisions and issues that could come up within their business.

Ryan and Ben talk a lot about choosing the right entity for your business. They share some great general advice, but as always, listeners are encouraged to consult their own attorneys with questions or concerns.

What does being an entrepreneur really look like? It may have taken you longer to grow your business than you had planned. You may wonder how or why you got where you are. But if you find success, you may not know what to do when offers start to come around. Ben and Ryan discuss what to do if you are ready to sell your business. Social media doesn’t always tell the whole story.

Continued below…



“Try to look ahead…” (Ryan) The conversation begins with Ben asking Ryan about sole proprietorships. How do you know what type of entity you should be? Ryan recommends trying to find out what you see for your future. This can help you to work backward to create a strategy.

There are benefits to both LLC’s and C-Corps. Ryan encourages listeners not to make things overly complex. There are different tax impacts on different entities. Getting the right tax professional(s) involved at the beginning stages of your business can be extremely helpful and important.

What’s it like behind-the-scenes of entrepreneurship? If you start to get traction, you may have some great opportunities over time. It can often take longer than expected to get where you want to go. Your friends with different jobs may seem to have an easier work/life balance. But if things go well you could start to get some offers!

Be open-minded. Spend time developing relationships and try to be aware of who is doing industry-research.

Selling your company can feel like a full-time job. You will want to have a team to support you during this time while you focus on the conversations to sell your business.


The Barcode Podcast is brought to you by Titanium CPG Insurance.

Learn more about Kastner Gravelle

Learn more about Ryan Gravelle





BEN                           Welcome to the Barcode podcast, my name is Ben Ponder. I’m really glad you’ve joined us today. I’m excited to have Ryan Gravelle in the studio of Kastner Gravelle. We’re going to talk about law. So, this is my disclaimer at the very beginning, but I promise we’re going to make this as exciting, riveting, action packed as we can, but it’s actually super important. And so, we’re going to dig into that. I do want to make a general disclaimer that Ryan may or may not be your lawyer, but as far as this podcast goes, he’s not your lawyer. We’re not claiming to provide you with any legal advice and encourage you to in anything that we talk about today, please consult your own attorney to decide the direction that you need to go. But hopefully we’re raising your baseline knowledge as an entrepreneur around some of the decisions and issues that you may face as you scale your business.

BEN                           So, the last thing too, I want to remind everybody that The Barcode Podcast is presented by Titanium CPG Insurance. Titanium protects forward thinking consumer brands with a range of insurance products in risk management services that are designed specifically for natural and organic food and beverage companies. You can learn more online at And with that, I want to welcome Ryan Gravelle to the studio.

RYAN                        Thank you very much for having me, so good to be here.

BEN                           So good to have you. So, let’s go ahead and get started and tell us about your best meal ever.

RYAN                        Okay. So, I knew this was coming, I’ve been prepped a little bit.

BEN                           That’s right.

RYAN                        But it’s a hard one to answer. I’m one of those like food is emotion kind of guys. So, I think about what I’m eating next, I get excited about it. So, there’s a lot of potential ways to go with this. My favorite meal probably was a little bit less about the food, although I might have a multi-part answer.

BEN                           It’s okay

RYAN                        My first date with my wife, so I’m not like Austin OG but I’ve been here 20 years and so I’ve seen a lot of the cycles coming and going.

BEN                           You’re a Houston guy, right?

RYAN                        Houston for college and work a little bit. Denver, Colorado originally.

BEN                           That’s right.

RYAN                        I’m a mountain boy.

BEN                           I remember that.

RYAN                        So first date with my wife was at this restaurant called Mars, which is now Olamaie, I believe, just on the west side of downtown. Awesome, plays kind of like fusion food, really cool. Actually, reminds me of your studio and setting outside like really dark, really intimate. And it was just an exciting day and it was just, it obviously works. We’re married very happily; we’ve got two kids.

BEN                           How many years ago was this?

RYAN                        This would have been 2000. So yeah, 20 years.

BEN                           20 years, nice.

RYAN                        I’ve been in Austin for six months and things were looking up.

BEN                           That’s right, hey.

RYAN                        It was just one of those nights obviously where you get into the groove of a conversation, it’s going in places you didn’t anticipate. It was just really fun. The food was excellent, the atmosphere was excellent. Afterwards we went to a little plug, Bob Schneider at Antone’s, so of course very Austin. One is, a couple of institutions there, so.

BEN                           Absolutely.

RYAN                        That was really awesome.

BEN                           Do you remember what you ate at the restaurant?

RYAN                        I don’t. It was so overwhelming, it didn’t matter. You could have been eating saltine crackers and you would have been thrilled. And I consider that to be a good thing. I imagine it was pot stickers in some way, shape or form, but yeah, it was fantastic. Anyway, again, it was just like that setting kind of thing.

BEN                           That’s awesome. Would you consider yourself a foodie?

RYAN                        No, I would not at all.

BEN                           Do you feel like there’s sort of a social or cultural pressure in Austin to be like at least a pretender foodie?

RYAN                        I think you should know like what’s out there. In a lot of ways, I’m like a contract guy, I sort of just like to go in the other way.

BEN                           More of a hungry man TV guy.

RYAN                        Well, it’s not, it’s somewhere in the middle. Right? Like what I like is like something that’s pretty simple but like really well executed.

BEN                           Absolutely.

RYAN                        And so when you find that, that was kind of my number two answer. I had a meal recently out in Venice, California. Venice beach, actually Santa Monica, I guess there’s a restaurant called Capo and they have nothing to do with this podcast.

BEN                           That’s right.

RYAN                        I disclaim anything.

BEN                           I haven’t either. I think I’ve walked past it; I’ve seen it.

RYAN                        It’s nothing from the outside and you go in and it was a super casual, it’s a very nice restaurants and Italian place. But just really well done. Really just friendly, eclectic, cozy atmosphere and it was just pasta. But it was so well done. Like when you have just like a regular food and it’s just excellent, it’s just to the next level. And I was there with my friends and partners and it was a good time.

BEN                           Oh, that’s really cool.

RYAN                        So I do appreciate just a good meal.

BEN                           Yeah. And if you’re there in Santa Monica, you just assume that some restaurant, you’re going to be sitting next to some celeb or a movie star person.

RYAN                        I’m certain there were very important people all around me that I did not know why they were important, but it was a fun night.

BEN                           Yeah, absolutely. I was eating in a restaurant there not terribly long ago with an old friend. And I didn’t know this until after we left, but he goes, “Do you know who that was sitting next to us?” I said, “No, I didn’t even pay attention.” It was Mike Rowe of Dirty Jobs or the Ford commercials. And so, I go, Oh, could have been a fun side conversation.

RYAN                        Of course, that makes sense, he has to eat too.

BEN                           So it’s great. Yeah.

RYAN                        Well, it’s funny you mentioned that because that’s as I anticipate, possibly some of these questions. One of the things that we do a little bit of work in CPG and food and beverage, and one of the things I like about consumer stuff is that we’re all consumers. You could be the highest CEO, it doesn’t matter. Like we all consume things, we all go to the store, we make choices, we eat and it’s a visceral thing.

BEN                           And we have feelings about those things. And it’s visceral, it’s identity based. It says something about us and whether you shop yourself or you have people shop for you, you still consume. But you still consume those things and we have pretty strong feelings about all those things. And we all have those friends who you have a beer or you have a chip or you have a bar or whatever the thing is, and people go, oh, you drink that? Or like, oh, you drink that.

RYAN                        Yeah, it’s all batshit.

BEN                           You got some taste, your high class or whatever. So, it’s really interesting because you think, well, it’s not the Jetsons, right? Where we’re just sort of like, or Soylent only, where you’re just like, give me calories. But it says so much more.

RYAN                        There’s some of that coming.

BEN                           Certainly that’s an angle here. So, like I said, we’re going to talk about legal stuff, but we’re not going to talk about all legal stuff. Again, that’s a really huge topic. So, I want to focus, so you’ve worked in your practice, you focused on technology. Honestly, a couple of things that are very prevalent here in the Austin community. And I’m sure you’ve done a gazillion other things, but I know you’ve done a lot of tech and a lot of consumer-packaged goods stuff. And that’s for the brands, for the founders and for funds. And other people who are, again, the full gamut. Right?

RYAN                        Right.

