The Series B That Wasn’t: How Lane’s “Reverse Due Diligence” Led To a Sale Instead of a Raise

Stefan Palios

Clinton Robinson, the co-founder of proptech startup Lane, was in an incredibly enviable position—he had received multiple inbound offers to buy the company over the years and was in the middle of raising a Series B when he sold to VTS instead. Speaking with ahead of his keynote panel appearance at the in-person conference on October 19th, 2022 in Toronto, Clinton explained why the company ultimately chose to exit rather than complete their fundraising round.

Key takeaways:

  • Choosing to exit should hinge on whether an exit will help you reach your vision faster than staying independent.
  • Conduct “reverse due diligence” on an acquirer before selling to ensure it's the right home for your company.
  • A founder’s core job with an acquisition is to ensure the team and product are properly integrated into the acquiring company.

When real estate software company VTS announced its acquisition of Toronto-based proptech startup Lane for $200 million in October 2021, the Canadian tech community celebrated. But what many didn’t know is that Lane was just two days away from announcing a significant Series B round and continuing on its meteoric growth trajectory.

Speaking with ahead of his keynote panel appearance at the in-person conference on October 19th, 2022 in Toronto, Lane co-founder Clinton Robinson explained how conducting “reverse due diligence” ultimately led to acquisition rather than a raise.

From acquiring others to an acquisition offer

Founded in 2018, Lane was jumping from strength to strength. The company raised a $2.5 million seed round in 2019, a $10 million Series A round in 2020, and saw its business grow throughout the COVID-19 pandemic.

The quick success of the company put Clinton and his co-founders in an enviable position: they had cash to spend on growth and started getting the occasional inbound acquisition offer.

“We were receiving a couple of inbound acquisition offers per year,” said Clinton. “But we never had any intention to sell. We wanted to grow Lane into the mission and vision we’d set.”

Choosing growth over selling out, the founders ignored the acquisition offers and doubled down on the growth. The company even became an acquirer, purchasing eServus, a corporate concierge services company, in mid-2020.

Growth was continuing along and the founders went to raise a Series B round, following the well-trodden path of hyper-growth startups. Then, two days before the Series B was set to close, real estate software company VTS—a company nearly 8x the size of Lane—submitted an inbound offer to acquire Lane. The founding team suddenly had no idea which path to take.

Conducting reverse due diligence

Clinton said the company had been exclusively focused on growth until that point. However, the Series B process required them to not only pitch their vision but explain the resources they would need to achieve it. Seemingly overnight, this acquisition offer presented what Clinton characterized as a different kind of investment—by joining VTS, Lane would have significantly more resources at their disposal than a mere Series B round.

“Everyone talks about VCs conducting due diligence before investing in a company,” said Clinton. “We thought about a potential sale of Lane as an investment in the acquiring company. They were getting our technology, our talent, and our customers. So we wanted to conduct a sort of reverse due diligence to validate if VTS was a good partner.”

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With only two days to either decide on moving ahead with the acquisition or announce the Series B, Clinton said the executive team went into a mini-lockdown to sort through all the details. In particular, the team looked at a few key elements:

Company vision: Clinton and his co-founders wanted to know VTS’ overall vision to understand if the two companies aligned.

Management style: Clinton wanted to know how VTS leaders operated and if the style would work for Lane’s culture.

Product roadmap: understanding VTS’ product path and how it could assist Lane in reaching its vision, and vice-versa. Clinton even went as far as to ask for notes from previous product meetings so he could see how they were run.

Investments to date: assessing VTS’ cap table to understand who its investors were (and what differing priorities might come up based on investor desires).

Board conversations: looking at board meeting notes to understand what conversations were happening and how the board looked at VTS’ strategic future.

Company admin: looking at how VTS structures its contracts, reviewing company financials and legal files, and understanding the employee stock option plan, both structurally and what’s remaining in the pool.

For intricate financials and legal documents, Clinton let professionals review everything and give their professional opinions. This freed up a bit of time for the co-founders to focus on the bigger vision and product roadmap.

“You’re trying to get an assessment of how well capitalized the company is to succeed,” said Clinton. “Standard business metrics are important—you have to get insight into who you are joining. But you won’t have time to review it all, so you have to focus on what’s important and let lawyers handle the little details.”

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A founder’s job after an exit

After conducting the diligence process, Clinton and the Lane team felt confident that VTS’ mission aligned with theirs and VTS’ resources could help them reach their vision faster than staying independent. Ultimately, they made the choice to sell and closed down the Series B.

Taking part in acquisitions from the buyer side helped Clinton become an informed seller. He and the Lane executive team were able to offer VTS insight into what Clinton felt were the two most important parts of an acquisition: team and product integration.

But after the two companies successfully merged—which Clinton said took about 10 months—he felt his role was complete. He stepped back from the company and took a four-month health break in mid-2022.

Now he’s spending most of his time investing, advising founders, and working on a couple of stealth projects. The slower pace has also given him time to reflect on what he’d accomplished, something he’s incredibly proud of.

“In the context of Canadian tech, our exit was pretty big at $200 million,” said Clinton. “But it was also pretty fast—just over three years from company creation to exit. I’m proud of the work we did and I’m proud of the team, but I wasn’t personally in a place where I could add any more value after the integration with VTS was finished. Now, I’m focused on helping the overall Canadian tech ecosystem—and especially the proptech ecosystem—grow.”