M&A

How Focused Should Startups Be On Being Acquired?

By Mark Evans in M&A 3 Comments Tags: , ,

I was talking to an entrepreneur recently who made an interesting comment about startups: They need to be focused on potential acquirers as much, if not more, than making sales.

His thinking is that the end-game is being acquired so a key part of positioning and building a start-up is being focused attracting the attention of buyers looking for good acquisitions. In the four startups that I have worked for, getting sales was a major priority because being acquired seemed so far away.

For many startups, this is an approach that makes sense because attracting another customer means getting to live for another day, paying your employees, and building a solid foundation for the business. While many entrepreneurs may dream about the pot of gold at end of the rainbow, getting acquired is a lot like winning the lottery – if it happens, that’s great but you need to create a viable business to improve the chances of attracting a buyer.

Another key consideration for startups is getting into markets where there’s opportunities to establish a foothold. Unless they can come up with a significantly better mousetrap, it doesn’t make sense to start a business that already features plenty of competition.

Not that this stops entrepreneurs from trying. The search engine market is perhaps the best example of how startups continue to think they can topple Google. And does the world really need another business-focused social network?

In an ideal world, entrepreneurs come up with an idea that is different or attacks a problem in a new way. At the same time, it solves a point a pain or makes something a lot easier or cheaper to do. If a startup can seize one of these opportunities, there is a fertile opportunity to build something interesting.

So where do acquisitions fit into the scheme of things for startups? As much as you want to build something to last, entrepreneurs also want to build something to pass to someone else for a check with lots of zeros on it. So, how much focus should entrepreneurs put on potential buyers when planning and building their companies?

If you’re trying to do more than build a business that just pays the bills and lets you take a nice vacation every year, it probably makes sense to create a “bucket list” of potential buyers, even if the chances of being bought are slim, if not non-existent.

But having a wish-list of buyers could provide some strategic and tactical guidance as the business is being built. It could take your startup into directions that may not normally be part of the mix but in the long-term could be the right moves. This isn’t to suggest startups should be fixated on potential buyers but it should be a consideration as part of long-term plans.

What do you think? Should startups be focused on potential acquirers? is there a downside to doing this?

The End of TechCrunch As We Know It

By Mark Evans in Blogs, M&A 2 Comments Tags: , , ,

With 24 hours to think about it, the sale of TechCrunch to AOL strikes me as a head-scratcher, even though TechCrunch founder Michael Arrington says it make complete sense. Of all the potential suitors, AOL would not have been on my list. Instead, it would have been headed by a digital publishers such as CNet or one of the large newspaper publishers such as the New York Times or Washington Post looking for a deeper digital presence.

The rise of TechCrunch into one of the technology industry’s most influential players is an amazing story. Started by Arrington, it was just one of many technology blogs battling for attention at a time when the technology market was just starting to re-emerge after the dot-com boom went bust. TechCrunch wasn’t an immediate smash-hit but Arrington’s energy and connections started to make it a must-read. In time, TechCrunch expanded with other Web sites and conferences, while Arrington became an active player in the Silicon Valley ecosystem.

While Robert Scoble suggests TechCrunch’s sales is the end of an era in tech blogging, it’s far more accurate to suggest it’s the end of an era for TechCrunch. Tech blogging will continue with existing players getting stronger, and new players emerging.

Meanwhile, TechCrunch will, no doubt, become a different creature. Sure, Arrington is going to stay involved with TechCrunch but the reality is it’s difficult, if not impossible, to maintain the same kind of involvement when you’re an employee rather than an entrepreneur putting your heart and soul into growing a business. While Arrington will be a good AOL employee for awhile, he’s an entrepreneur who will be lured by other activities and interests.

In time, TechCrunch’s influence will change as well. As much as TechCrunch has a large following, Arrington is the driving force behind what makes TechCrunch different from GigaOm, VentureBeat, Mashable and ReadWriteWeb. He is the TechCrunch brand.

Rather than being the end of an era for tech blogging, the landscape will start to shift and evolve. TechCrunch will likely remain a popular destination but the tech blogging landscape could become a more interesting place now that TechCrunch is part of AOL. With change comes opportunity – maybe even a new Arrington-like blogger with big dreams, great writing skills and a knack for self-promotion.

Not everyone may be a fan of Arrington but you have to give him huge credit for building TechCrunch into an online publishing powerhouse. As TechCrunch moves forward with a new owner, it will interesting to see how TechCrunch changes and, as important, how readers view the new TechCrunch.

Is the High-Tech IPO Really Back?

By Mark Evans in M&A, Venture Capital No Comments Tags: , , ,

The high-tech IPO is a mysterious beast. It’s attractive, seductive and irresistible. But it’s also fickle, temperamental and not always well-behaved. Still, investors have a difficult time resisting the high-tech IPO even when the fundamentals aren’t solid or even exist.

In the coming months, it looks like investors will get another opportunity to test their obsession with the high-tech IPO as companies such as Skype and Hulu prepare for public offerings. If these IPOs are successful – and there’s plenty of indication they will be enthusiastically received – it could open the floodgates for all kinds of IPOs.

The question facing investors is whether Hulu and Skype are anomalies, or whether the high-tech IPO has really come back from the dead. Hulu and Skype are solid well-established businesses with revenue, subscribers and track records. They are market leaders in markets experiencing rapid growth, which makes them strong IPO candidates.

