Posted on Friday, Mar 1st 2019
I am sure you are following the Bootstrapping to Exit (let’s call it B2E) articles. Last time, I showed you some case studies of larger companies who are acquiring bootstrapped startups.
In this post, I will double-click down on the buy-side psychology of the B2E phenomenon.
There are several factors that play into a relatively larger company acquiring a smaller player.
Companies acquire for different reasons. Some acquire to bring in substantial chunks of high growth revenue. Some acquire to bring in adjacent products that their sales force and channel can upsell to existing customers. Some acquire to diversify out of a one-trick pony situation. Sellers need to consider the buyer’s psychology and accordingly steer the conversation.
Valuations vary significantly depending of motivations. Revenue-driven acquisitions tend to be easier to put a price on. Valuations tend to be a multiple of the revenue, regardless of how much money the company has raised.
Strategic acquisitions tend to be more complex to value. They resemble the thought process of a VC. If I acquire your company, how much additional TAM does that open up for me? Can I leverage my sales force and channel and push your products through them? How much additional engineering is needed before we go to revenue? Have you raised too much money, making the valuation expectations irrational?
Today, products are built on technology stacks that are often incompatible. This makes merger integrations challenging. Take for example a SaaS company acquiring another that is on a different technology stack. What is the cost of rationalizing the two stacks post acquisition? Is there enough ROI post rationalization to go ahead with the transaction?
This also points to the fact that if you build on a compatible stack with an eye towards a B2E situation, your chances of finding a successful exit would be higher.
Salesforce.com’s Platform-as-a-Service (PaaS) strategy is a very good example. Numerous startups built on this stack, making it easy for Salesforce to acquire and integrate.
As you design your startup’s strategy, please keep in mind that the technology choices you make will determine whether or not you can find a satisfactory B2E outcome.
Culture matters tremendously. Whether an acquisition can be integrated successfully or not is often the factor of compatible cultures. If you are working with a B2E objective, study the culture of the potential acquirers and make sure you don’t get tripped with vastly incompatible dynamics.
There are other factors, but these three are the top ones.
Related reading: Qualys Acquires 1Mby1M Company Adya
This segment is a part in the series : Best of Bootstrapping
. Bootstrapping to an Exit . Why is Bootstrapping Important? . How Can You Play this Low-Probability Game Intelligently? . Do NOT Go to VCs as Beggars - Go as Kings . Excess is NOT Required for Success . Bootstrap First and Raise Money Later . Some Bootstrapping to Exit Case Studies . The Buy Side of Bootstrapping to an Exit . Blitzscaling vs. Bootstrapping . Bootstrapping to UnicornsMore »» . Cinedigm Acquires Bootstrapped 1Mby1M Company Future Today for $60 Million . Mailchimp Bootstraps to $600M Revenue . Bootstrapping from Arizona to $10 Million . Bootstrapped Basecamp Executes a No Nonsense Strategy . How Under30Experiences Bootstrapped to $5 Million . Bootstrapping with a Paycheck . How Algo.ai CEO Amjad Hussain Bootstrapped using Services from Michigan . Seed Investors Who Like Bootstrapped Businesses . How iHeartRaves CEO Bootstrapped a Niche e-Commerce Company to $20 Million . Bootstrapping with Services . How The Intern Group CEO David Lloyd Bootstrapped to $13 Million . How Passageways CEO Paroon Chadha Bootstrapped from Indiana . How SmartBuyGlasses