Frequently Asked Questions
Overview
XLIO’s model is highly differentiated in that we work with acquirors to identify a specific product or feature gap, and then build a startup with a strong team and innovative IP that is custom built to address that need. Our goal is to delight acquirors and their customers with a startup that is a perfect fit for their needs – a Made-to-Order Startup™.
XLIO is substantially funded and staffed with a team of founders and executives with deep expertise: we have bought and sold numerous companies, hold over a dozen patents, licensed hundreds of millions of dollars of technology, and hired hundreds of senior personnel. Through XLIO, we focus this experience to deliver high impact made to order startups that optimally meet the needs of acquirors.
We are based in London, Seattle, New York, São Paulo and Tel Aviv. Our presence and the networks of our founders give us excellent access to teams and technologies worldwide.
Tenets
Enterprise technology acquirors have an ongoing need to acquire the teams and inventions of best of class startups.
Each acquiror has a unique set of technical, development, and cultural requirements.
It is unlikely that an independently founded startup will serendipitously fit all of these parameters.
XLIO builds startups to the acquiror’s exact specs resulting in more efficient small acquisitions, measured in both dollars and speed to customer delight.
About us
What problem does XLIO solve?
Product and business teams are seeking to rapidly fill gaps in their product lines, respond to competitors, and meet the needs of their customers. When they can’t build these solutions themselves and need to create a center of excellence, these product teams source acquisitions with the aspiration that this will deliver working teams to address their strategic product needs.
Corporate Development groups have ‘shopping lists’ for small tech companies that they source via venture capital firms, investment banks, and by attending startup events. In most cases, the companies they encounter, even though they are early stage, already have entanglements from investors, non-strategic employees (e.g., administrative and sales staff), and infrastructure. They may also be in the wrong geography and unwilling to move; created their product using certain Open Source, and be subject to other complexities (e.g., litigation risk).
Despite these significant flaws, acquirors have few other alternatives to source solutions for their internal client product teams and as a consequence there are hundreds of these acquihire and startup deals per year in the US alone.
XLIO provides a significant new option for M&A by delivering custom built companies that exactly match the needs of the purchasing product group in a capital efficient way, with a much better post acquisition integration model. We optimize the technology acquisition supply chain and create positive outcomes for acquirors and the talented teams that they obtain when they integrate their XLIO made to order startup.
How does XLIO solve this problem?
The XLIO model:
Develop a specification for team and technology with the purchasing product groups that exactly meets their needs.
Pre-negotiate a transaction model with acquirors based on the delivery of a product, capability, and team that matches the jointly authored specification. This model can be an outright acquisition or a professional services model with progress payments and a balloon payment at the end of the term that facilitates the transfer of the team and technology to the acquiror.
Build the company on schedule and at the location established by the acquiror; inside their firewall and using the proprietary IP and platforms of the acquiror. Acquirors can assign a recruiter to our hiring loops and our acquirors choose how much of their proprietary information they want to obfuscate and at what point in the gestation of the code base they want to close the transaction.
Close the deal. In all models, the startup team and technology conveys to the acquiror on deal closing.
How XLIO is different
How does a XLIO made to order startup differ from traditional professional services?
The professional services model is to add value to multiple projects on a sequential and sometimes parallel basis. The team stays with the professional services provider as does the institutional knowledge. Unlike professional services vendors, XLIO delivers the team and technology, so no knowledge or value is lost.
XLIO startup companies are created to solve an acquiror’s challenge by innovating in conjunction with the acquiror’s team using the acquiror’s proprietary tools and platform. The institutional knowledge of the startup accrues only for the benefit of the acquiror.
How does a XLIO made to order startup differ from an acquihire or traditional M&A?
Acquiring a company, either through acquihire or standard M&A is an inherently complex and unpredictable process. It is capital inefficient because it requires that value be paid to cash out existing investors (who may have onerous liquidation preferences) and additional costs to retain employees (who may have very little vested stock at the time of change of control). Furthermore, there are customers to be dealt with, contracts to be managed or exited, and a base of employees that are not relevant to the core value of the company and need to be cashed out. These complexities add cost and time to diligence and close a deal.
