Should We Celebrate Acquisitions?(nutcroft.com)
nutcroft.com
Should We Celebrate Acquisitions?
https://nutcroft.com/blog/should-we-celebrate-acquisitions/
64 comments
Companies that get an "exit" are mostly designed to do that, including literally every VC funded company. If you're working at a startup, you probably know if it's one that is being built with the goal of an exit. So, like it or not, if this is what your company is for, it's a win (barring a liquidation or aquihire) so it should be celebrated. Rarely is it the end of an era, it's literally a destiny.
I mean, there are some that become their own enterprise. I'm sure Elastic would've loved an Amazon exit in 2014 for $1B or so, but now they've got their own acquisitions and ticker NYSE:ESTC, so the VCs got their 'exit' without the company dissolving into another.
Does an IPO not count as an exit anymore?
If the founders still have controlling power is it really an exit? Is facebook not Zuckerbergs company anymore?
Its and exit but not for the founders for the investors. Thats the goal of everyone putting money in and the term has because bastardised.
> should be celebrated
If you have stocks yes. Maybe not necessarily, though, if you're their customer? See the recent Heroku threads for example
If you have stocks yes. Maybe not necessarily, though, if you're their customer? See the recent Heroku threads for example
Every acquisition is different. To the layperson, every acquisition is a success and people think that almost everyone in the company is "set" after an acquisition. However, the reality is, in many acquisitions, nobody makes money -- not even the founders. A lot of times, the founders even lose their dignity. I had a classmate who had the highest of aspirations. He wanted to build a billion dollar company just like every other founder these days. His company was acqui-hired. He always took it as almost an insult when other "more successful" people in our circle congratulated him on his acqui-hire. In regards to the company being acquired by a larger company, the product sometimes heads in a very positive direction, and many times, the opposite happens as well. This post asks us to answer a question that is so broad that it makes no sense.
>in many acquisitions, nobody makes money -- not even the founders
So where does that money go? Paying off debts?
So where does that money go? Paying off debts?
Depending on how deep the funding is, a company might be majority owned by their VC firm investors, and if they give out too many board seats an overnight rugpull/takeover (via a majority board vote) is possible. There are other tactics, such as severely reducing the price of shares, typically $0.00000001 per, and issuing (hundreds of) billions of new shares so that the previous private stockholders end up with basically nothing.
Can you explain how this issuance of new shares works? Once someone has the power to do that (and I assume assign them to whomever they please), why wouldn't they? Doesn't such power fly in the face of a share representing ownership, if that ownership can be unilaterally diminished?
With board approval the majority owners can do pretty much anything. You can re-cap existing shareholders down to basically zero ownership to privilege new ones, you can screw the employee pool in favor of the investors and founders (that's pretty normal, actually, employees should always assume they'll be screwed in an exit), you can even dilute specific previous investors/founders out of the pool like what Zuck did to Saverin.
The reason you don't is that you don't want to get a reputation as a shady operator. If you recap a big VC out you're probably never going to raise again. Fuck an angel and word will get around, though it's not as bad as crossing a VC. Screwing employees is not great but news of that doesn't spread as widely so people do it a lot.
Re: "share representing ownership", there's a reason that when companies get 409a valuations for employee options they're usually valued at a small fraction of the preferred shares that investors buy. Your interest is not anywhere near as real as the people buying preferred shares until you go public.
The reason you don't is that you don't want to get a reputation as a shady operator. If you recap a big VC out you're probably never going to raise again. Fuck an angel and word will get around, though it's not as bad as crossing a VC. Screwing employees is not great but news of that doesn't spread as widely so people do it a lot.
Re: "share representing ownership", there's a reason that when companies get 409a valuations for employee options they're usually valued at a small fraction of the preferred shares that investors buy. Your interest is not anywhere near as real as the people buying preferred shares until you go public.
> You can re-cap existing shareholders down to basically zero ownership to privilege new ones, you can screw the employee pool in favor of the investors and founders (that's pretty normal, actually, employees should always assume they'll be screwed in an exit), you can even dilute specific previous investors/founders out of the pool like what Zuck did to Saverin.
Isn't the majority shareholders disowning the minority shareholders security fraud?
https://en.wikipedia.org/wiki/Tunneling_(fraud)
https://www.investopedia.com/terms/t/tunneling.asp
Also it seems that Saverin arrived at a settlement.
Isn't the majority shareholders disowning the minority shareholders security fraud?
https://en.wikipedia.org/wiki/Tunneling_(fraud)
https://www.investopedia.com/terms/t/tunneling.asp
Also it seems that Saverin arrived at a settlement.
> If you recap a big VC out you're probably never going to raise again.
Is this even possible? With how savvy most VCs are about guarantying a return from the companies they invest in, it's hard to imagine they'd leave this very obvious strategy open to exploitation.