BEN                           So from starting out and you’re forming the entity all the way through exit and all of the things in between. Right?

RYAN                        Yeah.

BEN                           And there’s just a really wide range of stuff that we could talk about. But I want to start off by let’s say I’m a first time or less experienced founder and I have an idea, maybe I have a product, maybe I have kind of a cottage industry type thing. I’m making a thing at home; I’m selling it to the farmer’s market or equivalent. And so, I’m a sole proprietorship, I don’t really have an entity. I’m just, Venmo me the money or something like that. Right? But then I think I may be on to something. This is really exciting. We should probably professionalize this. So, let’s talk about creating an entity. Now, there are not infinite numbers of entities, there’s a subset. How do you guide or walk somebody through the decision about what type of entity they should be?

RYAN                        Right. Okay. Yeah, obviously a pretty common conversation and one that you’re at an inflection point with your business, either just going from ideation mode to executing it or you’ve been doing it and like you said, want to professionalize that. And so, I think the way that I view the world and when we have those conversations, try to look ahead a little bit and tease out what do you see for this thing? And it’s not always an easy conversation because you might not know.

BEN                           That’s right.

RYAN                        Or you might think you know but it’s not how the movie’s going to play out.

BEN                           That’s exactly right.

RYAN                        And so one of the key things, if you know the path you at least want to be on or you think you’ll be on, you can reverse engineer from there to say, okay, well this starts to seem more like this type of entity or this type. And then you can start talking about, okay, now let’s play it forward a little bit. What do you want to do in terms of growth and team and all that kind of stuff? And so, I kind of start with that, that far out look and just philosophically the way that we work with startups and emerging growth companies, whether they’re technology or CPG or what have you, most companies are going to do things in their company life cycle.

                                    And so whether that’s raising capital in any form, whether that’s just conducting their business and dealing with customers and vendors and channel partners and all of this, or M&A at the end of the road, like you’re going to do those things. And so, you want to be as deliberate and thoughtful as you can to anticipate what is going to be problematic at those times. Right?

BEN                           And being deliberate and thoughtful is good business, but it also signals a certain thing to all of the, even future investors or future employees or other people like, oh, this person is taking himself or herself and this enterprise seriously enough that we’re actually thinking about how should we actually structure this. And that usually gives people kind of that that green light versus a yellow or red light around, ah, this person’s completely winging it.

RYAN                        Oh, that’s absolutely right. And so, one of the things, I mean, we’re getting off topic and I will circle back to it.

BEN                           I suspect we’ll do a lot of that.

RYAN                        Which is good, I like that. I’m a little bit more of a stream of consciousness guy, so bear with me. But I think when you think about a company, you’re going to form an entity, you’re going to have a cap table or you’re going to have your ownership reflected in some way. And then as parties get added into that, what does that look like? Now, that will just take a form organically because of how your business evolves. But back to that philosophy of you’re going to do things down the road, I really strongly believe in like starting with kind of a standard form and as plain vanilla as you can be at the outset.

BEN                           Don’t make it more complicated because it’s time consuming and costly.

RYAN                        Right, it’s KISS. And so, I’ve been involved with companies that, super, super smart entrepreneurs, super smart Corp Dev people who almost engineer complexity just because they can. And sometimes, like if there’s a compelling reason to do that, that’s great. It’s wonderful to have that skill set, but if you’re doing that a little bit more gratuitously just because you want to be different or clever, recall something, just understand that the first person who goes to take a look at that from the outside is going to spend time understanding that and decoding that and being like, what is this and what, you know.

                                    So, we talk about entity selection and like we do a lot of work in tech and it’s all Delaware C-corps in tech, because the people that you’re going to be interacting with down the road are going to be familiar with that. They’re already speaking the same language. There’s a million other more substantive, compelling reasons, but if you just think about that, like start on this simple trajectory and like kind of build from there where it makes sense.

BEN                           And also don’t introduce unnecessary complexity. I feel like it’s particular with an entrepreneur or somebody who thinks of themselves as innovators it’s tempting to say, I’m going to innovate everything, right? So, I’m going to innovate my business model. I’m going to innovate my legal structure; I’m going to create new glasses for me. Or, whatever. You’re like, okay, slow down, focus your innovation on the areas that matter for your business and certain things. It’s okay for you to just say, eh, this part, we don’t have to create a new corporate structure that doesn’t exist on the planet.

RYAN                        You almost have to toggle off.

BEN                           You’re better off focusing on not creating a new thing there.

RYAN                        Yeah. Well, and so, that speaks to one of the, when we get back to this original conversation and you’re talking about like, what do you think about your future life, are you going to raise capital? Like there’s two big forks in the road with companies and particularly when we’re talking about like a C-corp is a very popular form, an LLC is another very popular form. In the CPG space, probably more prevalent certainly to have LLCs. And so, you start thinking about, okay, LLCs have so many wonderful attributes, a lot of them earlier on in a company’s life cycle. And so, when we have these conversations, we say, okay, there’s going to be a couple of forks in the road and I want to hear from you entrepreneur, what do you think about this? And you don’t have to have the right answer, but what we’re trying to do is have maximum optionality and the right form for the right point in time. It may not be the right form through your whole life cycle, because there’s certain inflection points and junctures where it makes sense to change that form.

                                    So as long as you’re anticipating those great, you’re almost kind of like building this whole mental flowchart. And so, there’s two big junctures. One is like, do you anticipate raising outside capital? If the answer is no, then that tells me something. And then my follow-up on that is, sometimes like what do you see for this business?

BEN                           How are you paying for things.

RYAN                        Is this going to be cash-flowing? Is this kind of a retained earnings hockey stick sell it for multiples down the road? That kind of informs that discussion.

BEN                           And that, just for the folks who may not be as familiar with these things, so cash-flowing as in you make a profit, you distribute that profit to the owners versus a retain earnings where you’re plowing every extra dollar that you make back into the business. You can think of it like Amazon, where you’re building scale, building scale. You’re not taking money or if you are, it’s very minimal amount of money out of the business. You’re just saying, how can we grow, grow, grow, grow, grow.

RYAN                        That’s right, that’s right. If you have a successful business, and I heard one of your earlier podcasts where like, sometimes in consumer you, like if you are doing your job right your kind of making money along the way, right?

BEN                           That’s right. It’s a cool concept.

RYAN                        It doesn’t always happen that way right away upfront, but sooner than later and it’s a neat concept. In technology, you sometimes see a different approach and that’s ultimately the goal somewhere.

BEN                           That’s right.

RYAN                        But that kind of model is that, so retained earnings, you’re putting it back into the business, you’re trying to grow the balloon, right? So if you have a pass through entity, which like an LLC or an S corp or something where the profits, the losses, everything is passing through to the individuals, as that balloon inflates, your sort of deflating it, maybe on a quarterly or annual basis depending on how you’re doing your taxes. And that’s great too, if you have a business that’s making a bunch of money and a classic example would be just like a services business where I’m getting paid by the hour. And so like, that you’re not trying to build that and sell it, but if you want to put money back into R&D and growing sales and marketing and getting more sales and ultimately the end goal is that big exit, that’s helpful to note too. Because again, you’re sort of like charting your path, there’s a million little tax decisions and sort of implications with how you do this.

                                    So back to the forks in the road, are you going to raise capital? If so, is that going to be institutional, is that going to be mostly angels? Is that going to be friends and family, all of those kind of tell us something about the path that you might be on and the right form for you. That second fork in the road is, tell me about the team and the growth. And are you going to have 80 people working in warehouse and you’re going to pay them sort of just cash compensation or do you want to incentivize with equity? Because that’s a really big one. So those two answers tell me a lot about C-corp versus LLC. And then of course, just like overall looking at the industry they’re in and all that.

                                    Because even some of the institutional investors, and when we say institutional investors, really what we’re talking about is venture capital firms or private equity firms who have limited partners, those limited partners are typically, maybe university endowments, pension funds, other large-

RYAN                        It might be nonprofits.

BEN                           It could be nonprofits, different entities that have restrictions around what they can invest in because they can’t bring on a bunch of other tax liability and some other things like that. So now because LLCs are so common in the CPG space, most of the even bigger firms have kind of created work arounds, what they refer to as like blocker entities or things like that. So, it doesn’t mean that if you are an LLC that you cannot raise big amounts of money, it just means there’s a different path.