The target company may have an interesting product but it is highly unlikely that their work and IP is an exact match for the acquiror’s. And, they may have used unacceptable Open source or other software of risky provenance (e.g., one of the founders built the prototype as a side gig while working for a competitor).
XLIO companies are made to order with clean cap tables and no encumbrances so diligence is greatly simplified. The teams are hired and purpose built to convey to the acquiror at close and all of their work product and IP is customized for the platform of the acquiror (e.g., internal only APIs or esoteric programming languages) and becomes the acquiror’s at close. Perhaps most importantly, the company is built to deliver a spec that is pre-negotiated with the acquiror. There’s no gap between the startup’s tech and the acquiror’s need.
Isn’t XLIO just another incubator?
No, the incubator model is to take fledgling entrepreneurs and give them the mentoring and capital resources to build commercially successful ventures. This process involves directing the incubated company toward differentiation and speed to market. This differentiation can create incongruence issues with potential acquirors and the emphasis of speed to market often is accomplished by using Open Source and public libraries. From a cultural perspective, many entrepreneurs partner with incubators so that they can build the next “unicorn”: the entrepreneur and the incubator have little interest in more modest transactions. As a consequence, acquihires of incubator graduates can result in substantial inefficiency for the acquiror and a perceived poor outcome for the target company.
Conversely, XLIO recruits teams and technology that is custom built for only one purpose, to meet the needs of the acquiror on a pre-negotiated basis. Entrepreneurs know exactly what they are signing up for, in both scope and timing. Acquirors acquire a motivated team that is hyper focused on their specific needs.
How we work
Can XLIO work with corporate venture and incubator teams?
Yes, the XLIO model focuses on matching entrepreneurial talent to innovation gaps in corporate portfolios, it is extensible to projects that are being shaped by corporate investment/incubation. Our bespoke model can integrate with existing initiatives to bring IP and human capital to existing priorities and projects. XLIO can invigorate, enhance and refactor these projects to reduce risk and increase delivery speed.
Isn’t team building the hard part of company building?
Yes, assembling talented teams is a universal problem. XLIO’s model avoids some of the key issues in that it offers a predictable outcome for both acquirors and sellers. Startup employees know specifically what their incentives are as well as have a general idea of how they will be integrated post acquisition. Acquirors can participate in hiring loops, so that they can ensure that the company they buy meets their cultural and organizational development needs.
XLIO’s founders have hired hundreds of senior technical and business personnel and apply these practices to building high impact teams focused on acquirors current and future needs. Informed by this experience, we mitigate the rapid hiring challenge with the following tactics:
maintain a pipeline of likely candidates in fields we predict we will need talent (e.g., AI/ML, network security, etc.)
collaborate in the startup communities in which we are located (UK, EU, US, Israel, and Brazil) to find existing teams or clusters of talent already working together
start recruiting for specific startups in parallel with final scope definition and agreement closure with acquirors.
How does XLIO coordinate success with our acquirors?
XLIO has assembled a proprietary platform, The Studio, utilizing commonly available solutions (Confluence, Jira, etc.) to synchronize and communicate all of the steps of building a made to order startup with solid security, high transparency, and straightforward dashboard views so that all constituents can be apprised of progress. The Studio enhances collaborative work among a widely distributed team and simplify integration once the made to order startup is complete.
What types of startups or transactions are ideal for the XLIO approach?
Using our network of advisors and entrepreneurs, XLIO can deliver a startup in a wide range of technology fields and scale. That said, we have found since our inception that we are ideally suited to nascent initiatives requiring the rapid integration of working teams in areas of high specialization. Our model reduces risk, increases throughput, and is capital efficient.
What transaction models does XLIO makes available to acquirors?
Our made to order startups can be customized to meet the accounting, reporting, and tax goals of our acquirors. As they are completely bespoke, we can domicile and hire personnel in any market as well as modify the engagement structure for CAPEX or OPEX. XLIO can work closely with your finance and legal teams to develop the best approach to your specific scenario.
What is the funding model for XLIO’s made to order startups?
XLIO made to order startups are owned by XLIO (which funds the startup) and the founding employees until the company is sold to the acquirors. XLIO assumes all cost and risk for the project until close, at which time the acquiror integrates the team and technology which they have already met, vetted, shaped, and tested.