Irish startups seeking acquisition: stop it.

Posted by kdow on Jul 4, 2016 9:39:46 AM

You don’t have to aim for acquisition by a bigger company!

I’ve just finished reading a fairly interesting article from The Irish Times titled ‘Irish start-ups dream of US investors,’ which is as much about how startups want to be acquired as it’s about seeking investment from US-based VC firms.

1,021 words are within this article, and it’s only the final sentiment that rings in any way true:

“Irish companies should not set out to be acquired. The aim is to innovate and grow great businesses”

This is a quote from Dublin’s commissioner for startups, Niamh Bushnell. And it’s the only thing that makes sense at all here. The rest of the article meanders around the topic of getting acquired by a larger company. The holy grail, it appears, is Cape Clear — who were acquired by Workday in 2008.

Even more irritatingly, the article seems to suggest that, because firms or VC’s are insular in the US (i.e. they don’t look outside of the US; and why would they?), the best chance of being acqui-hired is to be the EMEA HQ.

This immediately contrasts the messaging to Irish startups that they need to scale more appropriately. Scale comes with hard work, effort, planning and intelligence coupled with a real world problem that the product/service solves. Instead, this message suggests that Irish startups need to scale only to the point that they are a tasty treat for someone in a larger company in the M&A department.

It follows a thought in the Valley that a lot of micro-acquisitors are promoting. Look at Pinterest, who acquired Hike & Kosei to improve their discovery systems. Both of these acquisitions were for talent & technology. And both acquisitions only had two people in the business. Similarly, when Microsoft acquired Sunrise, there were 12 people in that startup. Or when Twitter acquired Periscope, which had 10 people.

These are the success stories born out of the Valley, where it’s far easier to get on the radar of an executive who may float the idea of you & your startup coming into the fold. This simply isn’t a solid strategy for an Irish startup, who’ll find it difficult to find someone with the power or credentials to make that call.

Looking at some data, it appears acquisition is what most startups want to do, sadly.

What’s interesting here is that the acquisition ideology comes from the US. China, who is the only country to have huge startups outside of the US (graph below) still promotes the idea that the best strategy for the long-term when in a startup is to get to IPO.

In the US, companies are less likely to IPO today compared to 2014, when there was a bit of a gold rush to go public. That 2014 class includes HubSpot (disclosure: I work there & have shares), Tableau, New Relic, Workday, Zendesk & others. To be fair, the market isn’t as friendly today as it was in 2014.

With this data at hand, despite the Irish connection to the US, if you’re advising startups to be acqui-hired, then they should look east, not west. Chinese companies are getting access to public markets quicker than US ones, so they have more cash to inject into startup M&A activity. Plus, they’re more likely to want access to European markets (i.e. setting up their EMEA HQ).

So, looping back to my original point: telling startups to go for M&A means getting to a median size & scale. A startup that reaches 10 people & has a nice product shouldn’t settle down and wait for Xiaomi to acquire them. We should be encouraging them to go for scale. Raise that series B, hire 10 new devs, 5 sales reps and a world class marketer. The CEO of my company has always had the “go big or go home” mantra. And that mantra is the only thing people involved in advising Irish startups should push.

Settling into an M&A strategy feels wrong, and un-startupish. Moreover, it’s not all that feasible. US companies aren’t acquiring Irish companies because they’re not exposed to this market. Nor should they be. I would rather write about how amazing Irish startups rose to fame and started an office in the US to help scale, rather than how a 10-person company was acquired.

The 10-person acquired company won’t spill money back into the economy through investments later. The CEO of a 1,000 person company might, though.