RYAN                        That’s exactly right. And so, when I talk to people about LLCs and C-corps, LLCs are tabula rasa, right? There’s nothing on the slate. There’s very little statutory guidance or said another way, there’s a ton of operational flexibility, they’re easy to get up and running. And a C-corp is off the shelf like this is, one is off the shelf and one is bespoke. An LLC is bespoke in a way.

BEN                           And so the way I like to describe it to people around the LLC you can actually write into your company agreement in Texas a company agreement and other places operating agreement that you have to kiss your wife on the cheek every day in the LLC agreement, and you actually have to kiss your wife on the cheek. Like random, weird stuff. I mean, that’s a silly example sort of, but it’s whatever the agreement says is the truth there. Whereas in the C-corp world, this is a more traditional corporate thing. There’s procedures, this is how this goes, but the LLC can be for good and ill, the wild, wild west.

RYAN                        That’s exactly right, yeah. And we’ve worked on exits for quite large companies that have raised two, three, four rounds of capital, have tons of employees with equity incentive. You can do all these things, you can actually, because it’s a blank slate, you can make an LLC look pretty close to a C-corp in terms of the way that it functions and operates. In fact, you’ll see the operating agreement is kind of like the, where all of the equity stuff and the bylaws of a corporation it’s all kind of rolled into one and you’ll see some of those that look a lot like a corporate charter. You can do all those things. The way that I sort of break that down is to say, okay, well we can land at the same place, but every time you do something as a company, particularly in the fundraising, in the M&A world, you’re going to have possibly a little bit more transactional friction at those stages.

                                    And again, like back to philosophy of like, how do I optimally run a company in this respect? You want to take some of that stuff off the table if possible. So, the C-corps offer a little more streamlined growth path because you can layer all these things in. It’s pretty tried and true. It’s very much dictated by statute and so they’re going to look a certain way. So, when you do those things, there’s less sort of like a translation layer that needs to happen, but you can absolutely do that with an LLC and land in the same place. And there’s nothing prohibitive about exiting as an LLC versus exiting and as a C-corp, although there are some potential like tax things that at that point.

BEN                           Correct. Again, some good and some bad.

RYAN                        Some good and some bad, yeah.

BEN                           And so that’s where, like you mentioned the transactional friction. If your investor or investors are familiar with one type of entity and they are less familiar with a second type of entity, then that’s the kind of thing where they go yeah, but how does this work? Or the difference could be not just the investors but the attorneys or bankers or other people who were involved. What could have been, let’s say a one- or two-month long process could stretch out and be a six to nine-month process and then it’s costly for you. It’s costly for the investors, it’s costly time wise because everybody’s kind of like learning and making things up. Again, the wild, wild west part of it could potentially be costly depending on who’s involved.

RYAN                        Yeah. And more practically speaking, we touched on this a second ago, but to kind of circle back to the equity incentive piece of it, with an LLC you have a lot more choices of how you do that. Again, you can make it look a lot like a C-corp, but I try to like give the advice of, think about the practical impact of that. Like we can make this work and do the pros and cons, like whatever you want to do.

BEN                           That’s right.

RYAN                        But let’s just say you’re about to make an offer to a CMO or an executive, a key person or really anybody where there’s going to be an equity incentive component and they’re looking at a competing offer because they’re out trying to get a job and so they’re talking to several folks and they’re looking at a competing offer with X thousand option shares from a corporation. Well your offer has, it might be LLC options, it might be profits interest, it might be a capital interest, it might be phantom shares.

BEN                           It might be phantom equity or something like that.

RYAN                        Which the nomenclature gets like dizzying, right? And so, if your somebody particularly at maybe not that executive level but at a mid-level or an entry level and you’re taking a look at these things and you’re like, okay, most people have sort of been around a corporation somewhere, they’ve heard of stock options. You can research that stuff a little bit more readily.

BEN                           You are granted, and again, there’s a lot of flavors of that, but effectively you’re granted a certain number of the option of purchasing shares at a given price and the option of selling those shares at some other strike price. And typically, the idea is to help this employee act like a co-owner of the business to help grow the pie, not just their little section of the pie but the whole pie or the balloon as you say. And so, this is certainly, it’s super common in the tech space, but in general, people have at least heard of options in some ways.

RYAN                        There’s some passing familiarity, right?

BEN                           You’re still an employee too at that point.

RYAN                        Correct.

BEN                           Which has, again, in the LLC world, there can be some really interesting complications there too with that.

RYAN                        You can get into letters and numbers of tax forms and all of that. That gets a little confusing and that’s the point, right? Is it going to be limiting to you on a recruiting level to be offering something up to people that they don’t really know how to digest, and they don’t know how to compare? Again, that doesn’t mean you shouldn’t do it, but it’s something to be aware of particularly as you get a little bit more exotic with some of the sort of LLC forms. Now I’m making it sound a lot more indecipherable than it is. It’s just when you’re going to do equity incentive with a C-corp, there’s kind of one way to do it. It’s driven by the tax code, you’re going to see an option plan, an option agreement that’s not going to look terribly different from one company to the next.

                                    Whereas with an LLC, you’re going to need to kind of sit down and spend some time with it. And the last thing you want, and this is like literally a conversation that’s happened where a friend or a client who’s looking at another opportunity might call up and be like, do I need to get a CPA to take this job? Like that’s not a great thing.

BEN                           That’s right, yeah.

RYAN                        Which again, that can be solved by education and sitting down and being like, let me translate this for you so it’s not so complicated. And let me share what that means to our cap table and so you can do your job in that. But I think that’s a, it’s not necessarily a limitation, it’s something that is really important when thinking about a C-corp versus LLC, if you say, okay, one, I want to get outside capital right away and I think it’s going to be institutional. And so, who are the caricature of those investors? But two, I’m going to hire a bunch of people, I want to do equity incentive. It’s really important me to share the cap table, that’s a noble thing. That’s excellent. That’s how you get people bought into your business. It’s going to instantly get more complicated with an LLC than a C-corp.

                                    But kind of pulling back 30 feet or something, one of the really nice things about an LLC and I think part of the reason you see it a lot in this space is okay, I don’t exactly know what I want to do yet. I know I need to get something going. Like I’ve already reached the point where I know that a sole proprietorship is not a smart way to operate.

BEN                           That’s right, because I’m not protected.

RYAN                        Not protected.

BEN                           All of my personal assets and self, everything is completely pasture at that point. Right?

RYAN                        Oh, it is.

BEN                           So all the risk, all the liability is straight on you.

RYAN                        Yeah, it’s the default state in the eyes of the law. And so, the minute you start weaving bracelets and selling them on Etsy, bam, you’re a sole proprietor. And there’s no cost to set that up, there’s no structure. It’s no complexity, it’s also no protection at all. So, I think once you start getting any scale at all and starting to have kind of like counterparties and in these agreements, that’s when you sort of hit that professional moment. You’re like, oh, let’s just do this. And I think most startup lawyers and CPAs are mindful of the fact, they’re like, okay, you’re on the front end of your journey, you’re spending on X, Y, and Z. It’s sort of like buying an air conditioner. It’s like, I don’t love the feel of doing that, but I know I need to do it. So, it’s worth thinking about it and taking that leap at that point.

                                    So, one of the nice things about the LLC is you always think about like optionality in this kind of future path. An LLC, you can form it, it can sort of evolve over time. You’ll have an opportunity and I think it’s on everybody to do this. I think it’s in their best interest to sort of watch for those inflection points where the company’s starting to grow. You’re starting to bring people on or maybe bringing that first person on or getting to a certain size where you want to be thinking about how money’s flowing through and how it’s being taxed and all of that. But early on there’s tons of optionality with an LLC, that I think if you don’t make it complex on the front end and again, like that’s a big if because some people can’t resist that, not unnecessarily complex.

Again, the minute you have one founder to two founders plus, then you have to have certain things and protections and governance language that just needs to exist. So it goes from a two page document to a little bit more once you need to do that, but you can set that up and then like the big thing to keep in mind with the LLCs and the C-corps is you can always convert an LLC to a C-corp. Now, the longer you wait and the more sort of like infrastructure that you’ve built around that LLC, the harder, more expensive that’s going to be. But it’s something we do all the time.

BEN                           It’s doable.

