Startup acquisition

As you build your startup, you should ask yourself about the exit strategy because if you don't, your investors will soon ask and besides that it's always good to know your destination. If you are planning on being acquired, you should ask who it will acquire you and what will attract that acquirer. Generally acquirers are either attracted by one or more of these:

Team
Product
Revenue
Profit

If your team is good enough, you might receive an acquisition offer because the acquirer wants your team to be part of their team. You don’t even need to have launched your product in some cases.

A second reason a company might want to buy your startup is your product. This is one step further along than having built a team.

For a team or product acquisition to take place, two conditions are required.

First, the product that the team has the potential to build or has already built needs to be something that the acquirer can’t or would find very challenging to build in-house. This tends to happen in businesses where the value lies in the technology itself (for example software) rather than businesses that use technology to enable another behavior (for example e-commerce).

Second, the team or product need to have the potential to scale enough to pose an existential threat to the acquirer. This requires a strong startup ecosystem including deep funding and knowledge of how to scale startups.

The third reason for an acquirer to buy a startup is its revenue. In other words, even if a startup isn’t profitable, an acquirer may want to buy it for its customer base and path to profitability.

And the fourth reason is for its profits. This one is pretty self-explanatory.

Acquisitions made for a startup’s revenue and profits don’t require that the target be a company where technology is the core value creator. Using technology as an enabler is enough. And they also don’t require that the company have the potential to pose an existential threat to the acquirer. The company’s customers, revenue, and perhaps profits already show that this is the case.

But once a company has significant revenue and a path to profitability or is already profitable, is it still a startup? In other words, do we see startup acquisitions in emerging startup ecosystems? From my experience, I would say we see acquisitions based on the team and product but are yet to see more acquisitions of startups based on profit and revenue.