There's been an interesting trend the past few years...the larger tech companies are buying up the small tech companies once they start to get some traction.
In the past, technology entrepreneurs might be more likely to consider going public as a way to "monetize" their sweat and brain equity. However, with Sarbanes-Oxley a factor, fewer startups are going public today. Who needs the hassle of running the gauntlet? Seeking venture funding is itself a full-time job.
So here's what happens. Small tech entrepreneur identifies a gap in an existing product line, or a useful feature that could be added to the existing product of a much large firm. They create a shoestring operation that is focused on the rapid development of narrow technologies...and go out and look for a deep-pocketed munificence to gobble them up.
Last month, at a conference at Harvard, Chris Sacca, in charge of new business development at Google...said as much. "Bring us your startups early", he said. In other words he is saying that we want to acquire startups just at the point where they would do a "Series A round"...venture capital parlance for the first round of real VC funding, which usually happens in the first year.
This phenomenon has largely gone unnoticed because most of the deals are too small to get attention. Last year, Mergerstat reported that the average reported selling price of tech acquisitions was $12 million, yet two-thirds of the deals were so small that the buyers didn't disclose them. In the past four years, Microsoft has purchased more than 46 companies. When you take out the $100 million+ deals, most of the acquisitions average a few million dollars.
How do financial ad visors take advantage of this trend? Attending conferences like the aforementioned conference at Harvard wouldn't be a bad start. The "Start up School" was attended by 500 fresh-faced tech entrepreneurs and hackers, who gathered to hear speakers like: Chris Sacca of Google...Steve Wozniak, co-founder of Apple...or Steven Wolfram, (Sergey Brin's first boss).
Similarly, you might start with building networks with the venture capitalists in your city. Or better yet, how about taking an Intellectual Property attorney out to lunch? The good ones will be completely attuned to the small tech activity that is bubbling along in your area.
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