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Company Buyouts and Exit Strategies

Jehan | Apr 22 2024
Company Buyouts and Exit Strategies

So we had a conversation with Naureen Hyat, CEO of Zood Pakistan, who shared her journey from startup to acquisition. The conversation shed light on how founders need to keep true to their values, even in times of mergers and acquisitions, to survive beyond being absorbed into another entity.

Insightful and engaging, the conversation could have gone on and on, however, keeping to the topic at hand, here is what was discussed in depth about Tez, and how Zood was interested in expanding into Pakistan.

The Beginning

Back in 2011/2012, Naureen and her future co-founder, Humza, were working at PACRA. They experienced the microfinance landscape in Pakistan firsthand and noticed how operational inefficiencies translated into high borrowing rates for customers. They analysed that the interest rates were directly proportional to the operational costs including manual fieldwork, lead generation, and time spent on rating each case from start to end. It took anywhere between one to two weeks to onboard a customer for a microloan. They realised that if they reduced the operational cost of customer acquisition, they would automatically reduce interest rates on every loan.

This gave them a reason to start a Fintech by the name of CheckIn Solutions – a digital field application – that helped institutions reduce the cost of operations by automating the entire credit disbursement process from lead generation (where a field officer simply inputs all data in a streamlined form), helping with data collection, analysing customer profiles, and helping with post disbursement issues. This B2B model was created for Microfinance Institutions (MFIs) to adopt and make microfinance disbursement more cost-effective.

However, the problem lay in the fact that MFIs were not regulated, at the time, and the SECP had just started bringing in regulations. The delayed adoption was exacerbated by the fact that the acceptance of transitioning to tech was also low at the time.

When they approached Nadeem Hussain, their third partner, he shared how the founders were ahead of their time and suggested they should create their own company; and directly disburse loans, instead of waiting for MFIs and MFBs (Microfinance Banks) to adopt their technologies.

Pivot from B to C

The pivot to a B2C model came about and nano loans were disbursed to the masses. Tez acquired its lending license – being the first fintech in Pakistan to do so. At the heart of the company, they knew that credit is one of the key factors for economic development in any country and they worked hard towards this goal.

They hit the ground running and managed to raise investment and lines of credit, internationally as well as locally. Knowing they were on to something, investors like the Omidyar Network (now Flourish Ventures) and Accion invested in their idea to move the needle forward.

The team focused on credit, while also looking to diversify to other products like savings and insurance. Credit mainly covered nano loans for 1 week to 2 months. 

Right off the bat, they learned a valuable lesson in their first cohort. With a 50% default rate, the team was hit hard. However, it served to be gold for them. They strengthened their in-house algorithms which provided their startup with their unique credit scoring, to tackle fraud and defaults. They were able to create customer profiles which gave them an idea about an individual’s ability and willingness to pay back a loan. This helped them reduce their default rates to under 3% by the time Tez was acquired.

They heavily invested in customer support training, as that was key in how customers interacted with the start-up and how they came back to Tez for their needs. All these efforts created value for their customers and by extension their company.

The approach in 2019 and COVID Mania

They were approached, for a partnership, by Zood right around 2019 (before COVID hit worldwide), however, the founders were not interested in venturing into an e-commerce-based model at the time and were more focused on their own product. While Zood wanted to expand into Pakistan and was looking for partners, their working model did not align with Tez to go ahead with the conversation at the time.

And then COVID hit. Things became difficult, to say the least. Raising funding became a challenge as investors were looking for hypergrowth and new(er) ideas, rather than reinvesting in existing start-ups or riskier asset models like lending, which were still in need of increasing their runway.

Tez persevered through the turmoil and when Zood came back to the founders in 2021, the former had already expanded their footprint across the MENA region and were big players to contend with. This time around Tez and Zood sat down to negotiate their options.

Partners in Time

It’s worthwhile to mention that at the time Tez was in conversations with a few prospective strategic investors, a few of them converted from investment to acquisition, Zood being one of them.

For Naureen and Humza, with different acquisition options on the table, the question was which partner to move forward with. This itself entailed a process of analysis and weighing down on key aspects for selecting the entity that would take their legacy forward. Naureen and Humza simultaneously picked Zood as they were interested in Tez as a whole unit, including its technology, its credit scoring models, its lending license, its industry know-how and partnerships, and most importantly its entire team.

Michael (CEO of ZOOD) shared how they were interested in what Tez had built and how the visions of the companies aligned. They were interested in the value created. Naureen and Humza found this offer to be more in line with what they envisioned and went ahead with the agreement; officially getting absorbed into Zood.

