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Built To Flip
By Jason | April 20, 2007
Valleywag posted the following quote by Michael Sikorsky, chief excecutive of Canada’s Cambrian House. “We really are built to flip. I’m the only guy who says that out loud. I don’t know why everyone lies.”
Apparently, this was said about the prevailing attitude of the Web 2.0 expo to the San Fransisco Chronicle.
Stepping back from the startup and acquisition light, it is pretty remarkable how often we all hear those words. No longer is it as much about building a profitable business as it is flipping it to a larger company. For this, I have to give Mark Zuckerburg credit. Not only is he standing behind his Facebook brand and his company, but he is passionate about making it a long term success.
After all, it costs less in terms of time and money for a powerhouse company to purchase rather then innovate. Take Ebay for example. Their acquisition of Skype and (as reported) StumbleUpon expands their existing functionality without the fear of failed product launches.
In your opinion, is it worthwhile to build a business hoping to sell it to a bigger company? And does it take Silicon Valley contacts to pull it off?
Topics: Ideas |
April 20th, 2007 at 5:53 pm
For many investments, whether it be a career, home, stocks or a start-up, you have a time horizon. Some people want to stay in the same home for 50 years, others want to only commit to 3 years (if that). Is a start-up so different?
I cannot speak from personal experience, but my understanding is that VCs have a time horizon of a few years. The same goes for private equity (because time works against getting the returns they want).
Other influences might be the culture of “new” in the Valley or the easy access to buyers make this option more economically appealing.
Actually, I like this economic slant best. There is demand for “prototype” businesses that have been vetted to a certain extent. The Valley may be one of the better places for this market of buyers and sellers to do business.
April 20th, 2007 at 8:40 pm
It’s an interesting question. There are definitely differences in building a business towards an acquisition vs an IPO vs just enough cash flow to provide a nice lifestyle. Companies seeking to sell out may sometimes engage in a pump and dump model, selling on loose credit or boosting relevant numbers in ways that don’t really signal the strength of the core business. It’s a risky move if it doesn’t pay off.
My personal preference is to focus on keeping costs at a minimum initially, and focus on breakeven, without really having a long-term exit strategy in mind. Once you reach a cash flow break even point, you have a better idea of how money flows through the company, and can better decide which exit strategies are viable options, and at what levels.
Does it take Valley contacts to pull off a build-to-flip? If your target acquirer is another tech company, then I would say yes. But if your business has solid financials and you just seek to be acquired, I don’t think it matters where you are.