How to Be the Start-up Big Companies Want to Acquire
Are you ready to take your start-up to the next level?
PHOTO CREDIT: Getty Images
Anybody who has been immersed in the ecosystem long enough will know that not all start-ups are alike.
As this Inc. Southeast Asia article points out, start-ups are distinct from one another in terms of purpose, strategy, and funding. Some start-ups are built to be scalable and, thus, need significant capital as they search for the right business model. Here, funding is normally secured through venture capital firms.
On the other hand, there are founders who prefer to bootstrap their way to glory, choosing to carry the risk than give up their independence to investors.
And there are those that grow through acquisition by bigger companies. This leads to the question: What makes a start-up a good buy?
Great product fit
For video technology provider Kaltura, it is about being able to expand its capabilities by acquiring a start-up, whose technology complements the company’s current thrusts. Kaltura recently acquired interactive video start-up Rapt Media for an undisclosed amount.
Dr. Michal Tsur, co-founder and president of Kaltura, says, “With Kaltura constantly on the lookout to expand its capabilities to power any video experience across any industry, Rapt Media’s interactive branching video technology was a great fit for our existing portfolio of video solutions.”
Tsur adds that interactive video helps them meet the growing consumer demand for personalization, which, in turn, drives audience engagement. “Interactive video also enables organizations to derive valuable, data-driven insights that help provide personalized experiences, such as learning, shopping, and more – as well as identify evolving audience trends and preferences, while adapting their content accordingly,” she says.
A winning team
Justin Hall, principal at VC firm Golden Gate Ventures, looks at the quality of the leadership.
“Ultimately, we are investing in a team. Having domain experience, a cohesive founding team, and grit are all fundamentally important, and all early-stage investors want to make sure their capital is going to a founding team that can roll with the punches,” Hall says. “This is a brutally difficult career, and entrepreneurs need to be tough.”
In 2014, customer service software company Zendesk acquired Zopim, a scrappy start-up that specialized in live chat support for websites, for $29.8 million. Built by three National University of Singapore students, Zopim’s product was integrated into the Zendesk platform and rebranded as Zendesk Chat.
But that wasn’t all about owning the technology, Zendesk was after the team as well.
Zopim co-founder Royston Tay says, “[Zendesk] wanted to acquire Zopim not just to get hold of the product of technology, but to acquire the team. They have invested significantly in growing the capabilities and numbers of this team.”
Filling a void in the market
Apart from a great team, Tsur says the hallmark of any good company is a product or service that exists to fill a void in the market backed by a strong and sustainable business model.
“Continued success will also be dependent on the team’s ability to adapt swiftly in response to evolving market forces and consumer preferences, constantly innovating as the market changes,” Tsur says. “When we look at companies in our ecosystem, we’re constantly looking for the strong combination of innovative technology, viable business model with positive momentum, and a talented team of people with a similar cultural fit to Kaltura.”
Whether your start-up is looking to get acquired, Hall advises teams to focus on the work.
“I would tell them to remain heads down in the company, and creating the best product for their customers,” he says. “Don’t optimize for exit or sale, optimize for the best customer experience.”