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April 30, 2013

What Does It Take For A Startup To Be Acquired By Zillow? – RealTech 2013

April 30, 2013

What Does It Take For A Startup To Be Acquired By Zillow? – RealTech 2013

LegalTechPanelRealtime blogging continues today at RealTech San Francisco, a conference on the current state of technology in the real estate industry. Just watched a panel of legal experts which wasn’t precisely real estate specific and actually went more down the road of startups in general. Some items paraphrased by me.

Most interesting was Kathleen Phillips, general counsel and head of mergers and acquisitions for Zillow. The best question came from the audience about what Zillow looks for in a startup. That question is listed last below.

WHAT’S YOUR BEST ADVICE FOR TECH STARTUPS?
Phillips: Pick your shareholders carefully. It’s easy to get funding now, but they can force you into decisions you don’t want to make. It’ll be too late if you don’t have the right partners. [Seemingly obvious advice but still important to hear from an attorney who structures deals in the beginning and cleans up deals in the end when they go sour.]

Ossias: You will need investors’ permission on when and how to exit. How the acquisition is structured: share purchase vs. asset purchase. Acquirers like to buy the assets, but share purchases reduce taxation. You have to get your investors and your structure right (or as right as you can) from the beginning.

WHAT ARE TOP LEGAL ISSUES IN REAL ESTATE TRANSACTIONS?
Athwal: How to structure your deal to minimize business and asset risk. Should I do my brokerage or development project in an LLC? It’s the most important consideration.

WHAT DO YOU DO WHEN A STARTUP GETS CEASE & DESIST FROM LARGER COMPANY?
Ossias: A typical C&D has to do with copyrighted term. For example a company name might be a problem. Smaller company can change name easily. But if it’s a patent C&D you can’t really turn on a dime because it might be the very way you run your business. You then have to decide if you’re going to do battle with a larger company.

Phillips: We don’t spend a lot of time issuing C&Ds. We do get as many as we send out. Copyright law is fairly rational. So if it’s a copyright claim against your name when you’re a small brand, you can easily change your name. But patent law is trickier. Most of my peers would agree that the patent system in this country is broken. Most claims are claims by non-practicing entities that aren’t developing and deploying technologies.

Ossias: I agree with the patent law system problems in this country, and for the same reasons as Phillips.

DOES ZILLOW TAKE PR ISSUES INTO ACCOUNT? OR IS IT JUST LEGALLY BASED?
Phillips: The way that an executive looks at every business problem is that they have to make decisions based on what will maximize shareholder value in the long term. [This was an epically PR-savvy response to a question about PR]

WHAT DOES IT TAKE FOR A STARTUP TO GET ACQUIRED BY ZILLOW?
Phillips: I talk to 100 firms for every one we acquire. It’s a company that’s at the right stage at the right time with their product, customer base, and capital base. It’s a really long dance. It’s atypical for us to decide in one day, although we have. Beyond existing product, customer base, and capital structure, the biggest thing we look for is a chemistry fit between the startup team and our Zillow team. We look very closely at whether the startup team will fit in and be productive as members of the Zillow team.
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Reference:
Zillow M&A head Kathleen Phillips bio

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