I mean, yeah, you might never raise another round if you screw a VC, but if you screw them out of hundreds of millions of dollars, would it matter?
Is this even possible? With how savvy most VCs are about guarantying a return from the companies they invest in, it's hard to imagine they'd leave this very obvious strategy open to exploitation.
I mean, yeah, you might never raise another round if you screw a VC, but if you screw them out of hundreds of millions of dollars, would it matter?
It's possible, it's just a terrible idea in most cases. Most VCs don't have enough control to prevent it, but it's considered a really scummy move and will kill future prospects.
> Once someone has the power to do that (and I assume assign them to whomever they please), why wouldn't they?
Depends on game mechanics. Reputation matters for repeat plays. Someone might display their power to prevent being taken advantage of by other players (current/future). YCombinator might let themselves be taken advantage of because founders fear investors, and stories about historic matters matters.
Depends on game mechanics. Reputation matters for repeat plays. Someone might display their power to prevent being taken advantage of by other players (current/future). YCombinator might let themselves be taken advantage of because founders fear investors, and stories about historic matters matters.
> Doesn't such power fly in the face of a share representing ownership, if that ownership can be unilaterally diminished?
Yes, that's why phrases such as "corporate raiding" exist. Minority ownership interests in enterprises aren't as well protected generally as majority ownership. Legal cases can drag on for years with no relief.
Yes, that's why phrases such as "corporate raiding" exist. Minority ownership interests in enterprises aren't as well protected generally as majority ownership. Legal cases can drag on for years with no relief.
Liquidation preferences can play a big role here. It doesn't mean nobody makes money, but very few investors may take all of the money.
The payout is often in a mix of cash and stock, and the stock will vest. Sometimes there are holdbacks for performance. That can result in not-too-much cash being available upfront, and it'll all go to preferred shareholders leaving little for founders and none for employees.
Of course, as an employee you'll now have stock in the acquiring company, should you choose to stay and vest. If the acquirer is itself illiquid, though, you've traded one lottery ticket for another.
Of course, as an employee you'll now have stock in the acquiring company, should you choose to stay and vest. If the acquirer is itself illiquid, though, you've traded one lottery ticket for another.
Salaries, rent on office space, equipment...
If a company raises $50M in funding, spends $30M in four years before it gets acquired for $80M, then net-net the investors have same amount of money after 4 years of work.
Eh? If you spend $30m and get $80m back you are in the black to the tune of $50m overall, even though your investors would probably be underwater.
Investors usually have liquidation preference. If they do, they'll have a first dibs on that $50m up to their invested amount.
Companies and their products aren't sports teams. They don't provide only an intangible sense of belonging and competitiveness. We build our lives on the things they produce (whether small or large), and we are systematically pushed into doing so.
So no, a company being acquired is not something you should feel an obligation to celebrate unless you're invested. It almost always means a re-alignment of priorities, if nothing else, that will shift their product away from why you use it in the first place.
So no, a company being acquired is not something you should feel an obligation to celebrate unless you're invested. It almost always means a re-alignment of priorities, if nothing else, that will shift their product away from why you use it in the first place.
Some acquisitions are for the underlying technology, not the product.
Some acquisitions are for the team, not the product.
Some acquisitions are of the brand, with product in a supportive 2nd place.
Some acquisitions are for the customers, with product in a supportive 2nd place.
Some acquisitions are for the product, but to be tuned for a different customer market, context, bundle of other products, etc.
And some acquisitions are for the product as is, with intentions of improving the product on a trajectory compatible with existing customer use. But with greater resources put behind sales, marketing, development, polish, or other useful aspect.
--
Only the last reason results in a pure win for existing customers.
So from a customer perspective, or a product love perspective, most acquisitions are mixed bags at best. And potential product/service-cancellation disasters at worst.
Some acquisitions are for the team, not the product.
Some acquisitions are of the brand, with product in a supportive 2nd place.
Some acquisitions are for the customers, with product in a supportive 2nd place.
Some acquisitions are for the product, but to be tuned for a different customer market, context, bundle of other products, etc.
And some acquisitions are for the product as is, with intentions of improving the product on a trajectory compatible with existing customer use. But with greater resources put behind sales, marketing, development, polish, or other useful aspect.
--
Only the last reason results in a pure win for existing customers.
So from a customer perspective, or a product love perspective, most acquisitions are mixed bags at best. And potential product/service-cancellation disasters at worst.
Recently, I have been trying to identify software I liked that was NOT ruined in some manner by its company's acquisition. I'm sure I'm forgetting successes somehow, but at this point it's a list containing one highly debatable item. So, for me, no.
YouTube for me. It was ad-free in the beginning but it never would have survived that way for long. The current ad experience is palatable at least. And clients work well in all browsers/iPhone/Android/embedded.