These are the kind of IPOs that, frankly, were few and far between during the dot-com boom when anything with traction was sucked into the IPO machine. Of course, many of these IPOs bombed because the companies that did them were more projects than businesses.

As much as Skype and Hulu have investors excited, I’m concerned they are the cream of the crop, and that the high-tech IPO landscape is pretty limited. For all the talk about how costs are lower so high-tech businesses can get started with less capital, the reality is the business landscape is dominated by free and freemium. This makes the marketplace volatile and uncertain because there are competitors willing to charge little or nothing to attract customers.

The companies that succeed in attracting users and revenue will no doubt be attractive and could do an IPO if they’re not acquired but how many of these kind of companies actually exist? Probably not as many as you would think.

But the other reality is there’s a lot of venture capital that has been tied up in start-ups. The VCs sense an opportunity to cash out so there will be tremendous pressure on start-ups to do an IPO. This could lead to a glut of public offerings, including many companies that probably don’t have solid enough fundamentals.

If investors should remember anything from the past decade, it’s caveat emptor because not everything with a pretty IPO bow on them is going to have a wonderful present inside.

For more on the IPO landscape, check out this story in the Financial Post.

Skype’s Set Free (Almost)

By Mark Evans in M&A, Telecom Acquisitions, Financing 2 Comments Tags: , ,

When eBay purchased Skype in 2005, it was a $4.1-billion strategic head-scratcher.

Why eBay, the world’s leading online auction service, needed to buy a disruptive VOIP service provider – even one as popular as Skype – made little sense despite assertions there were many synergies, including how Skype would allow eBay to roll out click-to-call to enhance its core online business.

The deal was a mistake that distracted eBay and, arguably, retarded Skype’s progress.

The bottom line, however, is it wasn’t a complete disaster for eBay as they were able to get $2.75-billion for a 65% stake in Skype from a group of investors led by Index Ventures and Silver Lake Partners.

It’s a good deal for eBay because it gets the business refocused strategically, while providing eBay with some more financial stability and flexibility. eBay also gets to keep 35% as a way to ensure it shares in the wealthy if Skype becomes more successful and valuable.

More important is how it will, hopefully, provide Skype with more strategic flexibility and freedom to pursue ideas, new markets and new services that it couldn’t do while part of the eBay empire.

What’s impressive is that Skype has thrived financially while owned by eBay, so it will be interesting to see if Skype’s growth as a standalone entity will be even more impressive.

Has @steveballmer Tipped Microsoft’s Twitter Plans?

By Mark Evans in M&A, Social Media 2 Comments

This may be a case of putting two and two together, and getting five but….you have to wonder whether Steve Ballmer has deliberately tipped his hand about Microsoft’s interest in Twitter.

After a speech at Stanford, Ballmer told CNet’s Ina Fried that Microsoft needs to be “more disruptive” about search. It’s an interesting proposition depending on how Microsoft defines “disruptive”.

One way to interpret it is doing something like acquiring Twitter, which is aggressively starting to introduce new search features such as indexing links within updates and working on a “reputation” system for users who insert links into updates.

Silicon Alley Insider’s Nicholas Carlson argues a Microsoft-Twitter deal makes sense. Among the five reasons to support the thesis is that “We believe Twitter is the first startup since Google to have created a new and popular way for people to use the Internet to discover content and research products they want to buy. It’s created a new kind of search.”

If Microsoft is serious about the search market despite its struggles to close the gap between itself and Google, then acquiring Twitter would be the right strategic move. (And maybe it should acquire Wolfram as well)

That said, Microsoft will likely have to pay through the nose for Twitter – say $1-billion to $1.5-billion – given how Biz Stone and Evan Williams (and their investors) appear content to bide their time until the right offer comes along.

Then again, Microsoft coughed up $240-million for a tiny slice (1.6%) of Facebook so spending a $1-billion or so on Twitter shouldn’t be too much of a strategic splurge.

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We Want Skype Back!

By Mark Evans in M&A No Comments

So what do you make of Niklas Zennstrom and Janus Friis putting together a bid for Skype?

After selling the business to eBay for $3.1-billion, the New York Times reports the dynamic telecom duo apparently want to buy it back for about $2-billion.

With Skype closing in on $1-billion in annual revenue and, likely, healthy margins, there has to be multiple parties interested in Skype despite the current credit crunch. Even though Skype has been a terrible strategic fit for eBay, the business has surprisingly thrived over the past four years.

In many respects, eBay’s inability to find synergies with Skype has been a blessing by letting Skype continue to operate without many distractions.

For Zennstrom and Friis, regaining control of Skype is an interesting proposition given they have the cash to do anything they want. Clearly, they believe Skype still has huge potential, and they are just the right people to lead it forward.

The other reality is many entrepreneurs suffer from a sense of guilt or loss after they sell their “babies”. Ron Joyce, for example, has openly rued the day that he sold his controlling stake in Tim Horton’s to Wendy’s. While it great to walk away with a bundle of dough, it must be difficult for entrepreneurs to walk away from things in which they have invested so much time, energy and effort.

If Zennstrom and Friis manage to reacquire Skype, it will be interesting to see how they jump-start the business after four lonely years within the eBay empire.

For other views, check out Fred Wilson who adroitly says that “Big companies mostly mess up entrepreneurial companies when they buy them and it really is best that companies like Skype stay independant and run by their founders if that is possible. And it looks like that might be possible with Skype. That makes me happy.”

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