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.
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.
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).
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.
> 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?
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.
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.
[+] [-] gyardley|13 years ago|reply
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.
[+] [-] pg|13 years ago|reply
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.
[+] [-] pg|13 years ago|reply
[+] [-] asanwal|13 years ago|reply
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...
[+] [-] babs474|13 years ago|reply
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.
[+] [-] tnuc|13 years ago|reply
Do you have any data or evidence that would support that most are "HR Acquisitions"?
[+] [-] jpdoctor|13 years ago|reply
??? 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?
[+] [-] gamblor956|13 years ago|reply
[+] [-] robryan|13 years ago|reply
[+] [-] mappum|13 years ago|reply
[+] [-] seanmccann|13 years ago|reply
[+] [-] JDDunn9|13 years ago|reply
I wish the report had more bayesian probabilities to account for survivor-bias.
[+] [-] dangoldin|13 years ago|reply
[+] [-] pbreit|13 years ago|reply
[+] [-] justinbeaver|13 years ago|reply
[+] [-] nikcub|13 years ago|reply
[+] [-] photorized|13 years ago|reply