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When to sell out

In this week's podsession Om and I talk about large companies acquiring startups. When does it make sense to sell and what are the current options available to entrepreneurs as they grow their business?

There have been many high-profile acquisitions over the past year and every week there are new rumors about what big player should buy a startup and some of the deals eventually do happen. How are large players positioning themselves? Are startups shopping themselves around as acquisition targets, seeking partnerships, or planning for their own long-term success?

The entire podcast, When to sell out, is 23 minutes long, a 10.6 MB download.

Topics covered

  1. Yahoo! business development presentation to CalTech and MIT students.
  2. When to ask for an acquisition?
  3. Is it better to instead partner with a company and establish a relationship?
  4. Large companies such as Google or Yahoo! are essentially competing with the venture capital community.
  5. Acquisition as talent acquisition.
  6. The built-to-flip mindset. Building to flip is building to flop.
  7. Startups trying to replicate the past success of others and become a "me too" play.
  8. What happens to a team after acquisition? Does the project stay in place and continue or is the team acquired for the talent and a few technologies before being integrated into existing teams? Del.icio.us and Yahoo! My Web as an example.
  9. What types of talent would larger companies like to acquire? Who adds value?
  10. There are more acquirers out there than Google, Yahoo!, and Microsoft.
  11. What role do partnerships play? Are they a viable alternative?

Comments

Hey Guys, I just made a guest post on 37Signals's Signal v. Noise, and Narendra pointed out I should have listened to you guys first! I just linked to you in the post.

Great podcast, and a very timely issue...

wrt the issue of whether you are better off seeking a partnership with one of the market leaders (Om), or with the #3 or 4 in the space (Niall); my thinking is in line with Niall's instinct that partnering with a challenger instead of a leader typically makes more sense. It is certainly easier to get the relaionship going. Challengers are highly motivated to find ways to compete more effectively, and have more streamlined decision making. Om points out "Yeah, but no one remembers who is #3 or #4." For a young company, getting some revenue flowing is very helpful in positioning the firm for later round fund raising. The extent to which a partner makes sense largely comes down to (a) their ability to deliver revenue, and (b) the extent to which the relationship would deter the bigger guys in the space from working with the company. As long as there is no 'first right of refusal' or other strings attached to the partnership, it is highly unlikely that any big player with deep pockets would be deterred by one of the followers; and no small challenger is going to want to participate in a bidding war with a potent market leader. Partnering with a major market leader presents more problems, as these deals typically come wih strings or strategic investment, that effectively deters nearly anyone else from working with the firm. This is why boards usually instinctively shun partnerships of any form if there is are strings attached, at least for portfolio companies that are seen as having good potential.