THE DREAM IN ACTION

Reading BeyondVC, the blog of venture capitalist Ed Sim, I came across an interesting quote in a recent post, “companies are bought, not sold.” I want to go into the logic behind this quote because I think it talks to a critical misconception in the start-up and VC worlds, that you can aim at being acquired as an exit strategy. When looking at an investment VC’s look for what is called an “exit strategy”. The most common “exits” are either and IPO (going public) or an acquisition (someone buys the company invested in). The exit strategy is extremely important for VC’s because like a salesman closing a big deal, when VC’s make an exit, its “pay day”!

Currently the market for public offerings has been very poor. There have only been a handful in 2008 and there is really no telling what will come of the rest of the year or 2009. However, there have been a number of strategic acquisitions that continue to drive VC funding and give hope to VC’s.

To get back to the notion that companies are bought and not sold, we have to think about the state of mind of the company. If a company is intently looking for a acquisition target it makes that company seem/look desperate. When this happens they usually are because they have lost confidence in themselves. Its just like being single at a bar, if you’re out an someone approaches you and comes of extremely desperate there is no way that you will find that person attractive. It’s the person that plays “hard to get” that usually gets the most attention and the same goes for good companies. If the company (founders) has lost confidence in itself there is good reason to believe that it is over valued and has limited potential which often ends as Ed Sim states, “in a fire sale”. However, if a company has confidence it itself and focuses on the right things, growth, product, market/customers, it has no reason to loose confidence or seek a sale. Focus on the right things, play hard to get, and a company will be an attractive acquisition target (exit potential) without even trying! Just keep building it, they will come.