When Does a Private-to-Private Merger Make Sense?

I’m pretty on record as saying I don’t think many private-to-private tech mergers make sense. They are often done from a position of weakness. Something in both companies isn’t working, which is why they come together.

I often don’t believe in the therm M&A because in my experience mostly A works.

But of course there are always exceptions. And even when I remain skeptical sometimes opportunities present themselves that prove one should never be absolutist.

As many people know I funded a company called Moonfrye almost 2 years ago led by two amazing women — Kara Nortman & Soleil Moon Frye. Our goal from the outset was to build a great eCommerce experience that could compete with Michels on one side (for DIY / crafting) and Party City on the other (throwing events / parties / celebrations).

The thesis was simple. Mom’s struggle to plan events and activities for their kids. Most products out there suck so mom gets stuck with angst of wanting to have decorations, activities and chatzkies for other kids to take home. What should be an enjoyable experience turns into a time-suck obligation and angst-ridden day of self questioning.

Our product name is P.S. XO and we launched our eCommerce experience through this website as “party in a box” as well as individual sku’s that are super high quality and well executed. We built great eCommerce tools from scratch, spent a great deal of efforts deeply integrating with Pinterest and build great corporate relationships with Target and the like.

We also built two very high-quality mobile apps that we were experimenting with in terms of building better customer acquisition toools.

The honest truth is that we took on a little bit too much and so while we launched this beautiful experience we found ourselves without a broad enough set of products (skus) to drive repeat purchases. So as Kara, Soleil and I debated the future we realized we’d have to fund the company to build out its product lines to drive more repeat consumption.

Along came Seedling. Actually, it came through an introduction from our friends at Partners Group who knew that the company was raising capital. The CEO, Phoebe Hayman, is an amazing entrepreneur who had built up this amazingly well-respected crafting company sold globally in high-end stores like Barneys, Harrods, Selfridges, Le Bon Marché in Paris, etc. She created the company in New Zealand and without raising any institutional capital had grown a global business.

Phoebe had moved to the US (to Southern California) to set up shop, raise money and build a digital team to start to develop her online direct business (much of her product is sold through third-parties today — most of it offline) more fully.

So amazingly you had a company with 350+ sku’s wanting capital to build its eCommerce capabilities and scale sales & marketing and on the other side this other great company with eCommerce expertise and a great product but not a broad enough sku set.

We couldn’t have asked for a better fit. So we decided to merge the two companies and because we don’t believe in fudging things we wanted one clear CEO and that was going to be Phoebe. And we didn’t want brand confusion so we will harmonize the brands under the well-respected Seedling brand name.

We at Upfront Ventures enthusiastically led a $7 million round of funding in a combined company on track to top $10 million in sales soon and geared up for growth.

I couldn’t be more enthusiastic about the outcome of the combined company and its products in the market. The opportunity never went away — we just accelerated our time to capturing it.

It really is truly a case of 1 + 1 = 3. And I don’t say that lightly or often. Private-to-private transactions rarely work. I think we found the rare case specifically because Seedling’s physical products are exactly what P.S.XO needed and P.S.XO’s eCommerce capabilities are exactly what Seedling needed. The fact that Seedling had never raised venture capital made the deal 10x easier and the fact that they were going to be raising money on their own meant that the VCs had an important role to play.

And that’s when a private-to-private merger works. Otherwise I usually recommend only P2P when one company has been hugely successful and can acquire a company that has had relatively less success.

Huge congratulations to both teams. We’re thrilled to support you both and to work with you for years to come. The market opportunity is unlimited as any mom I’ve ever spoken to about it can attest. Mazel.

And if you have kids please check out Seedling.