Ep 448 How David Sinkinson Bootstrapped AppArmor to a $40M Exit (Avoiding a Costly Negotiation Mistake)
Jun 28, 2024
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David Sinkinson, co-founder of AppArmor, shares insights on bootstrapping their campus security app to a $40M exit. Topics include near negotiation disaster, evolving business model, sibling partnership challenges, and navigating M&A negotiations with strategic advantages.
Answering a simple question nearly cost the founders $20 million during a negotiation with acquirers.
Transitioning to a fully recurring revenue model and offering custom-branded applications contributed to AppArmor's success.
Balancing personal commitments and professional demands is crucial when evaluating acquisition offers.
Deep dives
Origin Story of App Armor
App Armor was born out of the need to provide a solution to broken campus safety systems. The idea was sparked during an audit of emergency poles on the campus, which led to the creation of an app for contacting campus security. The co-founder, David Sinkinson, worked closely with his brother to develop a proof of concept that gained traction among students, eventually expanding to other universities.
Business Model Evolution
Initially, App Armor charged institutions one-time setup fees and minimal recurring revenue for their services. Through interactions with other entrepreneurs, they transitioned to a fully recurring revenue model, adjusting pricing based on the institution's size. This shift, along with custom-branded applications for each organization, contributed to the company's success and profitability.
Navigating the Acquisition Process
Facing a potential acquisition, App Armor showcased its product to a strategic buyer. The negotiation process included meetings to establish rapport, sharing anonymized customer data, and discussing financials. Despite receiving an initial offer of $20 million, the deal was declined due to unfavorable terms, including a significant earn-out period and concerns about alignment with the company's mission.
Decision to Decline Acquisition Offer Due to Busy Schedule and Family Commitments
The speaker reflects on a past acquisition offer where concerns of business demands and personal commitments led to the decision to decline. Despite a substantial upfront payment and potential additional earnings, the speaker's overloaded schedule, impending parenthood, and uncertainties about market competition prompted the rejection. With a focus on work-life balance and assessing the acquisition's impact on personal life, the decision to prioritize family time and avoid excessive workloads prevailed.
Embracing Growth and Successful Acquisition Deal
The speaker details the journey towards a successful acquisition by Motorola Solutions after surpassing targets and excelling in revenue growth. A vaccine verification tool launch during a challenging period proved instrumental in the company's profitability. Strategic planning, strong leadership, and adaptability were crucial factors leading to a lucrative deal. The podcast reflects on emotional highs and lows post-acquisition, emphasizing the importance of company preparedness, due diligence processes, and financial considerations for long-term investment strategies.
In this week’s Built to Sell Radio episode, John Warrillow interviews David Sinkinson, co-founder of AppArmor. David and his brother Chris created a mobile app that allows students to alert campus security by pressing a single button on their phones. Their journey from developing AppArmor to selling their company for $40 million is packed with insight.
During the interview, you’ll discover how answering a simple question posed by an acquirer almost cost the Sinkinson brothers $20 million. Learn how they navigated this near-disastrous moment and what steps they took to recover and close the deal successfully.
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