RYAN                        And a lot of times when you get a term sheet from an investor that doesn’t want to invest in an LLC, so it often happens with a series in a term sheet.

BEN                           In terms of the triggering events.

RYAN                        It is a triggering event. Absolutely. And you’re like, okay yeah, I would love to take your dollars and let’s go solve this. But you can go in that direction. You can’t go in the other direction without basically like liquidating that.

BEN                           You’re selling the company.

RYAN                        You’re selling the company and you’re having a tax event when you’re just trying to change your entity form. So that again, when I’m having like dialing back to that first conversation where you’re saying, okay, tell me about what you want to do. And somebody sits down in our office and they go, I want to build an app, I want to build a database engine and I want venture capital and I want to sell it to Google or Oracle or whatever in five years, that’s my roadmap. Then we set LLCs aside. We say, it doesn’t even make any sense to try to kind of go down that path. If you don’t know, if optionality is important to you, then I think sticking there makes a lot of sense.

BEN                           Absolutely. That’s a great way to kind of frame it. I think another thing that’s important for people to understand or that they get intimidated by is the notion of double taxation. Right? So now when you’re a startup, if you’re not making much money, that might be a little bit of a mirage, like it’s an issue that you could get kind of like in a tizzy over and you’re like, but are you making any money? Are you paying taxes? So, tell us at least the basics around how like the tradeoffs on taxes between the LLC and the sequel, because that is a big difference.

RYAN                        Right. And there’s a lot to that.

BEN                           Of course.

RYAN                        And I think one of the things that we always tell people is like if you’re going to go down the LLC route, it behooves you to find a good CPA right away because the questions will just come up pretty frequently. And there’s a lot of language in there because there’s so much flexibility about doing allocations of profit and loss and much more so than the rigidity of a corporate form. You really need a CPA who understands that stuff and who understands capital accounts and can keep you on the right side of the line. It’s important early on, so that’s like another thing to kind of think about.

                                    So, we talked about LLCs are at the fundamental level, a pass-through entity and C-corps are not. I think a lot like fast forwarding to exit, everything’s gone great. You’re five, 10 years down the road, you’re going to sell the company, there is a two layer tax that happens with a C-corp in certain types of transactions where if the corporation is the one sort of selling the assets, then the money goes into the corporation. There’s a tax, at that level and then it gets dividend-ed out to the stockholders and there’s another tax. So that’s these two layers of tax you hear about, with an LLC you don’t have that, it passes through.

BEN                           So is there a stock versus asset sale distinction there. Can you highlight that?

RYAN                        Yeah. And again, grossly simplified because there’s all kinds of complicated structuring that happens at the M&A moment. And a lot of it, by the way, you can navigate around some of these issues, so you don’t have to make the right call upfront always. But there’s a lot of ways where you might have, C-corps are eligible for certain like tax-free reorganizations. But again, if it’s an asset sale where the corporation is selling the assets, those dollars are going straight into the corporation. But there’s other structures like mergers and stock purchases and the bigger a company gets, the more likely you are to have that type of transaction. Again, some of that gets to some of the like governance around that and who you have to get to consent to it. But in the M&A world, only a subset of transactions are asset deals.

                                    Now there may be more of those in CPG than tech, if I had to just kind of like wager a guess and that may be driving some of that sort of entity selection. But you have that two layer of tax. The other thing is if you’re a corporation, and again, you see this a lot, like in the tech world, they’re not making money right away and possibly for a long time.

BEN                           It’s a huge distinction.

RYAN                        It’s a huge distinction, right? So, when you’re not making money, you’re generally creating tax assets, like net operating losses that sit at the corporate level and there’s a lot of limitations on how those can be used. But if you happen to do an asset sale and the money comes into the corporation, it doesn’t mean that the entire piece is taxed there because then they turn around, they look at their tax assets and they go, okay, well I can offset a certain part of this game. And a lot of times you can come out of that without really having like a significant corporate level tax. And there’s really smart tax attorneys that we work with.

BEN                           That’s what they do every day.

RYAN                        This is what they do, and they get involved and if I had to say anything, it’s your tax person involved early on in that process when you’re starting to think about structures

BEN                           Get the right people.

RYAN                        So the point of all of that is it isn’t a moment that’s frozen forever where you have to say LLC, C-corp, oh, I got to avoid this double layer of tax. I’m working on an exit right now where, and it’s been a while since the CEO made this comment. But I remember about a year or so ago, they’ve done several rounds of capital, a pretty broad diverse cap table, some strategic, some traditional dollars, some high net worth folks and just all kinds of complexity that’s come up. This is one of those ones where you’ve got this like 80-page LLC agreement and every time you’re doing something, you’re like, okay, let’s sift through all this kind of stuff.

                                    And the reason that the CEO set this up this way was this fear of the two layer corporate tax. And he’s like, man, if I had to do it all over again, knowing what I know now and the trajectory that I’d be on, I would not have gotten all hung up about that because it would have been so much easier along the way.

BEN                           Simply, it would have saved me money, all this sort of stuff.

RYAN                        And again, I’ve also seen examples where sort of went the other way and it kind of netted out at the end. It’s hard to predict. But in terms of like the getting back to like tax impact on the entities, that’s one reason and I think a little bit more gets made of it than is necessary of that two-layer tax at the corporate level. So, you’ve got the pass through with an LLC, so again, you’re running a business, getting back to that optionality point. Okay, I know I’m going to be spending on raw materials and building my inventory and sales and marketing and collateral. Like it’s all spend, spend, spend at the front end until you start getting something in a store and somebody pays you for it and that’s great. But that may take a year or may take two or may take less time than that and good for you. But I think one of the big appeals of an LLC is, well, if I can pass through my profits but also my losses, then that’s a real tax advantage in the early going.

                                    So I’ve definitely seen people sort of play that out and say, I kind of want to start as an LLC. I’m going to keep it simple right now. My startup costs, my speed to existing are pretty quick. And for that first year I know I’m going to be generating losses and I want those, that’s important.

BEN                           That’s right.

RYAN                        I think it’s also why you see, I think that there’s a lot of like angel investors and angel groups that have a really heavy bent for LLCs again in particular industries. And I think that’s because they like the ability to take those losses and they can take those.

BEN                           Which again is important for people to understand that means that with an LLC, it doesn’t mean that you necessarily, it depends on the agreement, but you can take profits and losses differently. And sometimes for high net worth people or people who make a lot of money somewhere else, they actually desire, they would love to take losses if they can take a large amount of losses from an investment that they’ve made that actually helps them on the tax side.

RYAN                        Yeah, that’s right. So, they’re looking across a portfolio view, which you’re thinking about your company. And so those are little tugs of war that you have because you ultimately want to hold your ground and do the right thing for your company. But those are the people that want to write you a check and so you engage in that conversation.

BEN                           So do you see, and you alluded to this before and I’ve heard different opinions about all of this, but when you are exiting, so someone is acquiring your company. If you’re an LLC, there are tax implications at that point as well. And sometimes depending on the situation of the acquiring company, that could be really beneficial, right? Because they can, because of the LLC pass through structure, they can effectively write off or write down that acquisition over a period of years and that sort of thing. And so that can even be a point of leverage or negotiation. When you’re talking with this acquiring company, you say, hey, you’re kind of getting this for free or at least heavily discounted over some period of time, so because of that do you think we could meet in the middle? And there’s some sort of a carrot in there for us there, flush that out a little bit.

RYAN                        Yeah. And it’s so variable at that moment that it’s hard to do that in detail.

BEN                           It’s tricky.

RYAN                        And that exists somewhat on the corporate form too. I think the key lesson out of that is I think people think about their business and they’re thinking, revenue multiples or maybe EBITDA multiples if they’re making some money. They’re thinking about that level of the business, they’re not necessarily thinking about what you just raised, which is either through the corporate form or through these tax assets, and when I say corporate form, that could be LLCs or C-corps. But what other attributes are values to the buyer that is not just my top line revenue or my profitability or my distribution channel because that equals value to, do they have to assume debt? Are they taking it on a debt free or cashly basis?

BEN                           Is your business a hot mess?

RYAN                        Is your business a hot mess, and then you’re going to do, and this is like, people will shut off this podcast at this moment if we start talking about it, but you have like networking capital adjustments and that’s all the ways that buyers look at a company and they go, what do I look like on the other side?