> And clients work well in all browsers
For months I was wondering if they were intentionally boosting stats by playing videos after I scrolled them out of sight on my phone. I finally @‘ed them on Twitter and it got fixed a few days later.
I don’t know if this anecdote is in their favor or not, but “works” is a pretty broad category and “works well” is really up to interpretation. I’m glad they fixed it, having random videos blast out loud at me with no intention of watching them was really upsetting! But as far as I know the previous behavior was “working” too.
For months I was wondering if they were intentionally boosting stats by playing videos after I scrolled them out of sight on my phone. I finally @‘ed them on Twitter and it got fixed a few days later.
I don’t know if this anecdote is in their favor or not, but “works” is a pretty broad category and “works well” is really up to interpretation. I’m glad they fixed it, having random videos blast out loud at me with no intention of watching them was really upsetting! But as far as I know the previous behavior was “working” too.
They also give you the option to pay to remove advertising.
Google Workspace is a pretty darned good product. It started out via a few acquisitions.
Not software obviously but Formula 1 is much better as a fan under its new (media) owners.
Broadcom hasn't ruined Rally. They haven't improved it much, either.
GitHub?
Many would say GitHub started going downhill when it raised VC money. Before the fundraise it was the poster child of bootstrapped and profitable companies
screenhero. Best pairing app ever made. slack bought it and just SAT on it.
They would have been better off using that money to make a native (battery sipping) desktop client
They would have been better off using that money to make a native (battery sipping) desktop client
Google Maps
Obviously an acquisition is often profitable for someone or other, but for me to believe an acquisition to be a good thing in some broad sense requires convincing me that it’s worth the resulting additional concentration of power. I’m generally speaking against more concentration of power in almost every context, so it’s got quite a lot to prove
I think that there's something to be said about how a successful business that grows outside of the Bay Area hegemony can be an important source of community growth, and an acquisition can dramatically undercut that. It's great there is a one-time cashout but something important is lost in the process.
This style of blogging is most beautiful. An observation accompanied by a why. There’s much to note about a potential ‘thesis’ this author could have penned, but instead left us to fill in the gaps. We need more content like this.
To answer the call, I’d agree, it is perplexing that we celebrate the acquisition when often times the event leads to an undesired change to the underlining product or service. In finance, it was traditionally taught that mergers/acquisitions are rarely successful in a managerial and cultural sense… so the lesson that it does end up being net negative to the organizations does seem consistent across domains.
It may be interesting to look at different types of acquisitions as well, maybe those without venture funding and those with, to see if there is a ‘quality’ that differs the two
To answer the call, I’d agree, it is perplexing that we celebrate the acquisition when often times the event leads to an undesired change to the underlining product or service. In finance, it was traditionally taught that mergers/acquisitions are rarely successful in a managerial and cultural sense… so the lesson that it does end up being net negative to the organizations does seem consistent across domains.
It may be interesting to look at different types of acquisitions as well, maybe those without venture funding and those with, to see if there is a ‘quality’ that differs the two
I don't care at all about corporations or what they spend money on. No corporation exists to make the world a better place. If that happens it is just a side effect of them filling some market. It feels weird for anyone to be a fan of a company at all.
> It feels weird for anyone to be a fan of a company at all.
Some companies routinely put out products people find immensely useful or enjoyable at fair prices. They might put out products far superior to anything else currently available or invest in artistic works that few other companies are willing to take risks on becoming a godsend to an under-served market. Things like marketing and nostalgia play a role too, but when a company keeps bringing good things into people's lives it's only natural for them to build up some good will.
The trouble is that companies are always changing (along with their goals and ideals) and eventually somebody will take over or get greedy enough and they'll ruin a good thing. If a company is doing great things by all means, be a fan of their work and give them your support to encourage more of the same, just don't expect it to last forever.
Some companies routinely put out products people find immensely useful or enjoyable at fair prices. They might put out products far superior to anything else currently available or invest in artistic works that few other companies are willing to take risks on becoming a godsend to an under-served market. Things like marketing and nostalgia play a role too, but when a company keeps bringing good things into people's lives it's only natural for them to build up some good will.
The trouble is that companies are always changing (along with their goals and ideals) and eventually somebody will take over or get greedy enough and they'll ruin a good thing. If a company is doing great things by all means, be a fan of their work and give them your support to encourage more of the same, just don't expect it to last forever.
Don't you think "filling some market" makes the world a better place (in most cases)? Without companies there would be no products, services, food, ...
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I think, even though the company gets acquired, the service to the customers never really ends. I take it more like a retirement, you proudly build something, you are happy about it, now you want to either slow down with your work, take a break or move on.
