A Few Notes on Priming the Acquisition Pump

We’ve been enjoying listening to Harry Stebbin’s The Twenty Minute VC podcast.  As the name suggests, VC:20 features 20 minute interviews with a variety of prominent thought leaders in the venture capital world.  Past guests include Fred Destin from Accel, Sam Altman from Y Combinator, and Jason Lemkin from SaaSter, among others.  A few weeks back, Harry had Emilie Choi, Head of Corporate Development for LinkedIn, on the show.  Emilie has led over 40 acquisitions while at LinkedIn, and has also served in Corp Dev roles at Yahoo and Warner Brothers.  M&A activity represents the vast majority of startup exits, so most entrepreneurs will benefit from a better understanding of how the process works.

Here are a few quick take-aways:

  • According to Harry, M&A activity represented +95% of all VC-backed exits in 2016. Vocap’s State of VC report from October 2017 suggests closer to 80% in the U.S. In either case, it’s the overwhelming majority.
  • Business execution comes first, but strategically maintaining lines of communication with potential acquirers early on (sometimes years before an M&A transaction) can pay dividends
  • As Emilie indicates, if a startup is relevant in their space, Corp Dev will be interested in an on-going dialogue that can start as early as the seed stage. It can also be helpful to explore partnerships and build relationships at the business unit level of a potential acquirer.
  • I agree with Emilie that a startup’s competitive edge is its motion (meaning: focus, execution, momentum). The major tech aggregators have a lot on their plates already, and don’t attempt to copy everything they see.  That said, as she discloses, the big tech companies have become a lot more effective at copying startups.  Be sensible in how much you open the kimono.
  • Entrepreneurs should leverage their VC investor relationships with Corp Dev groups. These can be helpful for introductions, but it’s also reasonable to expect your investors to help maintain that dialogue as you put your head down and execute.
  • When you do get into an M&A process, be reasonable about your expectations on timing.  As Emilie points out, a slow process pre-term sheet can mean less post-term sheet risk. And definitely heed her warning about setting artificial deadlines.  These often backfire in both fundraising and acquisition processes.

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