BEN                           Am I getting a discount, all the things. So, I think of it this way, you’re buying a house and you think you’re going to buy the house for X. And then you get in and you realize the sink doesn’t work and the toilet’s broken, and the roof is leaky and that sort of thing. You’re going to discount all those things. You’re like, okay, I’m not paying what I thought I was going to pay because now I know I got to pay to fix the roof and fix the toilet, fix the sink. And so, in the same way an acquirer is going to look at your business during the due diligence phase and say, oh man, I looked under the hood of this thing, I’m going to discount some things.

RYAN                        Right. Absolutely. They’re going to make that judgment. And kind of by analogy, if you’re selling that house and you know in the attic that you have like an original DaVinci but it’s covered up with a picture of like the Teletubbies, you might want to let them know that because that’s going to be some like hidden value. And so that’s these like tax assets or the tax treatments because when they’re all doing their decision-making calculus and kind of running the number on what they’re going to pay for your business, those are important things too and can really drive that. So again, all this stuff is super esoteric.

BEN                           Esoteric until it’s not.

RYAN                        Until it’s not, but then you have like people to help guide you through that. And I think there’s just a lot of structuring and changes that can be made. And this is the art and science of doing M&A LOIs is okay, what’s the best way to tease all this out and arrive at the mutually optimized place for that. You don’t really know. You don’t have to figure that all right now. So, I think again, it’s important to kind of know where you’re pointing your ship. But then you start going, okay, now I know that far off destination so we’re going to point in that direction, but first I got to get to this first Island.

BEN                           That’s right.

RYAN                        It’s torturing these metaphors.

BEN                           No, it’s excellent. I love it. So then as your business grows, you’re going to involve attorneys in a variety of things. You have … To run a business is a world of contracts and agreements, you’re going to have employee agreements, you’re going to have co-packer contract manufacturer agreements. You’re going to have vendor and supplier agreements and all these different things, right? So, you want to make sure that you’ve got your ducks in a row as you’re conducting your business, as you grow and that all of those things are being evaluated. But we’re going to kind of for the moment, sort of skip forward a bit and say things go well for this hypothetical company. And you are the belle of the ball, and so all strategic acquirers or maybe private equity firms or other entities, you’ve now reached a level that you’re on people’s radar.

                                    You have their syndicated data that indicates, oh, you’re actually a really big deal. And so, then people begin approaching you and say, hey, have you ever considered selling your business? And you will either say, yes, no, or maybe, or I’m flattered, but not now. You say whatever you want to say. Let’s say that again, some period of time you get to that point, walk us through because you’ve been a part of a number of these, like what sort of the real deal behind the scenes? Because I feel like there’s this mythos around entrepreneurship. It’s like, okay, you start a thing in your garage or in your kitchen, you work really hard for a number of years. People always think it’s three to five years and it’s almost never three to five years, right? It’s really like if it’s 10 years.

RYAN                        It’s 10 or 12.

BEN                           Yeah, that’s right. If it’s 10 years you did great, so it’s going to be a lot of work and you’re going to watch all the rest of your friends or like high school classmates go in and have like normal jobs and they’re going to have like probably a better house and better car than you and they’re going to somehow work less than you and you don’t understand why did I do this? Am I some kind of masochist? All of those things you’ll go through. But then if you got some of that traction and if people really love what you make, then over time you may have some opportunities. Then you get to this point and let’s say you are actually interested in selling your business. What happens at that moment? Do you just like just send an email to people and then all of a sudden like offers start coming in and they wire you money and your Scrooge McDuck rich. And how does that work really?

RYAN                        Yeah, it’s a great question. And I think one of the key things to sort of remember is that one, the grass is always greener and two, what you see in the media is rarely how it happened and how it came together and even what that deal meant.

BEN                           There’s the real story that again, what the people are telling you from the stage is, I’m not saying it’s not true, it’s a version of the story, but it’s often not the nitty gritty details and the sometimes ugly and complicated and fraught aspects of these.

RYAN                        I think it’s really interesting if you spend time on Twitter or social media and you follow industries and you see these stories, the times when you know what happened on that deal and you’re like, oh, that’s a pretty interesting spin on that deal. You hear just enough of it to go, wow, that was really amazing because people are marketing, they’re projecting what they want that image to be.

BEN                           And by the way, that’s one of the initial impulses behind this podcast by the way. Like how I built this, it’s a great podcast, it’s super. I know the behind the scenes of some of these different stories, and I know that entrepreneurs listen to these things and they go, oh, wow, that’s so awesome. But then sometimes if you actually know the person or you know the story, you’re like yeah, that’s not how it really went down. Or maybe that person had a series of advantages that they didn’t exactly go into, that were pretty instrumental in their overwhelming success. Right? So, one of the premises of this is like how do we peel back the layers a little bit and like, what’s it really like?

RYAN                        Yeah. Well, and I think, there’s obviously different pathways, but you’ll hear lots of people talk about this and I think there’s just so much truth to it, which is you see companies go kind of one of two directions and regardless of industry, but I have this thing, I think it’s the best thing ever, it’s novel, I’m going to make a gazillion dollars on this and so I’m going to set out to make a gazillion dollars on this, right? And that’s path one. And then path two is I really am passionate about this thing; this is a problem, or this is a missing piece of the world and I’m going to fill that piece and that is going to be my passion and my driving force. My goal is to execute that.

BEN                           And maybe I’ll make some money along the way.

RYAN                        And maybe I’ll make some money. If you do that and focus on that, there’s plenty of really amazing businesses where that was the primary object. The rest of it kind of falls into place and the behind the scenes is that could be a conversation from a potential investor or a competitor or somebody that you had a business conversation with at some point along the way where they got to know you a little better. They start thinking, well if I could combine this with my thing, this might be pretty interesting. I think a lot of like ultimate end-stage acquisitions start years and years earlier with these conversations.

RYAN                        And so, as an entrepreneur I think it’s important to focus on your craft and your thing and do that and execute it well, but also be really open minded about what these conversations are. Open minded to the possibilities but also open minded to be a little bit guarded about what some of them might be.

BEN                           That’s right. So, you’re having some good conversations along the way, maybe you’re not shopping, maybe you’re not even interested, but you are developing relationships. At the same time, you’re keeping your cards relatively close to your vest too, because it might be that people are just sort of shopping for competitive intelligence because they go, oh, I didn’t realize this is a really good opportunity. I should clone that.

RYAN                        Right. And you see this a lot on the investment side where a company might get a call from an investor they’ve heard of and it’s a big deal and it’s kind of like a junior person there and they’re like, somebody wants to invest. It might be like a little sniff.

BEN                           I get these phone calls pretty frequently and I’ll say, you’re too small, they don’t write checks that small. All they’re doing is industry research.

RYAN                        They’re doing industry research, right? And so be careful about how much you’re sharing there. At the same time, you’re starting a conversation, have a nice dinner.

BEN                           Absolutely.

RYAN                        Absolutely. I’m really a firm believer in just open aperture about those types of conversations. Just try to be, read a little into what that conversation is, but you never know where they turn. So, on one end of the spectrum, like the behind the scenes is okay, I think we’ve hit the right juncture. We’ve hit our goals or icy choppy waters ahead; I’m looking at the competitive marketplace. We need to sell this company, or we want to sell this company. We’ve done it long enough; we think the timing’s right. The macro trends are right, whatever the analysis is.

BEN                           I’m tired, whatever the thing is.

RYAN                        I’m tired, absolutely. That’s when you see somebody start to talk to advisors like an investment banker and somebody who’s going to sort of put them on the market and start doing some targeted outreach. That’s a very deliberate process.

BEN                           And in those two, again, typically at that phase you will have a relationship with an investment banker, which is a little bit of a misleading job title because they are really a mergers and acquisitions specialist and they’re not a banker, like maybe you think of a normal banker, right?

RYAN                        That’s right.

BEN                           And then you will often have some one or more securities attorneys that are involved in, or corporate attorneys that have some experience in transactions of this sort. Again, not just any attorney but somebody who’s done some stuff like this.

RYAN                        Yeah, absolutely.

BEN                           So those will be two key advisors.