I might be wrong in understanding this, but I think if they made it to the point where other companies could consider acquiring them, it should get celebrated :)
I might be wrong in understanding this, but I think if they made it to the point where other companies could consider acquiring them, it should get celebrated :)
Personally, I would think there are two answers to this:
a) the "we" in the question is exclusive, i.e, it only includes those that are part of the deal. In this case, I think "maybe". It brings to mind a perhaps slightly seemingly unrelated tale of how, prior to the current Paramount+ show, Halo was to be a film made by Niel Blomkamp, when that project was killed due to paramount's acquisition of the rights after years in development hell, a celebration was held by those rightfully glad to be free of shit management and the chance to move on. I have seen similar incidents in tech, but I don't want to elaborate.
If the "we" is inclusive, than the answer is no, no one is even slightly obligated to celebrate other's business deals, society, as is, seems to demand we celebrate far too much already.
a) the "we" in the question is exclusive, i.e, it only includes those that are part of the deal. In this case, I think "maybe". It brings to mind a perhaps slightly seemingly unrelated tale of how, prior to the current Paramount+ show, Halo was to be a film made by Niel Blomkamp, when that project was killed due to paramount's acquisition of the rights after years in development hell, a celebration was held by those rightfully glad to be free of shit management and the chance to move on. I have seen similar incidents in tech, but I don't want to elaborate.
If the "we" is inclusive, than the answer is no, no one is even slightly obligated to celebrate other's business deals, society, as is, seems to demand we celebrate far too much already.
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If a company acquired another company to stifle competition, that’s usually bad. In every other case, it should be good. Many companies simply would never form if the opportunity to get acquired didn’t exist. Some are only able to reach scale by combining with a larger company, or with another product. And sometimes, an area of the market is oversaturated, and even reducing competition can be beneficial to consumers if it means a more sustainable outlook for firms, industries of scale, or clearer choices.
It depends on if the company commits to integration the company and customers rather than a simple shutdown or aquihire.
Tf the customers still have service without too much interruption, then we should celebrate because a larger organization can amortize the operational cost and ensure the product can live much longer without relying on founder heroics.
Tf the customers still have service without too much interruption, then we should celebrate because a larger organization can amortize the operational cost and ensure the product can live much longer without relying on founder heroics.
Case-by-case, standpoint-by-standpoint.
Seems to me this isn’t something you would want to build a too simple philosophy around.
Seems to me this isn’t something you would want to build a too simple philosophy around.
I'd argue that most acquisitions are aqui-hires. Aqui-hires occur because the company failed in some way (unless it was designed to just be acquired, then I'd argue it was a terrible business to begin with and they were just betting on luck).
> It’s been a while since I started viewing the process of building a company as providing a service. Not as in system service but as in community service.
I love/share this view, I hope it catches on more broadly
I love/share this view, I hope it catches on more broadly
> Should we celebrate acquisitions? [...] everyone congratulates everyone else
Are they? Postmark didn't mention anything about celebrating or congratulating. They did say they were "excited [...] Postmark will [...] become even better". And it took "nearly a year of soul searching and questioning" so it seems more introspective than the champagne popping party the blogger seems to have inferred. I think they're carrying more cynicism into this than is actually there.
Unless you're naive, there's strong incentive by the parent company to ensure customers are placated so things are spun as a success for that reason. Is the blogger questioning the function of Public Relations/marketing?
Because, it's a thing, ya know?
Are they? Postmark didn't mention anything about celebrating or congratulating. They did say they were "excited [...] Postmark will [...] become even better". And it took "nearly a year of soul searching and questioning" so it seems more introspective than the champagne popping party the blogger seems to have inferred. I think they're carrying more cynicism into this than is actually there.
Unless you're naive, there's strong incentive by the parent company to ensure customers are placated so things are spun as a success for that reason. Is the blogger questioning the function of Public Relations/marketing?
Because, it's a thing, ya know?
When slack was acquired by salesforce everyone (that I remember) on HN and Twitter were congratulating each other rather than recognizing it (imo) as a failure to compete and a mediocre outcome.
Pair that with their full page ad they took out mocking Microsoft and teams (then slack sued because teams was crushing them) and it was even worse.
If you’re going to copy apple’s marketing you probably should be just as good.
Pair that with their full page ad they took out mocking Microsoft and teams (then slack sued because teams was crushing them) and it was even worse.
If you’re going to copy apple’s marketing you probably should be just as good.
As a buyer of software, we rarely celebrate M&A. Prices go up and support quality goes down. The only silver lining is if the original company was going under.
Some celebrations are acknowledgements of irreversible change.
I will answer your question with another question.
Have you heard of Oracle?
Have you heard of Oracle?
Maybe not the the acquisition itself but for what it represents. If someone is willing to pay to acquire something that your built it is usually a proof that what you built is useful.
no
Betteridge's law strikes again! acquisition is always about capital concentration and thus more efficient use of said capital, and rarely about whatever crack they sell to the underlings. When economy reaches certain scale the products are interchangeable and it's 90% in capital and finances. it doesn't matter whether you're selling fish or chips.