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Startups- How To Get On The Acquisition Radar?

Aditya Kulkarni
18th Jun 2012
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A prominent option for technology startups looking for an exit is being acquired by a bigger company. Companies like Google have averaged an acquisition a week over the past several years, so this is a very viable option. While most of this activity has been focused in silicon valley, going forward, there's going to be more and more of it in emerging markets like India as large companies like Microsoft, Google and Facebook start focusing on acquiring users, market-share and revenue in these emerging markets.

Getting acquired is a long and arduous process and sometimes it can feel like you have to wait around to get "discovered" by a bigger company. You can, however, do somethings to get on the acquisition radar of the tech giants.

It all starts with the product

The most important thing to get acquired by a product company is to, obviously, have a world class product. While this is not a sufficient condition, it is an absolutely necessary condition. Without a world class product, the prospect of an acquisition is going to be dead in the water. The product manager leading the acquisition is going to have to be comfortable incorporating the product into their product line. The last thing an acquiring company needs is to "fix up" the acquired product.

From a product point of view, your product has to be well designed, be clear in what problem it solves for the users and solve it well. Each and every feature that is in the product must add value. Unnecessary features that don't seem to fit in well with the rest of the product are a big red flag as they point to "feature bloat" and an unmanageable underlying code base. The reason this is a problem is because acquired products usually have their roadmap radically altered post acquisition, and if there is huge legacy bloat underneath the covers, it makes it very difficult to change direction post acquisition.

Happy Customers = Better chances

A very important channel for a large company's product team is what customers are telling them. If you have a great product that's solving a real problem for your users, they will talk about it. There is no better validation for your product than when a happy customer praises your product. And if the users are using your product to fill gaps in the large company's product, that's the ideal scenario for an acquisition.

Another reason why it is important to have happy customers who are advocates of your product is that the acquiring company is going to use what customers are saying to pick which product to acquire. Remember, large companies aren't necessarily looking to acquire the company with the biggest marketshare or the most revenues - They can bring in scale and money with them - They're looking to acquire the "best" product out there and scale it.

The Team is very important

There is no such thing as a great product built by a mediocre team. Your team is going to be the centerpiece of the evaluation and due diligence that the acquiring company will do. Companies like Google will not hesitate to walk away from an acquisition if they're not 100% sure of the team. I've seen this happen first hand, where Google walked away from an acquisition because the team wasn't deemed good enough, despite everything else about the product being great.

Building a great team is the best chance your product is going to have. When you're leading a product, you have to spend a disproportionate amount of time recruiting. And you have to go beyond just hiring the right people - Making sure everyone is productive, working on challenging and interesting problems, and most importantly, making sure you have a great culture. If your company's culture is not inclined towards helping people grow, it almost doesn't matter how good your product is. Something like 1/3rd of all acquisitions completely fall flat, and the leading cause for that is the inability of the acquired company and its team to fit into the bigger company's culture.  

You don't have to have everything figured out

It's OK if your product hasn't got everything figured out. After all, there has to be somewhere that the acquirer can add value to when they buy out your product. For example, when Facebook acquired Instagram, they didn't have any revenues. In fact, Instagram didn't even have a monetization plan. Their sole goal was to acquire engaged users on the mobile, and build a social network based on sharing photos. Now Facebook is going to step in and (hopefully) figure out how to monetize all these mobile users that Instagram has acquired.

You have to have somethings figured out thought. The best case scenario is you've figured out something that the large companies are struggling with - like how to engage with users on mobile devices, like Instagram did. You can even get away without having figured out scale - In fact, in many of Google's acquisitions, Google brings in the scale, while the acquired company brings in the technology. The bigger company can bring in customers, and you can bring in the team that can execute.

What are they looking to acquire in India?

So, what exactly are the big companies looking to acquire in India? A lot of things haven't been figured out in emerging markets like India, and the tech giants are looking for answers - How do you acquire the "bottom billion" users, for example? How can we monetize the "shampoo-sachet" users, who don't have a lot of disposable income? What are the biggest problems that Indian users face, and how can technology deliver those solutions?

Some of these are complex questions, but anyone that has figured out answers to these, even partially, is a juicy acquisition target. My feeling is that the first pass of acquisitions is going to be purely for users, and monetization is going to come later. India has some 15 million broadband users, and a total of 130-odd million internet users. That means that there are over a Billion other users that are not on Google, Facebook or any other platform. The first company to connect with and engage with those users is going to be a great acquisition target.

While there are lots of startups trying to figure out this problem, no one has hit on a solution yet. But there has to be a solution. If the P&Gs and Coca-Colas have managed to reach 100s of millions of Indian users, why can't a technology company?

[If you're looking to make connections with the right people, don't miss out on Techsparks and we're also doing a VC Perception Survey for which your feedback will be very much appreciated.]

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