RYAN                        Those are key advisors at that moment. And earlier than you think. I mean, even the engagement with the investment banker that you choose is filled with a whole lot of stuff that relates to their fees and when they get paid and what they’re doing for you and all this kind of stuff. So not to plug advisers because I am one, but like being aware of that stuff. But that’s a very deliberate process. And I would say that’s certainly a smaller subset of total deal processes, more of them happen, not accidentally, but that sort of organic relationship development. And then there’s some where you’re the belle of the ball, the phone’s ringing off the hook, everybody wants to talk to you and then you’re like, okay, now I’ve got tons of options and what do I want to do?

                                    That’s almost an interesting moment when you’re getting so much interest, you’ve seen several examples of this across industries over the past years where a preemptive offer comes in, bigger companies buyers are expert at figuring out the moment when you’re like, oh sure it would be nice to take that off the table. Versus actually this is going really well and if I got it out for another couple of years, I’m going to come out a lot better on the back end. That’s a really like harrowing moment as a founder, because you’ve worked so hard and you have this opportunity for success and that’s not the wrong decision to take it. That’s a very personal thing.

BEN                           The classic example being Facebook’s acquisition of Instagram.

RYAN                        That’s correct.

BEN                           Right? So, it’s $1 billion, again, and they had 13 employees or something at the time, so amazing outcome, amazing exit.

RYAN                        However …

BEN                           Existential threat to Facebook at the time. It could have been much, much greater. Again, maybe that doesn’t matter, but sometimes these preemptive offers are, I need to acquire this now.

RYAN                        Right. This is going somewhere; it’s not going to go away. Yeah, and so you see these kinds of like defensive acquisitions and that’s pretty, and particularly like with IP portfolios, more on the tech that side you see this kind of activity a lot. But yeah, so to not give any details, but we’re working with a company right now that is in that spot where it’s starting to work, their right on the front end, there’s somebody who’s a much, much, much, much bigger player in the space who’s looking at that and going, you’re a fly in my ointment and I need to figure that out. And so that spurs a lot of kind of acquisitive type conversations. And again, that’s one of those sort of like check your gut moments where you go, okay, do I want to be a bigger fly in that ointment? That ointment’s pretty big, I kind of like that position.

BEN                           That’s right, have you poked the bear?

RYAN                        Have you poked the bear? Right.

BEN                           And are you prepared for the consequences of poking the bear?

RYAN                        Yeah, right. Not an easy answer for that, right?

BEN                           That’s right. So, you can see, again, this is a tech example, but like the bumble and match group, all of those sorts of things, right? So, you can be a big deal and if you become an actual threat to people then this can be serious business.

RYAN                        Right. Yeah, absolutely.

BEN                           And it can be a little scary. And you’re like, I’m kind of nervous, right? So, you just want to know that that’s what you’re getting into. But again, to your point you have these options and you laid out the, I want to grow, grow, grow, and I’m kind of always thinking I’m going to build this thing to exit. Other people are doing what is often particular in the tech space, referred to pejoratively as a lifestyle business. But I don’t buy that because I actually feel like every business is a lifestyle business, it’s just a matter of what lifestyle you want. Because if you have a business, most people, if you had a business that threw off $1 million in cash a year and wasn’t a ton of work, like most people think, well, you’re a pretty smart person. Like that’s pretty good. And nobody’s going to make fun of you for that. Right? And I guess that’s a lifestyle business.

RYAN                        Amazon’s a lifestyle business.

BEN                           Exactly.

RYAN                        It’s funny that that has become such a loaded term.

BEN                           Right. But in CPG in particular, you get to a point. So, the truth is, when you’re tiny, you’re not even a fly in the ointment, you’re not a germ in the ointment. Like you’re not on the radar, but you want to get to the point where you’re big enough or disruptive enough that you’ve gotten somebody’s attention in some way. And then ultimately, they’re kind of two acquirers, right? There’s the strategic acquirer and the financial acquirer, and those aren’t necessarily mutually exclusive categories because different people have different motivations. But in general, the financial acquirers, you can think of is these larger private equity firms that may be trying to roll up a few different pieces into a thing and then eventually they’re going to sell it.

                                    A strategic acquirer, honestly, in most cases has outsourced the R&D of this new brand or new product line to you. And they figured they weren’t good at this, it’s cheaper for them and this is crazy, but it’s cheaper for them to pay you $100 million than to waste $200 million failing to knock off what you are doing, right?

RYAN                        Absolutely, right.

BEN                           And so then most often, this is not always the case, but most often as you get to be big enough, different companies are different interests to different acquiring entities. And your exit scenarios will be determined by what kind of momentum you have, what kind of margins you have, like the strength of your brand. Is this a strong company that the acquirer says, oh, this is growing and I’m going to pay for that forward-looking growth? Or is this a company that has plateaued or maybe even is in decline or distress where you may get an exit. And again, you often in the media narratives don’t really get the true story here because a lot of things that get acquired and you think, oh, you’re rich and maybe they are weren’t exactly the rosy scenario that gets painted.

RYAN                        You rarely know the details of the cap table when you read about these acquisitions and that’s where the magic happens. But yeah, you mentioned a key thing, a couple of key things in that conversation, which is, one is brand. When these big companies are looking at little companies and you see this, we work a lot with some spirits companies and in food as well. You have bigger buyers that are more of kind of a conglomerate approach or their portfolio builders.

BEN                           Constellation is not a brand, it is a constellation of stars and the stars are the brands.

RYAN                        It is literally a constellation of brands.

BEN                           That’s right.

RYAN                        And so they’re looking like to that the external R&D, it’s not even like who’s building the best products on some type of like objective level, but where’s the brand falling and where’s that trajectory in terms of who’s demanding this? And if that’s lining up, that becomes a really interesting addition. And so the other key point that you mentioned is the strategic versus the financial and sort of knowing those objectives, this is really important because a lot of companies will have an opportunity at some point to raise capital from a strategic investor, which sounds like a really amazing thing. Hey, we’re like already on the radar, they love us, they want to put in money.

BEN                           It’s good and bad.

RYAN                        Guess what? There’s going to be a lot of rights to get negotiated because they want a first bite at the apple, and you want to give them a first look at the apple and not a guarantee from the company side.

BEN                           That’s right.

RYAN                        And so those are great deals though.

BEN                           You can imagine, if other people, again, you have that corporate VC arm, they have full access to your financials, and they don’t buy you, what does that signal to the market? So somebody who’s gotten to know you, let’s say over three to five years and at least from an outside perspective, you seem to be doing well, but then this other large entity that would on paper make a great home for your brand has decided against acquiring you fully then what does that signal to other people, right? And so that’s a consideration, not necessarily the only kind of consideration, but one and then the kind of first bite of the apple thing where other potential suitors might say, oh, they’re just going to totally use me.

RYAN                        They’re locked up. Right.

BEN                           So why would I bother? Why would I make an offer on this deal because they have kind of a most favored situation here? So, anything I say they’re going to raise it by a dollar and win.

RYAN                        You’re making a very deliberate choice to sort of get in bed with that particular company so that other market signal is okay, they’re sort of entwined in some way and I’m not going to be able to get in there. Now, when you do those deals that’s kind of the work of structuring those, is how do you dilute those rights? How do you make sure that everyone’s still playing by fiduciary rules so that if you have options on the table, you have some outs so you’re not foreclosing things. But again, that’s a key moment where you start really thinking a lot about optionality and like, what are you giving up? What is the benefit for doing that? There’s like an important calculus that happens when you’re talking to strategics. But that can also be a great thing. Some of those strategics might help in your development costs.

BEN                           Tremendously so.

RYAN                        And can give you sort of a slingshot and you’re weighing the pros and cons.

BEN                           Infrastructure, distribution-

RYAN                        Distribution, sure.

BEN                           A lot of potential trade-offs that aren’t just about the money, so I think that part is a really important consideration. As you think about, again, all of these considerations at the end, I think it’s really just insightful that the decisions you made early on in the life of your company to kind of go full circle a bit, that some of those formation decisions, some of those who you get on your capitalization table, which again, a cap table is the list of people who own the company, right? So, that can be a short list. It can be one person who owns 100% of the company. It can be a really long list with lots of people that you don’t even really know, and it can get really messy and complicated and that sort of thing.

                                    But in each of those people or classes of people might have a different set of rights. And so, there’s even a scenario where you could sell, you could work for years and sell your business for what to the outside world would appear to be a very successful exit and you get next to nothing, to nothing or you get, it’s just this deflating like well I guess that’s over right?

