Getting Acquired – It’s Not a Business Plan

Originally posted on 1/29/20

Collin Gutman is a Co-Founder and Partner at SaaS Ventures, with over a decade of cumulative experience as both an investor and a startup founder. Prior to founding SaaS Ventures, Collin co-founded Acceleprise, the world’s first pure enterprise tech accelerator. Collin also has been an entrepreneur, having founded WorkAmerica, a social impact workforce development startup. Collin holds a BA cum laude from Yale University, and is an avid DC sports fan.

Many pitches from first time entrepreneurs talk about exit options. I get it – some angels ask about that, it’s always nice to have in your back pocket. And there’s nothing wrong with showing that there are a number of large players in your market who have a history of making large acquisitions – it just shows that you’ve done your homework and that, if you succeed, exit options will be there.

But far too often an early stage pitch includes “this will make us valuable to the following set of companies.” Sometimes that slide is in lieu of a monetization plan, or sometimes it’s an alternative. So let me state this as clearly as possible:

Getting acquired is not a business plan.

Do some businesses get acquired before ever really cranking up their revenues? Absolutely. Are there times when technology or a potential threat to an established incumbent lead to an insane valuation? Absolutely.

But those are rare. You shouldn’t bet on that happening. We certainly won’t.

The best way to build a business that gets acquired for a strong valuation is to build a solid business. Grow rapidly (growth rate is everything), increase revenues in a way that can lead to strong gross margins at scale, spend your capital efficiently (even when you have a lot to spend) and keep the business moving on the right trajectory. If you do that, good VCs won’t worry about exit options. Whether a strategic falls in love, the IPO markets are open, PE become an option, etc etc etc, great businesses always have great exit options. But IPO markets shut, strategics shift their focus, and other forces beyond your control will happen.

So focus on what you can control. Build a winner, and you will have a winning exit. Building for a winning exit requires too many factors beyond your control to go right and a smart VC won’t bet on it – so don’t bet your company on it.