1Mby1M Virtual Accelerator Investor Forum: With Seong Kim, Corporate Strategy & Development at Chegg Inc. (Part 4)

Sramana Mitra: What have you disclosed on the valuation on this most recent acquisition? In general, how do you think about valuation? How does valuation play into your acquisition decision?

Seong Kim: The valuation of this deal was approximately $436 million. This is based in London and Madrid. It’s definitely a key factor that impacts whether or not a deal is done, but it shouldn’t be the most important. Valuation is a dependent variable that is influenced by a multitude of factors, some of which, founders can influence and others, they can’t.

It really depends on what you bring relative to what the acquirer perceives itself as already having. It also depends on the acquirer’s appetite. Is the acquirer’s appetite to hit singles and doubles all day or is it to swing for the fences? Where does the acquisition fit into that risk-reward equation?

Sramana Mitra: In this case, you have paid $454 million to acquire – that almost inevitably predicates that there is a significant revenue that you’re bringing in.

Seong Kim: We think about not only the standalone forecast of the business but also how we can continue to bolster that. I would say that the last layer we think about is how we can enhance that. In my experience, when an acquirer is too focused on making changes on day one and less focus on truly understanding the business and the team, it doesn’t always lead to success.

We try to remain very vigilant and sensitive to enabling the success of the company in its current form while continuing to do research and experiment around the best ways to add value to their consumers. It’s not just about hiking up prices for example.

Sramana Mitra: The way people listening to this should think about such an acquisition is that the current revenue model and processes need to continue to function after the acquisition. Then obviously, there is leverage. There is this huge mass of customers that can potentially be monetized. You need to create the bridges of how that customer is exposed to the new offering and how that converts. That’s in the case of larger acquisitions.

What about smaller acquisitions? Have you done smaller acquisitions?

Seong Kim: We have. We look at acquisitions from a variety of dimensions. The question becomes why. We tend not to look at acquisitions one-dimensionally. Does it bring us the reach? Does it bring us an extension into a market that we would, otherwise, have less of a presence in? Does it give us a technology capability?

Mandatory in going with any of those factors is, does it bring the team that’s committed, capable, and intrinsically motivated by a sense of ownership and pride in the business and the willingness to grow with it over time.

Sramana Mitra: In smaller acquisitions, the team is really important.

Seong Kim: Absolutely.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Seong Kim, Corporate Strategy & Development at Chegg Inc.
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