RYAN                        Yeah, that’s right. Well and by the way, on the investor point, you will also be going to ask them for things and to approve things. And so that relationship is pretty critical.

BEN                           You’ve got a boss.

RYAN                        You’ve got a boss, absolutely.

BEN                           And in a lot of cases you got into this because you didn’t want to have a boss anymore. Right? So, I think that’s a consideration. One other point I wanted to make about, and this actually goes to sort of fundraising as well as like mergers and acquisitions, which is just, and we’ll go back to our house metaphor because it’s a pretty accessible one. And that is if you’re selling your house and you’re in a frothy market and there are 20 people lined up with all cash offers, you’re going to get the most for your house. And in the same way, if you’re selling your business and you’re selling it and things are going really well, your financials are strong, you’ve got your act together, you’ve got good momentum and you’ve created a market so that multiple people, some of whom consider themselves mortal enemies or competitors are competing for you, you are likely to get the best possible deal out of that scenario versus having only one offer and it’s a take it or leave it situation.

RYAN                        Yeah, absolutely. And there’s a constant sort of weighing of options at that point because yes, very true statement. At the same time, the more you get into this process, the more sort of parallel conversations you’re having, those are tricky as well. Those take time, whether that’s M&A, whether that’s investment. And in the meantime, you need to run your company.

BEN                           It can be a full-time job to raise money or certainly to sell your company.

RYAN                        It certainly is.

BEN                           You better have some really good people on your team who are really running the company at that point because for whatever period of time, if it’s six weeks, six months or longer, if you’re the CEO and/or CFO, probably a good chunk of your attention time and you’re going to probably get some new gray hairs out of the deal too.

RYAN                        Yeah, absolutely. It’s always interesting to go through an M&A process with a first time seller, somebody who’s kind of selling their first company and you get on the other side, this is when our job gets really fun because there’s a lot of, sort of just psychology and assurance and if you can tell somebody this seems really bad, but this is pretty typical at this stage and here’s where we’re going.

BEN                           It’s always stressful.

RYAN                        It’s super stressful. It’s long hours, it’s your baby, it’s the thing that you spent all this time doing. But these processes play out in somewhat typical ways a lot of times and so you just have these moments and inflection points where you’re like, oh, this thing’s going to fall apart and you’re like, there’s always one or two of those in a deal where it seems like there’s just no way this comes together. You work it out, you punch a couple times, you get creative and then you come out the other side and so it’s really fun to be on the end of one of those, certainly with somebody who’s had an exit and they closed it and they’re like, wow, I didn’t know it was going to be like that.

                                    I mean, and the gleaning from that is like what you said, it’s preparation, it’s planning, it’s all this stuff. It’s not that much fun to do, but if you keep your house in order when you go to sell it, it’s going to be a lot better for you in just a time commitment standpoint, having your team, having your documents, your IP locked up, all that stuff is really important. There’s still going to be, the cleanest companies will hit a bump. There’s going to be a curve ball you can’t anticipate but know that the minute you sort of sign an LOI to go into a deal, you lose leverage. And so, at that point, the generally bigger player has all kinds of like cards in their deck that they can use to draw out that process. And so, that’s why on the front end you’re thinking about, okay, I’m about to go exclusive with somebody. How do I get to be a shorter time possible; I want to hold the buyer’s feet to the fire.  I want this to happen right away.

BEN                           Put some structure in this thing.

RYAN                        Yeah, and do I have the operating capital and the plan B and plan C if this stretches out, because the worst thing is that you-

BEN                           You run out of money in the middle of the deal.

RYAN                        You’re running out of money. Right, exactly. And then you’re sort of like begging for clemency and saying maybe you can fund us. I had a deal where we had a buyer starting to fund bridge notes that were going to get netted out on the back end. But they were in the process.

BEN                           That’s kind of embarrassing.

RYAN                        Yeah. And part of it is you can still plan ahead but sometimes these deals they take longer and sometimes that’s deliberate and sometimes it’s not. when you have a company that’s buying you that has done tons of M&A that’s good. That means they’re sophisticated. The flip side is like, this is the first time we’re doing an acquisition. You’re like, okay, let’s all strap in because there’s learning curves everywhere. It’s important to know that, but with a company that’s doing a lot of M&A particularly simultaneous M&A, where does your deal stack in on those others?

BEN                           It’s a big deal.

RYAN                        I’ve seen lots of them where it’s like, yeah, this is a smaller deal, but there’s a giant transaction. Well that’s taking a lot of focus from the buyer. And so, you’re like, why are these turns taking so long? And documents, why, and oftentimes it’s you learn two, three weeks later, oh, they just announced this giant transaction.

BEN                           They were working on something else.

RYAN                        They were working on something else. Everybody only has 24 hours in their day.

BEN                           You are a little fish. It’s the biggest deal in your world, but not the biggest deal in their world.

RYAN                        Yeah, that’s right.

BEN                           So like paint a picture. So, for successful founders, founders who have exited and they’re happy about it, right? Which is not necessarily every founder who exits, right?

RYAN                        Yeah.

BEN                           What did those founders do that was smarter or savvier than the ones who exited in less favorable circumstances?

RYAN                        There’s so many things that go into that obviously, but one of the like consistent traits that I’ve seen with founders that have success at all points of that journey, through exit is they’re absorbing. When you’re a founder or CEO, you suddenly need to become expert in a whole lot of different things, paying attention to this stuff and learning about the capitalization and learning about the tax stuff and learning about some of the structural pieces.

BEN                           And waterfalls of preferences and all that stuff.

RYAN                        Yeah, knowing all of that, because then you’re armed with information going into these conversations and you kind of know how it works. And again, you’re not going to know how everything works, nobody does, but that’s when you go, okay, I need to know a little bit more about this. I’m going to go talk to that person. I worked with a founder who was maniacal about feedback and actually kept a spreadsheet and we’d get together on a deal point and he’d be like, okay, here’s my matrix and this person said this, this person’s, and there was almost like an algorithm that pulled the right answer out of it. I was like, this is like a product in and of itself.

BEN                           That’s right. Natural language processing of the deal.

RYAN                        Exactly. It was pretty impressive. But the point of that is he was really intent on learning kind of at every stage. And so, when you see founders that are, they’re like, okay, I’m just like adding to my arsenal of knowledge. And when you have that approach, whether you’re learning about marketing or you’re learning about sales channels, you’re learning about logistics, or learning about the law or tax, those are all going to be things that you draw upon later in the company’s life cycle. And those founders are generally really prepared for that and you’re not learning that stuff at the time, so you’re thinking more strategically, your kind of seeing around corners a little bit. So now how do you go execute on that? That’s hard. That’s a mindset, right?

                                    And I’ve worked with plenty of companies where they’re like, you know what? This is not stuff I like doing, you figure it out, I’m going to go do this. We’ll like check in every now and then. And that’s a style that works for people too. But if I had to kind of pull a common denominator out of that, it’s that that sort of learning stance is real. It’s particularly for like first time, second time founders.

BEN                           Very much.

RYAN                        Like you should have that philosophy getting into it.

BEN                           That’s really good. So, maybe this is a curve ball question in some respects, but would you say that founders who have had a big or successful exit are happier after the exit or while they were building their company?

RYAN                        That’s a really good question. That’s a really good question. Now the obvious answer, run a successful exit. If you’re thinking and you’re like, hey, that was great.

BEN                           You are on an Island.

RYAN                        You’re on an Island, right? Who knows what kind of jet you’re on if that’s your deal or maybe that’s not your deal and you’re like, I did it. Those are the founders that kind of along the way. I think it’s a mix of both. I mean, to get to those great successful exits, it is rarely the folks that are like, my goal and I don’t care how I get there is to sell a company for $500 million. Right? Because then you’re going to be focused on that. You’re going to be less focused on what you’re making. It’s not what your constituents are.

BEN                           That’s not how you get to the 500 million thing.

RYAN                        It’s the people that are like crazy about it. And particularly in CPG, the brand and the engagement and your followers and the people that are like going to the mats for you, those types of companies, it all works out. But the reason you got to that big, successful one is because you were doing that and like delighting people along the way. And I have to guess that those founders were ecstatic, delighting people along the way. I mean, that’s kind of how it works out. But yeah, I think there’s certainly, it is such a battle being an M&A and you survive it and you get on the other side and it’s-

BEN                           And you need a vacation afterwards.

