1–10 of 26 posts
Is there any specific example where the startup's technology affecting the buyer companies significantly?
Other times it's worth a premium if you want to get into a particular business and have nothing or are playing catchup.
If a company buys a startup with a promising product that they can quickly sell to a large portion of their customers, they're willing to give up a portion of that future revenue. It may not be at all tied to past performance.
2. Talent
Facebook payed a premium for FriendFeed because they wanted their team to work on the Facebook platform. This team has developed more than $50 million in new value for Facebook.
3. To keep a competitor from having the advantage.
Google paid $1.5 billion for YouTube. They've lost money on owning it, but in the process kept their biggest competitors from controlling an asset that drives an enormous portion of all video traffic on the web. You'll see companies buy up companies they're not really interested in just to keep someone else from having them. Powerset was bought for $100 million by Microsoft because if they had developed some interesting or successful search technology, they couldn't chance letting Google have it.
Combine that with raw talent acquisition, and a lot of startups begin to look like highly-rewarded spec R&D work for big companies. Picking up that kind of talent, audience, and potential? It's easily worth it to BigCorp, even if there's no income at all.
(I hope the tone sounds okay on that. There's nothing wrong with gaining a million users and flipping your company to Google -- assuming that's what you want to do, of course)
Of course, there's a ton of startups that don't fit that model. But many do -- at least many in the valley.
Big companies are using startups as proxy innovation labs. So instead of figuring out themselves what users are doing, they let startups. Then they buy the startups. Much easier to buy an audience and all the possibilities associated with a new brand than try to make it all work in-house. Combine that with raw talent acquisition, and a lot of startups begin to look like highly-rewarded spec R&D work for big companies…
I mean, imagine some big company opening a BigCompanyName-Seed division, where they do something like Y combinator is doing, but instead of giving a small amount of money for 6% they get 50% of the company for a bigger investment (at least in perspective, so if future investments are needed, there is no dilution up to a given sum).
But in the process of course the company doing this stuff should be smart enough to don't force any strict rule like technology to use, type of authentication, domain name, and so forth. Must be a startup with its own life. Just they can select things that are interesting in general, or are interesting for the general goals of the big company.
I'm not sure why this model could not work.
Big companies are using startups as proxy innovation labs. So instead of figuring out themselves what users are doing, they let startups. Then they buy the startups. Much easier to buy an audience and all the possibilities associated with a new brand than try to make it all work in-house. Combine that with raw talent acquisition, and a lot of startups begin to look like highly-rewarded spec R&D work for big companies…
That's something strange from my point of view. I mean, imagine some big company opening a BigCompanyName-Seed division, where they do something like Y combinator is doing, but instead of giving a small amount of money for 6% they get 50% of the company for a bigger investment (at least in perspective, so if future investments are needed, there is no dilution up to a given sum). But in the process of course the compa…
Couple good books come to mind. The best of which is probably The Innovator's Dilemma, for how new ideas get killed by companies.
There are a lot of reasons what seems obvious won't actually work -- even though many companies still keep kicking that can down the road. This whole area is like a siren's song both in the corporate world and in government. Everybody is building "centers of excellence" and "knowledge incubators", and whatever else buzzwordy thing they can come up with to spend money. But the record of such efforts is appalling. Just for one example, take a look at Microsoft -- tens of billions in cash, tens of thousands of brilliant people, and they're lucky to get a release of windows out in time. Too many reasons to go into in this short of a space, and of course there are a lot of true believers that would argue with my conclusion. Suffice it to say that smart companies have figured out it's easier just to write a check.
Big companies are using startups as proxy innovation labs. So instead of figuring out themselves what users are doing, they let startups. Then they buy the startups. Much easier to buy an audience and all the possibilities associated with a new brand than try to make it all work in-house. Combine that with raw talent acquisition, and a lot of startups begin to look like highly-rewarded spec R&D work for big companies…
That's something strange from my point of view. I mean, imagine some big company opening a BigCompanyName-Seed division, where they do something like Y combinator is doing, but instead of giving a small amount of money for 6% they get 50% of the company for a bigger investment (at least in perspective, so if future investments are needed, there is no dilution up to a given sum). But in the process of course the compa…
I think one reason is that most seed investments don't need to be that large, and large investments can actually be detrimental to the progress of a startup.