Given that IPOs are hard to come by these day, VCs are spending more time focusing on strategic buyers, according to Eric Tilenius, a newly minted partner at Maveron Venture, who spoke at the DEMO conference in San Diego on Tuesday.
That, of course, changes the way venture firms evaluate startups, looking for technologies that might be of interest to a large number of acquirers, rather than a business that can achieve a market cap of $500 million on Wall Street. It also could lower valuations for startups because many strategic buyers (especially without the threat of losing a company to the public market) will likely pay lower prices. The two exit scenarios aren’t mutually exclusive, but VCs sure act like they are when the subject is brought up.
The more experienced VCs quickly jumped in after Tilenius’s comments with the familiar “we invest in innovation and for the long haul” tripe, and they clearly didn’t like moderator Matt Marshall’s suggestions that they were flipping companies. But let’s be real, when we’re in the longest IPO drought in 30 years, at least according to NEA General Partner Krishna, ‘Kittu’ Kolluri, the need to provide investors in the fund with returns means that investors can’t look just for home runs.
The end result for an entrepreneur seeking capital is this: Make sure you can present a list of potential acquirers, an estimate of how long it will take to build a business that will attract interest from those acquirers and pricing on deals that might be used as comparisons. But you know how you wouldn’t compliment an acquaintance on a nose job? Well, you might not want to mention that your startup is an attractive M&A candidate rather than the next hot stock on the Nasdaq.