RYAN                        You need a vacation and you need to reward yourself, because it’s been a lot of work and reward your team because they helped you get there. That’s the other thing you see, you see things on the other side and there’s a lot of people that celebrate and hold up their Champaign bottle and they’re off. And then you see a lot that are like, oh, this wasn’t me, this was my team that got me here and I’m sharing that.

BEN                           Absolutely.

RYAN                        That’s a really cool thing too. That tells me they’re front part of that journey.

BEN                           That’s again, that’s a character moment.

RYAN                        Yeah, absolutely. I’ve gotten into this kind of practice of you get on the other side of an M&A deal with, and again, sometimes there you’re just surviving them, but sometimes a really nice exit it is absolutely a battle. And I try to give a thank you to the CEO or the founder that we’ve been working with and there’s, I’m a fan of like spirits and bourbon and whiskeys and there’s this awesome Nikka whiskey that’s, it’s got a little samurai warrior at the bottle and it’s got this like kind of metallic helmet and the swords on it and it’s just an awesome like little keepsake and it’s like, hey, you just fought the battle, and you came out the other side.

BEN                           You are the samurai.

RYAN                        It’s really cool, but it is such a process and whether you’re enjoying it on the way up or on the other side or hopefully both, it’s a nice thing to look back on it.

BEN                           And there’s also a little element of, there can be a grieving process afterwards. Usually not right away, certainly if there’s a lot of money involved, but your baby, however you want to, whatever the metaphor is. Went off to college, is a grown adult now.

RYAN                        You are an empty nester now.

BEN                           Like it’s not your baby anymore. Right? And so, the new owner of this thing is going to do some things that you wouldn’t have done.

RYAN                        That’s right.

BEN                           And you’re still going to see it in every store or you’re going to see it all around and you’re going to be associated with it. And that can be, it’s sort of a mixed blessing.

RYAN                        Well, and on some deals, you’re going to continue on, and particularly these kinds of portfolio builder companies and this is like a really important point. You might sell your company for let’s call it $10, but four of those dollars are an earn-out post-close, and you may or may not be involved with trying to deliver those revenues to get your last $4.

BEN                           And that’s a really weird place to be in.

RYAN                        It’s a really weird place to be in. And there’s a lot of vulnerability there because again, it may be, hey, we’re going to take you on as a portfolio company. We’re not going to touch you, you do what you do, you’re great at it. And then you just need to deliver this extra. And then your question is, okay, well don’t starve me of resources, don’t undercut my brand. Or it may be that you’re a part of that, but your kind of not running it. And that’s that kind of grieving moment.

BEN                           You’re not controlling your destiny.

RYAN                        You’re not controlling your destiny.

BEN                           I mean, another thing that I’ve seen is you’re in the moment, you’re trying to close this deal. You’re willing to say anything, right? You’re like, oh, we’re going to triple revenues next year. Like you’re in this moment of great optimism.

RYAN                        That’s when we generally get involved, we’re like, oh, please, please.

BEN                           That’s right. And so then the person’s like, okay, you say you’re going to triple revenues next year, we’re going to put some clauses in your earn-out around you tripling revenue, and you’re like, did I really say we’re going to triple our revenue next year?

RYAN                        Or look at this big price tag deal that we’re putting in front of you and then you kind of peel back the layers a little bit and you’re like, wait a second. Like, half of this is contingent consideration that with these conditions, I have no chance of getting, well, that’s not that big deal. That’s half the deal.

BEN                           That’s right. So they’ve managed their risk and push that risk right over to you.

RYAN                        Yeah, that’s right. And again, that’s kind of them saying to you if they’ve given you the resources and kind of just left you alone or set you up, okay, deliver.

BEN                           Oh, that’s great.

RYAN                        And so are you willing to bet on yourself in that scenario. And so that’s a lot of times you’re continuing with the company and then when you’re not back to your kind of grieving point, yeah. I mean, it’s really, you’ve been working X number of years every bit of thought and effort has gone onto this thing. Some of those you see like along the way, they’re like, oh, but I could also do this. And that like a died in the wool entrepreneur is not just a one idea entrepreneurial. And sometimes they pop right out.

BEN                           No, and just because they made some money doesn’t necessarily mean like, but I’m still into this thing. Right?

RYAN                        Yeah, exactly. And sometimes it’s kind of shocking how quickly post exit, it’s like dusting off and like onto the next thing.

BEN                           I know.

RYAN                        And it’s cool. It’s a fun thing to see. But yeah, it’s an emotional ordeal.

BEN                           It’s who you are in some way.

RYAN                        That’s right.

BEN                           So is there a substantive difference in the difference between a first time and an experienced founder? So, your kind of first-time founder versus your second- or third-time founder and what are those differences like? Like maybe, you’re just having a preliminary conversation or whatever, can you sniff that out? Can you tell? What’s the difference there?

RYAN                        Well, some of it is just the comfort with the lexicon. Some of it is the examples that they’re, okay, I want to do X, Y, and Z and I’ve done this, and it didn’t work out, and so I’m focused over here. You can kind of tell with some of those early conversations, that doesn’t mean a first-time founder can’t be wildly successful. There’s plenty of examples of that, but I think you see that, again, that’s back to that learning stance. You can easily see with a second, third, fourth time entrepreneur, the problem they’re trying to approach, the structure through which they’re trying to approach it. They’re often thinking about the marketplace in a different way and they’re starting to play chess a little bit in terms of like who’s out there and some of those strategic conversations or those exit conversations.

                                    Again, back to the point of those will happen earlier than you think. You had a conversation somewhere along the way where someone was sizing you up in a different capacity than you thought. And there’s maybe more of an awareness of that because they’ve been burned by it or they saw it. So, there’s like an earlier identification pattern.

BEN                           It’s pattern recognition.

RYAN                        It’s pattern recognition.

BEN                           So it’s the difference, it’s why venture capitalists tend to be, they’re asymmetric deals because they have seen hundreds of deals this year and you as the founder saw one.

RYAN                        That’s right.

BEN                           And so if I can play any game against you where I’ve played the game hundreds of times and this is your first time ever playing the game, who’s going to win that game? And you see the savant examples.

RYAN                        There are ways to level the playing field, but that’s actually right.

BEN                           By the way, that’s one of the key missions behind this podcast, is that we’re trying to provide to equip these early stage emerging brands and founders with some of that lexicon and some of the like, how do you think about some of these issues, even if you haven’t gone down the road before, if you’re actually genuinely curious person and you want to be a vacuum of this sort of information to give that resource that allows people to have like, to go into these conversations and not be completely naive about everything.

RYAN                        That’s right. Well, and it’s, we’re in a world now where there’s a wealth of information out there and you have to sift through it. Some of it is good and some of it’s not. We all have more at our disposal than we ever did before. So yeah, I think that’s right. And I think it’s a great mission that you guys are doing this.

BEN                           Thank you. Yeah. Well so, I just want to thank you again Ryan Gravelle. This has been a great conversation and again, it’s always fraught to go into all these details of law and taxation and stuff like that, but you’ve kept it accessible and certainly, relatable and super relevant for founders at whatever stage. And so, I appreciate you coming in and joining it.

RYAN                        It’s my pleasure. It’s a great time to be a founder and building your company better than ever before.

BEN                           And it really is.

RYAN                        But thank you, no, it’s my pleasure and thanks for having me, absolutely.

BEN                           So just want to say thank you to our listeners and viewers, and remind everybody that you can go to and you can obviously watch, listen to or read this episode and all of our back catalog of episodes in really, effectively kind of do your own bachelor’s or master’s degree in entrepreneurship and specifically in the consumer packaged goods space.

                                    And if this is valuable to you, if you’re getting a lot out of it, please, I’d like to encourage you to share with your friends, colleagues, people that you see at the coffee shop regularly, people in your coworking space, commercial kitchen, and really kind of perhaps even have a discussion around some of these topics and dig a little bit deeper yourselves into what it means to structure your company in smarter, savvier ways to do what Ryan said. Effectively to play chess while everybody else is playing checkers. So, thanks again for joining us and we’ll see you next time.



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