Most founders dream of one day holding a headline-grabbing, multimillion dollar IPO then either exiting in style or continuing to steer the company for decades. But going public isn’t the only valid financial goal for a startup. In fact, given the comparative scarcity of tech startups successfully listing on the ASX, it’s wise to consider other options.
An acquisition may not attract as much attention as an IPO, but it can be a more sound strategy.
Acquisitions don’t just happen.
You don’t have to wait to be approached with an offer, you can work towards being acquired.
One of the advantages of aiming for an acquisition is that it forces you to consider your startup from an outsider’s point of view. When thinking about potential buyers, keep in mind that the major reasons a company gets acquired are for its team, its tech, or its customers.
Simply put, the better your team is the more valuable it will be to another company. This was one of the factors – though certainly not the only one – in Apple’s acquisition of Beats last year. Founders Dr Dre and Jimmy Iovine are influential in music and Apple needed their industry clout to help put together, and promote, the Apple Music service.
Whether or not you’re looking to sell, it goes without saying that you should put together the best possible team for your startup. But you can do more than just that. Work on building a reputation for your CEO (or another founder) as an expert in your company’s field. Writing industry analysis or speaking at conferences will attract the attention of established market players, as well as companies looking to influence the industry. And getting noticed is the first step towards getting acquired.
Some acquisitions are all about the product. If you’ve built something cutting edge or truly game changing, someone will want to buy that tech. From a buyer’s perspective, there can be a few different ways of looking at your product.
Does it come with patents or other IP attached?
The ‘run fast’ mentality of being in a startup doesn’t leave a lot of time or money for lengthy patent investigations, but patents can be worth looking into, particularly if you’ve developed brand new hardware or software. A solid set of patents can be the entire reason for a purchase. Think of Google’s acquisition of Motorola back in 2011 – the vast library of mobile phone patents was the best thing Moto had going for it.
There’s a similar question when it comes to data. If your product collects or generates a useful dataset, you’ve got a good avenue to a sale. The best example of this is the current bidding war over Nokia’s maps division. From German car manufacturers to Chinese search engines, a lot of companies could use all that data.
Many, like the car companies and Uber, are already licensing Nokia’s map data, which means they’re also asking…
How reliant are we on the product?
This question could be asked by one of your large customers or even a strategic partner. A big customer or partner relying more and more on your product is increasingly likely to decide they need to ensure its ongoing availability.
The best way to do that is invest in your company or buy it outright. Uber uses Nokia’s mapping product, Here, in some of its core services, so it has a powerful reason to acquire Here. The same goes for the German car makers, who seem to have edged Uber out. In short, if you’re aiming for acquisition, it pays to make your product invaluable to other companies.
You can think about this as your company’s market position. The more prominent your brand is and the more customers or users you have, the more attractive your company is for an acquisition.
The buyers most likely to be interested in this side of your business are your competitors. So, in addition to doing some thorough homework on them, it’s worth being on friendly terms. Always keep an ear to the ground for news of competitors’ expansions, pivots, and new rounds of investment.
Australia’s isolation can be an advantage here, since most of the competition for local startups are companies based overseas. If you focus on building a solid position in Australia, New Zealand, and/or South East Asia, a US or European competitor looking to expand will have a good reason to make you an offer.
Expedia purchased Wotif after deciding it was easier to acquire a greater market position here than compete for it. Similarly, Zomato’s recent takeover of Urbanspoon – although it’s not an Australian company – gave it instant access to a large user base here and in other parts of the world.
In an ideal world, your startup would always have the best team, tech, and the most customers. But if being acquired is part of your strategy, it can be helpful to focus on the part of your business that’s most valuable to someone else. Shoot for the moon, but be sure to know what you’ll do if you can’t get there.
Kit Kriewaldt is an entrepreneur and strategic communications specialist. He loves to talk James Bond, cocktails, and psychology – focusing particularly on decision making and consumer behaviour. He is also Chief Marketing Officer of digital communications platform Liquid State. Photo: Olu Eletu