Technology Start-ups and the Pursuit for Capital

Recent market trends and developments have created a market that does not encourage companies’ to go public for a source of capital infusion.  With that taken into consideration, the next ideal form for a company is infusion by acquisition.  However, this may be easier said than done.  In order to get acquired, tech firms must change their methods of shaping their organization.  The following section of this report outlines the general techniques that a tech firms should use to attempt to get acquired in the current market.

The first step in attempting to getting acquired comes directly after the realization that acquisition is an interest.  First of all, it is imperative to keep the news of a possible acquisition quiet.  There is no need to spread the word throughout the firm.  This can create mistrust between management and employees, and this type of friction can create a problem in the near future.  In addition, firms must continue business as usual.  Firms must stay true to their business plan and continue to put up solid numbers.  “Staying the course and doing the things that have brought you to a profitable and enviable position in the marketplace is a priority.” (Audibert, 2013).  Potential buyers look for consistency in the companies that they are attempting to purchase, so a last minute change may raise concerns.

Next, one must ensure that their startup is something worth buying.  An important aspect of this is future growth that potential buyers will see. Thus, the specific technology startup should offer its product or service to a specific market segment that has growth potential.  For example, with the aging of the Baby Boomer age cohort, there is growth in the elderly age segment.  Thus, a company whose target market is this growing, untapped market will be more likely to be acquired.  Considering the fact that acquirers are making, in some cases, a sizeable investment, they want to be sure that their investment has the opportunity for serious growth.  This also translates to having some sort of competitive advantage over other firms in the marketplace.  Having something that other companies do not possess is vital.  This creates value for your company, and does not require your firm to be a certain size.  (Kokubo, 2012).  This process of differentiation can bode well, especially for small startup tech firms.

The third technique is one that can make or break the purchase of a company.  Companies must keep record of all financials, and keep them up to date and correct.  Errors in this area can cripple an acquisition at the most inopportune time.  “The moment the perception [about you] changes, the purchase price changes. The landscape can be brutal and the smallest bumps hurt.”  (Hall, 2014).  In a situation where every detail matters, it is important to have all expenses accounted for.  In addition, investors look to invest in companies that allocate their resources efficiently.  Lean strategies are essential, and are an extremely attractive characteristic of startups.  “Money spent on corporate entertainment or posh office space is money not spent trying to get ahead of your competitors.” (Qualls, 2013).  Investors can get a true view of a company’s priorities and goals when this is done.  Also, firms must keep in mind that with acquisition can come a great deal of fees.  “Entrepreneurs may encounter unexpected administrative costs, potential horror stories, and plenty of speed bumps in the process of getting acquired” (Farr, 2012).  With this considered, liquidity is an important attribute to keep in mind.  If all assets are tied up in non-liquid activities, a firm may struggle to pay such fees and costs.  The more a company can afford such costs, the smoother the acquisition will go.  Increased efficiency will also allow a company to better handle said costs.

In order to attain such efficiency, a dedicated and well-rounded team is needed.  As the head of a new company it is imperative to keep all employees on the same page with the vision of the firm in mind.   Employees are a company’s greatest asset and a bad workforce can ruin even the best idea.  Because of this, managers must keep their employees motivated and happy.  In addition, when an investor acquires another firm, they are purchasing it with the hope of future growth in mind.  The single most important aspect of future growth is the commitment of the employees of said organization. Hence, they could not be more important.

Acquisitions do not simply appear out of thin air.  Instead they are fostered by trust, attained through business connections.  While a number of companies employ an ‘Us vs. Them’ mentality, this should certainly not be the approach that tech startups looking to get acquired should use.  Instead, it is of the utmost importance that firms network along with others to build legitimate connections.  Such connections will not only open new doors to potential investors, but they will also spread the word amongst their connections.  With the increased spread of your company, you will begin to pop up more radars than anticipated.  With this companies can branch out further than just their industry and make waves elsewhere.

The aforementioned techniques may be easier said than done.  Each specific company is unique in its own way and thus faces different challenges when attempting to get acquired.  In addition, based on the research from Part one that showed how the current market is no longer conducive to IPOs, there is a greater supply of companies looking to get acquired.  Thus,  the competition amongst startups is increased.   While these techniques do not guarantee a future acquisition, they certainly will not hurt a firm’s chances.

References:

Audibert, D. (2013, November 14). Exit Strategy: Positioning Your Company to Be Sold or Acquired. . Retrieved June 26, 2014, from http://www.ctinnovations.com/resource/25/exit-strategy

Farr, C. (2012, December 26). Get acquired! A guide to technology M&A. . Retrieved June 10, 2014, from http://venturebeat.com/2012/12/26/mergers-acquisitions/

Hall, J. (2014, March 9). 4 min read Make Your Own Luck and Get Acquired. . Retrieved June 10, 2014, fromhttp://www.entrepreneur.com/article/232073

Kokubo, N. (2012, January 1). What can I do to position my startup for an acquisition?. . Retrieved June 10, 2014, from http://www.foundersspace.com/fund-raising/what-can-i-do-to-position-my-startup-for-an-acquisition/

Qualls, R. (2013, June 28). 5 Tips for Getting Acquired. . Retrieved June 10, 2014, fromhttp://www.entrepreneur.com/article/229027

By Jack Samuels



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