Most tech startups acquired in 2012 had no VC funding(zdnet.com)
zdnet.com
Most tech startups acquired in 2012 had no VC funding
http://www.zdnet.com/most-tech-start-ups-acquired-in-2012-had-no-vc-funding-7000010561/
8 comments
No, raising money doesn't put a floor under your acquisition price. It puts a floor under the acquisition price at which the founders make money.
So while a company can certainly paint itself into a corner by raising too much, that phenomenon is not what's responsible for the statistic quoted in this article. If you paint yourself into a corner by raising too much, it doesn't decrease the probability that your company will be acquired, just how much money you'll make personally if it is.
If anything, raising too much money increases the probability a company will be acquired, because (by definition of "too much") it increases the probability the company will fail, and a fire-sale acquisition is the default outcome for companies that have raised a lot of VC funding.
So while a company can certainly paint itself into a corner by raising too much, that phenomenon is not what's responsible for the statistic quoted in this article. If you paint yourself into a corner by raising too much, it doesn't decrease the probability that your company will be acquired, just how much money you'll make personally if it is.
If anything, raising too much money increases the probability a company will be acquired, because (by definition of "too much") it increases the probability the company will fail, and a fire-sale acquisition is the default outcome for companies that have raised a lot of VC funding.
Fair enough, fire-sales happen all the time.
Perhaps I should have written 'puts a floor under your acquisition price until your company fails.'
Perhaps I should have written 'puts a floor under your acquisition price until your company fails.'
This is rather a meaningless statistic, because acquisitions have a power-law distribution. Most acquisitions are HR acquisitions.
Our firm (CB Insights) put out the report that this article references so some additional color on this.
Unfortunately, there is no data to support PG's assertion above (or refute it) about most acquisitions are HR acquisitions so I won't try to address that part of his comment.
The power law is real. Only 0.35% of private tech company acquisitions in 2012 were > $1B (8 of 2277). And more than 50% were less than $50M and more than 80% were less than $200M (of those with disclosed values).
If you really like graphs, the full report is here - http://www.cbinsights.com/reports/Private%20Tech%20Company%2...
Unfortunately, there is no data to support PG's assertion above (or refute it) about most acquisitions are HR acquisitions so I won't try to address that part of his comment.
The power law is real. Only 0.35% of private tech company acquisitions in 2012 were > $1B (8 of 2277). And more than 50% were less than $50M and more than 80% were less than $200M (of those with disclosed values).
If you really like graphs, the full report is here - http://www.cbinsights.com/reports/Private%20Tech%20Company%2...
What definition of "institutional funding" did you use in the report? The wording implies that you didn't count angel investments as institutional funding. So how do you treat angel-sized investments by VCs? Does "institutional investment" mean only series A rounds and later, or would that also include a $100k investment by a VC firm in a seed round?
Also, what is your definition of an institutional investor? Do you count super-angels like Jeff Clavier and Aydin Senkut?
Also, what is your definition of an institutional investor? Do you count super-angels like Jeff Clavier and Aydin Senkut?
There's plenty of data to support PG's assertion. Insofar as Hacker News represents the general startup ecosystem, if you look through the list of acquisitions of companies announced on this site, many of them can be inferred to be HR acquisitions simply by looking at the acquisition price and whether or not the original product is still being developed or whether it is being shut down.
I'm not sure about the stats, but I can contribute my anecdotal experience of the detrimental effects of gobs of vc money on a startup.
In this case, there was so much runway that they decided they had time to invent their own proprietary computer language before getting to the actual business problem. They also built a datacenter packed so full of mostly dormant Xserves that apple featured it at WWDC.
So much wasted time and money. I hope my experience was an outlier.
In this case, there was so much runway that they decided they had time to invent their own proprietary computer language before getting to the actual business problem. They also built a datacenter packed so full of mostly dormant Xserves that apple featured it at WWDC.
So much wasted time and money. I hope my experience was an outlier.
Sadly it isn't an outlier for companies that get too much money. Under capitalized is an issue too though, companies that are too frugal can take too long to convert their idea to product and either miss a market window or allow a competitor to move in and dilute their market.
There is fundamental tension though between 'getting money' and 'getting things done' since nobody likes to go through the dance of raising money (it can be exhausting) the idea of getting enough that you don't have to do this for a while is quite seductive, but then seeing a big fat balance in the bank account can lead to lax decision making on purchases.
One of the most interesting things about the current crop of startup founders is that modest numbers in a seed round help them. They, like lottery winners, can become overwhelmed by the idea of having access to a lot of capital.
