[posted on 28 Mar 2017, migrated from ubedge.com]
“Startups are bought never sold”
Like many others I have used this aphorism in every M&A Connect conversation in last 8 months. It sounds intelligent, pithy making some one saying that look very smart however I was stumped when my 7 year old nephew asked me what does it mean ? I was at loss of words trying to explain it to him. In an attempt to simplify the explanation that can pass his comprehension test this is how I started describing it.
M&A is the story of when fear meets greed on a treasure hunt voyage.
Imagine that you have a small boat (startup) sailing on an unruly sea (uncertain conditions) with the mission of reaching a dream island where you have been told is buried treasures a bounty of immense riches.
To reach there many things would be needed.
You will need a map (aka business plan); have to identify a tail wind that will propel you forward; hire or inspire men to join as your crew ; convince another set of people on the shores (venture capitalist) to finance your voyage. To these folks you will tell a narrative of how your boat with a powerful engine (product), detailed map and unique navigation skills (strategy) will help you find the treasure.
In the same sea you will find big Titanic ships heading to their own treasure island. In this world there also people who are crystal ball gazers (Gartner, Influencers such as Robert Scoble) who make prediction about changing tailwinds & tell folklore about new dream islands.
When the Titanic gets a whiff of this new folklore (ex IOT is the next big thing), they then either create a radar ping in new direction or change the course of their entire ship towards that island.
And then it becomes a race of many towards this new island, boats of all sizes i.e small boats and Titanic are now competing in the race. This race is a dance that oscillates between fear and greed in strengths and weakness of a David and a Goliath.
The Titanic is always cognizant that it has many direction to handle and its huge size allows it only a certain pace. Also doing anything inconsistent of its past will get it rattled by other kind of men on shores (public investors).
Small boats on other hand do not have enough fuel and have to depend on the men on the shore (venture capitalists) to give them money for fuel constantly to take forward their quest.
Sometimes small boats realize that they can’t become big Titanic themselves, typically happens after 4 years.
At which stage they tell the Titanic that getting new engine from this small boat will help the Titanic reach the new island faster and set stage for joining forces.
Things to note though
Only when Titanic shifts in direction startup is after that the Titanic would be interested in a conversation.
If the small boat is not in geographical proximity of the Titanic and yet trying to get to the same island but from opposite corner of the world, the startup will not be in the radar. This problem particularly plagues Indian startups.