Buying Companies is Both Art and Science
Buying Companies is Both Art and Science
Taproom feat. Arpan Punyani
I am the definition of a third culture kid. As a Canadian citizen of Indian origin who grew up in Indonesia currently living in the San Francisco Bay Area by way of Jakarta, Chicago, and New York, "Where are you from?" is always a difficult question for me to answer! And, when it comes to my career path, I've spent time as an investment banker, venture capitalist, startup operator, startup advisor, angel investor, and am most recently venture firm co-founder. This makes the question, "So, what do you do?" equally complicated.
This somewhat convoluted path has afforded me the chance to meet and learn from an amazingly diverse group of people with unique backgrounds and experiences. And one of the things I love doing more than anything is connecting people from different parts of my life, strengthening the ties between those in my orbit. One way I used to do this was hosting happy hours (back when that was a thing) called "Taproom" (Taparia, Taps, Tippets by Taps, Taproom…get it? :-)). I would gather different folks together and introduce the group to one another throughout the night (most often, people didn't know anyone else there). Best case, two (or more) people formed a new connection. Worst case, everyone had a good time.
I'm excited to start an experiment within Tippets under the same Taproom moniker. I hope to introduce you to some of the wonderful humans I've gotten to know over the years, share their stories, and hopefully a lesson or two. (Note: Thanks to my friend Nick de Wilde and his excellent Keyring series for the inspiration!)
My first Taproom guest is a good friend, Arpan Punyani. Arpan and I met almost ten years ago in Norman, Oklahoma. His wife's younger sister happens to be one of my closest friends from undergrad, and we met at her wedding (over a beer pong game at the after-party, to be exact). Since then, we've grown close as he and his family moved from DC to the Bay Area, and he broke into the tech ecosystem. Most recently responsible for CorpDev at Okta, his path into high-growth startups included stops as a corporate lawyer, consulting, equity research, and FP&A. All while raising two kids, and doing some investing on the side! In this interview, we cover:
Taking a path less trodden
Breaking into tech
Buying $7B worth of companies
Advice for founders with inbound M&A interest
It's an insightful exchange, so let's dive in!
What's your story?
After coming to the US from India by way of Canada, my father landed "fresh off the boat" in Miami in 1977 for his residency in emergency medicine at the University of Miami. South Florida was home for me, my parents, and two brothers. I grew up immersed in the classic experiences of a first-generation family in the US – along with a lot of Dolphins, Hurricanes, and Heat sports! We put down roots, straddled two cultures, and pursued the American Dream.
I went to undergrad in Philly at Penn, moved to DC after college, where I met my wife, and then to New York for seven years for law school and work. Everyone should live in New York at some point in their lives – a friend once said to me that "New York is like Ancient Rome – all roads lead there."
I got inspired by technology and moved to the Bay Area in 2013. The Bay is home now, but I do miss being so close to family and friends back East. COVID has made it harder like it has for everyone. My wife Aneesha works at Autodesk, and I have a ten-year-old daughter and a seven-year-old son. My family and I can't wait to re-start traveling this year and make up for some lost time.
You've been a healthcare strategy consultant, a deal lawyer, an equity research analyst, and most recently a startup operator, helping Okta grow to a $40B, publicly-traded company over the last eight years. That's incredible! What led you to try so many different paths?
Indecision, I guess! While many people I went to college with seemed to have their paths all figured out right away – med school, law school, finance, etc. – it took me quite a while to figure out my own. Even in undergrad, I was marching to a different beat. While almost everyone I knew picked a standard major, I picked Cognitive Science (which had four students total out of 2,400+), mostly because I loved how interdisciplinary it was.
I'm happy with the journey, however. I'm finally doing what I love, and I have built a rich set of relationships and experiences over the years that have compounded over time.
What got you into tech in the first place?
Two things. First, I always had a gut sense that I wanted to "build" and be a part of innovation ecosystems. But unfortunately, this wasn't as typical of a route to startups after I graduated college in the aftermath of the dotcom crash as it is now.
I followed a traditional corporate career trajectory until I hit a point where I knew it wasn't right for me any longer. I wanted to be in super-high growth environments and where I could be more than just an advisor. Law, consulting, and sell-side equity research wasn't that. For multiple reasons – network effects, operating leverage, the inherent scalability of software, and how "software is eating the world" – technology products are the best for this career experience. Companies grow faster, leading to more exciting opportunities.
Second, I started reading early VC blogs by amazing folks like Chris Dixon, Fred Wilson, and Brad Feld. I also started reading TechCrunch every day. Together they provided a real-time look into how company formation, financing, and exits happen. I was hooked.
When I decided to make the move, I optimized for high-growth mid-stage B2B businesses. I was mindful of Andy Rachleff's advice about joining startups that have made it past the very early stage but are in hypergrowth mode.
Your choice of company matters far more than your job title or even your compensation. Your best risk-adjusted bet if you are just starting out, or if you haven't succeeded yet, is to join a mid-sized company with momentum. - Andy Rachleff
Hunter Walk said something similar some years ago as well (his advice is intended for "new grads", and though I was 32 already, I was, in effect, a "new grad" in terms of breaking into tech). Okta was one of a few companies I was looking at that fit the mold: they had raised from Floodgate, A16Z, Greylock, and Sequoia, had real customer traction, and sales and engineering teams that were on fire.
Fortunately, my wife supported my decision to uproot our family – me, her, and our then 2-year old daughter – and move from the East Coast to California in 2013, take a pay cut and roll the dice with a mountain of law school debt and no job yet in hand. And just as luckily, Frederic Kerrest (Co-Founder/COO of Okta), Chuck Fontana and Ernesto Tey (both early BD executives at Okta), greenlit me in the interview process. I got an offer to join Okta in Fall 2013 as an early Partnerships hire. It's worked out pretty well so far!
