STRAT­EGY

Just be­ing able to show you have an in­no­va­tive idea can at­tract suit­ors to your irm

Business Daily (Kenya) - - LIFE - En­tre­pre­neur

Ac­qui­si­tions pro­vide key op­tion for fund­ing

In to­day’s com­pet­i­tive ven­ture cap­i­tal(vc) en­vi­ron­ment, it can prove chal­leng­ing for star­tups to se­cure in­vestors. Ac­cord­ing to a re­cent Techcrunch re­port, VCS are mak­ing only half as many in­vest­ments in tech­nolo y com­pa­nies as they did in 2014 and are cut­ting down on early-stage com­pa­nies. In­stead, they are seek­ing out “uni­corns,” or com­pa­nies with the po­ten­tial to lead or dom­i­nate their mar­ket.

That change means that for your early-stage busi­nesses, it may be worth­while to re­think how you're go­ing to make it as a startup. And the an­swer there may be the al­ter­na­tives to achiev­ing suc­cess that don’t in­volve multi-mil­lion-dol­lar fund­ing rounds, in­flated val­u­a­tions and un­sus­tain­able burn rates.

A worth­while con­sid­er­a­tion? Ac­qui­si­tion.

When most peo­ple think of a com­pany be­ing ac­quired, they en­vi­sion a fully op­er­a­tional, rev­enue-gen­er­at­ing busi­ness with sub­stan­tial mar­ket share. But not all great ideas come in the form of a ma­ture busi­ness, so, of­ten, it be­comes the old “prod­uct vs. busi­ness” de­bate made fa­mous by Shark Tank -- the idea that a sin­gu­lar ser­vice doesn’t of­fer enough profit po­ten­tial to make an ac­qui­si­tion or in­vest­ment worth­while.

In re­al­ity, show­cas­ing that you have an in­no­va­tive idea, un­der­stand your mar­ket need and have the mak­ings of a ta­lented team can be enough to get your foot in the door with the right po­ten­tial part­ner.

Twit­ter bought Periscope be­fore the prod­uct was launched, and Pin­ter­est bought the team at Hike Labs while that com­pany was de­vel­op­ing its first prod­uct.

The right part­ner can not only pro­vide fund­ing but also cat­a­pult you to bet­ter suc­cess in the long-term. Here's what to con­sider: Iden­tify a wor­thy part­ner. Sim­i­lar to what you'd do when you con­sider an in­vest­ment, you’ll want to ad­e­quately vet a po­ten­tial par­ent com­pany be­fore agree­ing to an ac­qui­si­tion. Con­sider what types of char­ac­ter­is­tics will best set your com­pany up for suc­cess.

Does a po­ten­tial ac­quirer have a le­gacy or his­tory of suc­cess that will ben­e­fit your brand? Will you have sup­port from the right lev­els of the com­pany? Is there a shared vi­sion about struc­ture and post-ac­qui­si­tion au­ton­omy? Per­fect your pitch.

Pitch­ing to be ac­quired by a larger com­pany is dif­fer­ent from pitch­ing for an in­vest­ment. With the lat­ter, you’re ask­ing only for a check.

But with the for­mer, you’re try­ing to con­vince an estab­lished brand as to why it needs you as part of its busi­ness and why the in­vest­ment makes sense strate­gi­cally.

In your pitch, demon­strate the unique value you can bring to each other as part­ners. Fo­cus on what you do well and why it’s bet­ter for you to do it in­stead of their tak­ing it on in­ter­nally. For ex­am­ple, most large com­pa­nies have a lot to gain by let­ting a nim­ble startup that can ex­e­cute quickly join its fold, rather than try­ing to build out and of­fer a sim­i­lar prod­uct or ser­vice on their own.

As they say, time is money, so a startup’s abil­ity to move, learn and it­er­ate quickly is an at­trac­tive qual­ity to a le­gacy com­pany.

In your pitch, you also want to show­case the risk of in­ac­tion. Does the tar­geted com­pany risk los­ing out on mar­ket op­por­tu­nity or com­pany growth by not part­ner­ing with you --es­pe­cially if a com­peti­tor might?

Large com­pa­nies never want to feel that they are be­hind the curve, so it's im­por­tant to high­light dis­ad­van­tages they might face by re­main­ing stag­nant.

Po­si­tion your­self as a har­mo­nious part­ner.

Big com­pa­nies are risk-averse, while star­tups, by their very na­ture, are risk-lov­ing. The per­cep­tion may be that star­tups are loose can­nons that may in­tro­duce more risk than most large com­pa­nies are com­fort­able with. Fight that per­cep­tion

Hav­ing an an­swer to this type of con­cern is im­por­tant. You need to show that you want to op­er­ate au­tonomously but that you’re will­ing to col­lab­o­rate to en­sure you fall in line with your par­ent com­pany’s ideals, where nec­es­sary.

If you can do that, you can have a har­mo­nious re­la­tion­ship that ad­vances both your own busi­ness and your par­ent’s.

Pur­su­ing an ac­qui­si­tion over VC fund­ing has its ad­van­tages, but it may not be right for ev­ery busi­ness. If money is all you’re af­ter, then chas­ing the tra­di­tional VC model is per­haps the best fit for your busi­ness.

How­ever, if you’re seek­ing a part­ner that can both pro­vide re­sources to your busi­ness and ac­cel­er­ate its growth tra­jec­tory, an ac­qui­si­tion may be the right path for­ward.

TWIT­TER BOUGHT PERISCOPE BE­FORE THE PROD­UCT WAS LAUNCHED

Pitch­ing to be ac­quired by a larger com­pany is di er­ent from pitch­ing for an in­vest­ment.

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