A funny (for me) anecdote, I was doing a financial transaction on a house and dealing with a banker who didn't know me nor I them. During the time I was moving funds around the computer system at the bank had a glitch and so part of it was done with a 'local validation' which meant I was signing a statement about the validity of part of the transaction without backup from the computer to confirm it [1]. I asked the banker if that was a problem and he thought for a moment and said "No, I can tell you've done this before." When I asked him how he pointed out that I was moving around six figure chunks of money and I wasn't nervous at all. Whereas people who weren't experienced were either hyper paranoid or excessively laid back in a sort of faux casualness. I remembered the first startup I did where I got to hold a million dollar check from our first investor and was incredibly nervous about it. I realized that seeing how people operated around big chunks of money was a great litmus test.
[1] Sorry about being so oblique, the transaction was complicated and not particularly germane to the story.
There is fundamental tension though between 'getting money' and 'getting things done' since nobody likes to go through the dance of raising money (it can be exhausting) the idea of getting enough that you don't have to do this for a while is quite seductive, but then seeing a big fat balance in the bank account can lead to lax decision making on purchases.
One of the most interesting things about the current crop of startup founders is that modest numbers in a seed round help them. They, like lottery winners, can become overwhelmed by the idea of having access to a lot of capital.
A funny (for me) anecdote, I was doing a financial transaction on a house and dealing with a banker who didn't know me nor I them. During the time I was moving funds around the computer system at the bank had a glitch and so part of it was done with a 'local validation' which meant I was signing a statement about the validity of part of the transaction without backup from the computer to confirm it [1]. I asked the banker if that was a problem and he thought for a moment and said "No, I can tell you've done this before." When I asked him how he pointed out that I was moving around six figure chunks of money and I wasn't nervous at all. Whereas people who weren't experienced were either hyper paranoid or excessively laid back in a sort of faux casualness. I remembered the first startup I did where I got to hold a million dollar check from our first investor and was incredibly nervous about it. I realized that seeing how people operated around big chunks of money was a great litmus test.
[1] Sorry about being so oblique, the transaction was complicated and not particularly germane to the story.
Most statistics are meaningless.
Do you have any data or evidence that would support that most are "HR Acquisitions"?
Do you have any data or evidence that would support that most are "HR Acquisitions"?
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> This is rather a meaningless statistic, because acquisitions have a power-law distribution.
??? And the bootstrapped are also power-law. So why wouldn't total number of events also be interesting to bootstrapped folks, especially when considering probabilities?
??? And the bootstrapped are also power-law. So why wouldn't total number of events also be interesting to bootstrapped folks, especially when considering probabilities?
In Silicon Valley, perhaps. Everywhere else, acquisitions are business acquisitions of the target company's assets (usually, goodwill, cash, or other actual assets). In this regard, employees/founders are not considered assets.
A more interesting statistic would be how many companies for the year with over $x in funding were purchased for the year vs other years. Gives some insight into market conditions.
This makes sense, because companies that don't take VC funding are the ones that didn't need it because they were turning profits from the start. However, there are a LOT more companies that don't get VC funding and never succeed.
Or they have little to no profit, run out of money, and seek an aquihire.
Right ... this scenario is far more likely as, at the moment, it is very much in vogue for larger companies to snatch up the engineers around smaller, flailing companies that did not have enough revenue to sustain and could not attract funding to keep the engine running longer.
Many acquisitions that I saw this year were either starving engineers or soft landings.
Many acquisitions that I saw this year were either starving engineers or soft landings.
Less than 1% of companies get VC funding, so getting funded makes you more than 24x more likely to get acquired.
I wish the report had more bayesian probabilities to account for survivor-bias.
I wish the report had more bayesian probabilities to account for survivor-bias.
Seems like a vanity statistic to me. Most companies don't have VC funding so this is to be expected. At least compare this data to prior years.
I would need to see a list of the companies before drawing too many conclusions. Is there some reason the list is not available?
It appears that the company behind this study is running a business selling data - that's why.
Based on raw numbers, true - based on returns, not even close. It is hard to find a $1B+ or multi-hundred million acquisition that doesn't have a VC investment.
I think many of those were acqui hires.
Companies can only acquire companies they can afford. When you take outside investment, your investors want a significant return, which places a floor on your acquisition price. The value you have to create gets bigger, and the pool of companies that can acquire you gets smaller.
Raising money is hard, but should you want to and manage to, it's very easy to paint your self into a high-valuation corner that blocks all sorts of opportunities to make life-changing amounts of money.