You joined Okta early on and got to see the business grow over eight years to a $40B company with 4,000 employees and $1.5B in revenue. Eight years is a lifetime by today's standards. What kept you at Okta so long?
Personal growth, and the size of the opportunity. I was lucky to have leaders that believed in me and kept opening doors to bigger opportunities. As I continued to perform and learn, I kept raising my hand to ask for more along the way.
The size of the opportunity also kept growing dramatically. Like most successful startups, Okta found a wedge and then kept opening the aperture. As Todd [McKinnon, Okta CEO] has said before, we were probably a bit early in creating the cloud identity category. Okta was Ben Horowitz's first cloud investment in 2010 after starting A16Z just before then, and the business struggled for the first couple of years. But eventually, customers' cloud migration journeys caught up with what we were building, and the market just kept growing and growing. We all had a real sense that this was a once-in-a-generation opportunity, and it would be crazy to step off of the rocketship.
The two are related of course. An old startup adage is that professional opportunities grow as the company grows. That was my experience at Okta.
Another big part of it was Todd and Freddy's leadership and, by extension, that of the leadership team. I haven't been a part of dysfunctional leadership cultures. Still, I know enough people who have had those kinds of experiences to know that even the most attractive personal growth opportunities won't keep someone around if the leadership is a mess. Todd and Freddy ran (and still run) a tight ship and set ambitious goals with a professional yet engaging style; that inspires deep loyalty.
What was it like working in a hyperscale environment like Okta in the pre-IPO years?
Every startup is frenetic by nature, and not all of them end up with the outcome we had at Okta. But it's incredibly invigorating when you have the market tailwinds behind your back, you are creating a new category – in our case, cloud identity management – and you know it's all there for the taking if you just execute. It propels you forward faster and makes you want to bring your A-game every day – for your managers, for the leadership team, for your peers, and for your customers and partners.
You have done close to $7B worth of M&A transactions at Okta. What is the hardest thing about being the acquiring company? What might people not expect?
One is just how many internal stakeholders there are to manage to get a deal done. Unless it's a direct mandate from the CEO, most M&A transactions require an incredible degree of alignment across almost every function, and you need a strong champion from "the business" (typically Product or a GM) to own the deal and drive it through. When that happens, deals get done much more smoothly.
From there, figuring out how to prioritize acquisition opportunities is a complicated question that requires a much longer discussion. It's a combination of things. What is the current environment in the venture fundraising landscape and the "IPO window"? What are "strategic" or "bet the company" priorities (like acquiring Auth0) vs. near-term product/feature priorities? Can the acquirer's field pick up the product and scale sales relatively quickly, or instead is there a buyer persona mismatch between the two companies? What is the acquirer's capacity to integrate this deal now without causing too much of a distraction to the core business? It's as much art as science.
From a startup's perspective, how should a founder react to inbound interest from a potential acquirer? How do they know what's real versus just 'kicking the tires'?
You're right that a lot of CorpDev may seem like "kicking the tires," but I don't think it's as negative as the phrase implies. It's really just M&A teams doing the work they do – engaging with founders, VCs, and the startup ecosystem, having their finger on the pulse of the landscape and building relationships.
Like many things in startups, you can divide the world into "pre-PMF" and "post-PMF." Before product-market fit, it's probably not a good use of time to engage with CorpDev unless the business is in distress or is running out of runway and is looking for a soft landing.
After product-market fit, I think it's always worth at least having occasional touchpoints with CorpDev teams (so long as the touchpoints are not a drag on your ability to lead the business). Acquirers appreciate founders who are "commercial" and reasonable. You can always politely turn down inbound interest. You also never know how the market will unfold; having the door open and active ongoing dialogue with CorpDev teams will help if events unfold differently than you might have hoped and you're not on that direct path to IPO. Like so much in business, relationships and personalities really matter here.
"Real" inbound interest usually comes in the form of repeated / more frequent touchpoints than a single outreach, evidenced by when the acquirer is asking more detailed questions around the tech and GTM (rather than just hearing an initial summary of the business). The best signal that inbound interest is genuine is when the founders/C-levels of the acquirer are engaging. It's always hard to get time on any large company's CEO's calendar - if they are engaging with you directly, it's because the CorpDev leadership team told them it's worth their cycles.
What was the best part of doing M&A at Okta for you?
By far, the best part of doing CorpDev for me was the experience of spending hours with founders in conference rooms and over coffees, getting to know them personally and their businesses in great detail. I got to meet virtually every startup founder that walked through Okta’s doors over the years, which was an incredible privilege. My team and I learned how early-stage founders navigate product-market fit, think about scaling early GTM, and paint a vision for what their business could become. We got deep into the weeds on technical products across IT, Security, and DevOps. We saw industry megatrends like “Zero Trust” security emerge before almost anyone else. And we observed personalities and how people interact on both sides of the table – which drives many more deals than many people realize.
The other great part of it was helping to build the M&A function from scratch. Like at any high-growth business, building something new is a big responsibility. I made more than my share of mistakes, but I'm grateful to have had amazing mentors, managers, and peers, and to have played a foundational role over the years in three critical functions for Okta – BD, CorpDev, and Ventures. "Builders" come in many forms – founders, engineers, sales and marketing leaders, and executives. This was my contribution to building, my goal all along when I first sought to break into tech a decade ago.
I hope you enjoyed this episode of Taproom! For more from Arpan and all things technology, M&A, investing and markets follow him on Twitter and subscribe to his substack!
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