. . . Friday January 7, 2005

Priced to Move

There is no doubt that the start-up market is booming again (something that is clear from my vantage as an extremely early stage investor). Here’s a bit of unsolicited advice to start-ups hoping to get acquired by a portal or other big player.

Don’t price yourselves out of the market.

Right now, powerhouses like Google and Yahoo are seeing their engineering resources stretched thin by ongoing projects. They are more than open to buying a solution rather than building it. But that will only be true if companies are within their sweetspot in terms of pricing. Think of deals that don’t necessarily need broad board approval or a major PR campaign to explain.

If you are running a new start-up and Google or Yahoo is your exit, beware of trying to get too big too fast either through acquistions or through taking major investment dollars from large venture firms. These are reasonable if not ideal goals for many companies, but not for all of them. Such a strategy can lead you to a situation where you need to make your company worth north of $50 million to satisfy the demands of investors, etc.

At that price, the deal may be a lot harder to get done, the pool of potential buyers will shrink and the number dollars in the bank account of the founders may not be any higher in the end anyway.

Concentration is important!