CEO David Menning Bootstrapped to $50 Million . Death by Overfunding . How RainmakerForce CEO Mack Sundaram Bootstrapped Decisively to $5 Million+ . How FormAssembly CEO Bootstrapped a Virtual Company with a Paycheck . TimeSlips CEO Mitch Russo Bootstrapped to Exit with Sage . The VC-Entrepreneur Compensation Disbalance . BioConnect CEO Bootstraps with Sophisticated Strategic Maneuvering . Tremend CEO Marius Hanganu Bootstraps from Romania . Gesture CEO Jim Alvarez Bootstraps to $10 Million . SproutLoud CEO Bootstraps to $30 Million from Florida . Tuft & Needle CEO Bootstraps to Over $100 Million . Co-founders Bootstrap Linguamatics to Over $10M from the UK . Ownership Matters . Vainu Co-founder Mikko Honkanen Bootstraps from Finland . Entrepreneur Couple Bootstraps to $10M from Colorado . Power2Motivate CEO Bootstraps to $80M from Canada . Financial DNA CEO Bootstraps to $10M+ from Australia . Big Barker CEO Bootstraps a Niche E-commerce Brand . PrecisionLender CEO Bootstraps to Over $10M from North Carolina . Master Bootstrappers with Over $1B in Exits . Ultra Mobile Founder Bootstraps to Over $100 Million . Bootstrapping a Two-Sided Marketplace to $10M . Can You Bootstrap a Virtual Company to Over $5 Million? . Capital Efficient Entrepreneurs Turn $1M into $80M . Discussing the Journey Through Failure to Success . From a Small Town to $12 Million . Bootstrapping to Y Combinator and $10 Million Series A . Bootstrapping a Marketplace to Over $10 Million . Freightwise Bootstraps to $33 Million . Bootstraps First to $5M ARR, Raises $10M Later . Bootstraps in Europe, Raises Money and Goes Global in the US . English Major Bootstraps a Tech Company . Bootstraps with a Paycheck to $15M from Tennessee . Queue-It Bootstraps from Denmark to the US . Bootstrapping A Virtual Company To $25M . ActiveCampaign CEO Bootstraps Using Services to $40M . Alteryx Bootstrapped with Services to a Public Unicorn . Inspyrus Bootstraps Using Services to an Awesome Business Model . CEO Bootstraps Using Services to Millions from Russia . Wiredrive CEO Bootstraps Using Services to $10M . Scaling to Over $10M by Bootstrapping Using Services . Bootstraps Using Services from Poland to a US SaaS Company . ButcherBox CEO Bootstraps a Perishable Meat Business to Significant Scale . Waveform CEO Bootstraps to $8M . Bootstrapped Entrepreneurship from Estonia . From Laid-off Engineer to Successful Startup CEO . Imagine Easy Solutions CEO Bootstraps to Exit . BannerBuzz CEO Bootstraps to $35M . Bootstrapping a Virtual Company to Scale . Bootstrapping Using Services from Wisconsin . Best Tactic for B2B Startups . Bootstrapping by Piggybacking from Romania . Bootstrap First, Then Scale with VC Funds . Bootstrap to +$10M First, Raise Money Later . Madwire CEO Bootstrapped First, Raised Money Later to $120M . Bootstrap Using Services First, Raise Money Later . Wonderful Bootstrap with a Paycheck Story . RushOrderTees CEO Bootstraps to $23M . Bootstrapping with Freemium and Free Trials to $13M . Bootstrapping, Pivoting, Gaining Liquidity, Scaling to $100M+ . Bootstrapping with Affiliate Marketing . Bootstrap to Exit, Bootstrap Again, Then Raise VC Money . Bootstrapping Using Services to $12M . Bootstrapping an Ad Tech Company from Paris . Bootstrapping a 100% Virtual Company from Ireland . MiQ CEO Bootstraps with Services from London . Bootstrapping to $8M During the Covid Crisis . Bootstrapping a Marketplace from Brazil . Bootstrapping Using Services from Sweden . What Should Startups Do To Raise Seed Capital in 2021? . EdTech Unicorn Bootstrapped First from Canada . Coalition Technologies Co-founders Bootstrap to $10M . Bootstrapping a Virtual Company to $10M from Atlanta . Bootstrapping a SaaS Company with a Paycheck and Scaling . Bootstrapping with Services to $20 Million