What resonated with us was how Naureen shared, “Good companies are bought, not sold.”

Vision and Cultural Alignment

In the discussion, Naureen highlighted how having a vision and cultural alignment made for a smoother transition from one company to another and kept an exit as painless as possible. If these are not kept at the forefront, unnecessary hiccups are bound to happen making the process quite painful.

She also mentioned how in the extremely risky start-up world, founders need to focus on cues that indicate the time to pivot, time to exit (through M&As possibly), or even to shut down. Cutting losses and not falling for a sunk-cost fallacy is extremely important.

Autonomy and Beyond – The Journey of Unlearning and Relearning

By going through with this M&A, Naureen and her partners created a larger impact and focused on making access to finance as easy as buying a cell phone. Making a difference for the under-credited was always their core value.

She states how working with a global team while heading Pakistan has given her a chance to unlearn and relearn a lot about different aspects of the business. Whether it was learning about BNPL (buy now, pay later) models or the e-commerce world, they were game to take it head-on. It doesn’t feel like an exit for her; however, she feels they are the lucky few who were able to gain, rather than lose through this M&A. She again stressed how cultural alignment is key when negotiations are ongoing. And to remain true to their value system and OG team.

Naureen feels fortunate that she not only gets to continue working on her passion but also gets relief from the constant need to raise funding and keep the company going. Her efforts are spent more on creating impact now. She heads Pakistani projects autonomously, while still having global support behind her. The effort hasn’t slowed down but shifted to other areas. This includes how they have no option but to unlearn and relearn fast. Zood had its quota of learning to do as well.


It is all about building value. If founders build value and if that value is seen, then any startup is lucrative for potential mergers and acquisitions. Through transparent negotiations, startup founders can create a win-win situation for all stakeholders. It does not have to be a takeover – whose connotation gets a bad rap. Naureen’s study of a Harvard case study on ATH Technologies opened her eyes to the potential risks of getting acquired. This begs the question, how prepared should one be when sitting at the table for discussions? Acquisition is a process that goes beyond a sale of equity. One needs to be prepared for how one wishes to be positioned post-acquisition as well; ensuring a successful transition and absorption into the acquiring entity, including being aligned with the value, systems, and teams. Being equipped with this knowledge, helps founders strike a better deal.

Pertinent to add Omer’s, from PostEx, insights who said, “In today’s macro environment, the topic of buyouts and exit strategies is becoming more relevant for all sizes of businesses, especially for smaller ones. Going through the M&A phase, businesses must hold on to their core values and vision, the very foundation upon which they were built from day one.

Some things remain constant regardless of the macro environment, and that is the hyper-focus on business fundamentals. Profitability isn’t just a goal; it’s a way of doing business. Our focus right now needs to be on profitable growth. When teams are aligned on a shared vision, even during an economic downturn, it enables the company to grow its legacy and bring a positive change in the longer run.”

Building blocks for any company are different, hence, each M&A and exit strategy would be different. It is how one maneuvers oneself during the whole process. Startups aspiring for successful exits should prioritize cultural alignment and negotiate deals that safeguard the company’s long-term success. The founders of the acquired entities need to think of the holistic terms of the sale, not just the price tag alone or the earnouts for the founders, but also key aspects beyond the actual sale transaction. 

The key aspects to consider would be:

  • How the team gets absorbed into the acquiring entity (if that is a part of the deal)
  • What will the new roles and responsibilities of the team including the founders be
  • The support and training that would be required for the team of the acquired entity
  • How the teams of the acquiring entities can support and embrace the new teams?
  • How the KPIs are set for the acquired partners and if an enabling stage has been provided by the acquiring entity for the achievement of such responsibilities.

To ensure a successful acquisition and position the company for success, it may be worthwhile for the founders of the acquired entities to negotiate terms or asks for the company itself at the time of the acquisition to avoid any bumps that may arise in the future due to the external environment or even changes within the acquiring entity.  

The management of both entities play a crucial role in this transition. For founders, it is important to not consider the acquisition just as a transaction and an exit but as an opportunity to create a legacy by successfully passing on what they had built to someone who can build further value on it. Many times acquisitions fail because of the anti-mindset of the acquired founders or the hostile objectives of the acquiring management or investors.

As startups navigate the complexities of company buyouts and exit strategies, they must remain steadfast in their commitment to creating value and fostering alignment with potential acquirers. By prioritizing cultural fit and vision alignment, startups can navigate M&A negotiations more effectively and ensure a seamless transition toward achieving their long-term goals.

Check out our blog for more insights on navigating the startup journey with our Startup Survival Guide series!