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The blogged wandering of Robert W. Anderson

Defending Pragmatism

On the recent Gillmor Gang (MidTail Gang), you can catch me disagreeing with Jason Calacanis on rollups. He argues that only “loser” entrepreneurs sell their companies into rollups.

I argued that this is simplistic — that sometimes a rollup is the best choice for a company to make. He conceded that in a weak market (and again, if you are a loser), this might be the way to go.

Interesting that Jason articulates his point purely in terms of the entrepreneur: if you are strong, you find a way to win or fail trying.

Failure is a part of being an entrepreneur, but successful companies are made up of more than just the entrepreneur(s).

What about other stakeholders? What if the options are: “fail” or “rollup”? Your employees all get jobs and maybe the investors get to let their money ride.

I think that this will always feel like losing to the entrepreneur. This will never be the grand vision he or she was working towards. But winning and losing is not so black and white.

Am I defending a loser mentality? No, I think I’m just defending pragmatism.

Disclaimer: I have never been a part of a rollup nor am I seeking one out!

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Acquisition Criteria

Robert Scoble posted some things he would consider when evaluating an acquiring company.  I read his post with interest as in the past I was actively involved in the sale of a company I cofounded.


He asks if anyone else has any good advice for entrepreneurs considering a sale.


Here’s mine – I’m sure this isn’t complete, but it is a start:

  1. The deal makes financial sense to all of the existing owners (not just to the entrepreneur).  Sometimes deals are put together that are attractive to the entrepreneur while attempting to cut out the other investors.  Avoid this if at all possible.  If the ethics don’t bother you, think of it as self-preservation:  you may need those investors again even if just as a reference.  After all, this probably won’t be your last start up and it means a lot to say that you made money for your investors.
  2. What are they buying: branding, company, people, product, technology, market share or entrée, credibility?  Make sure that you agree with them about what they are buying.  Which products are important?  Which technologies are important?
  3. The deal makes financial sense to the buyer.  People tend to ignore this (and maybe you should if Robert Scoble is buying you).  I think this is important in understanding why they are buying you. 
  4. What is the plan for the company once it is acquired?  What numbers are you supposed to hit?  What kind of money can you spend? 
  5. What will happen if things go sour? 
  6. Ask for examples of unsuccessful acquisitions – what happened to those people / products / technologies?  How were those people treated?
  7. Make sure that there are committed-to budgets post-acquisition.  Also, keep reinforcing that the numbers need to be trued up based on the acquisition closed date.  One VC told us recently that she is seeing people state their numbers by “months after funding” instead of fixed dates.  I call this out because our acquisition took 2 months longer than it was supposed to (and the numbers needed to be trued up several times).  These numbers are often tied to management / group bonuses, so you don’t want their to be confusion about this.
  8. What kind of approval processes will be in place?
  9. How will they judge this a successful acquisition?
  10. Is the acquisition popular in the acquiring company?  Will you be competing with others in the company?  
  11. Finally, will you want to work there?  Will you want to work with your new boss?  In the group in which you are placed?


My motivation for some of these questions comes from my own experience.  For example, we were bought to give credibility in a new market as well as to infuse our entrepreneurial spirit across the greater company to affect more ASP-related business.  We had a brand, products, and credibility that supported the acquisition.  But when it came down to it, we were bought by a “numbers” company.  What mattered more than anything else was that we hit our revenue targets.  Strangely enough, receipts, costs, and cash, didn’t really matter.  Just revenues.


That said, our acquisition was a success by the most important measure:  that company (Energy Interactive) and the core personnel (outside of the founding executives) continues to this day as a somewhat independent group, selling the same / similar products into the same industry.


Now, I don’t mean to imply by any of my suggestions that I believe that these criteria particularly apply to Microsoft; however, I do think it is a good thing for the entrepreneur to investigate these (and many other) issues when evaluating an acquisition.