

UK Needs An Acquisition Culture To Have a Sustainable Startup Culture - robheaton
http://techcrunch.com/2013/07/08/the-uk-needs-an-acquisition-culture-if-its-to-have-a-sustainable-startup-culture/

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Nursie
The "successful exit" to me seems the antithesis of what the UK needs.

Instead of flushing money down the pan on non-sustainable startups, we need
people to build viable long-term businesses. Too often we see a hype-cycle in
action as people build something with a slight spin on existing tech and/or
services, hype it until it seems like its worth something then cash out.

Half the time the acquiring company seems to immediately shelve the service,
if not they spend a few years trying to monetise it then give up.

I'm sorry if the Shoreditch crowd aren't attracting as many 'angels' as they'd
like. I can only think this is a sign of healthy scepticism on the part of UK
investors.

~~~
pg
If by "viable long-term businesses" you mean ordinary slow-growing ones,
people already do start lots of those in the UK.

But if you're talking about startups, meaning super fast growing companies
like Google, Facebook, etc, what you seem to be claiming implicitly here is
that there is a way for the UK to become like Silicon Valley in the sense of
becoming a place where such companies are started, without also acquiring
other qualities of Silicon Valley that you seem to dislike, like early
acquisitions.

That seems pretty unlikely. Any other city that evolves into a big startup hub
will have its own personality to some extent (e.g. NYC might be more focused
on retail), but it seems unlikely that a new startup hub would be structurally
different.

~~~
apsec112
The trouble so many have with the Valley isn't early acquisitions per se, it's
that so many companies are basically fake. As you yourself explain, in "Hiring
is Obsolete", many companies wind up being something the founders do to prove
their worth as big company employees, rather than something that might someday
make money. A huge fraction of acquisitions are shut down afterwards - pretty
conclusive proof the "company" (the software, product, business model and
sales channels) has negligible value.

Of course, as you've also pointed out, such "HR exits" are a small fraction of
your and other VCs' returns. However, if they predominate numerically - if
80%, say, of YC companies are "acquihired" \- this will inevitably affect the
character of both YC and its applicants, making it more similar to just
another recruiting agency. When our brains assess the character of a place,
they weight by "number of people I've talked to", not "market value at exit".

~~~
pg
Actually very few startups are fake. Companies look fake in retrospect if they
make something that flops and then get HR acquired, but very few founders I
encounter are deliberately aiming for that path.

What I suggested in "Hiring is Obsolete" is not that founders build something
random to get the attention of acquirers, but that they build the product the
acquirer should have built. I'm advocating founders aim for product
acquisitions, not HR acquisitions.

And no proportion of HR acquisitions would be enough to affect the character
of YC. Not only are we not interested intellectually in funding companies that
fail, we probably net lose money on them.

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KaiserPro
I'm sorry, but being bought out as your only goal is not a business plan. I
work in VFX so I see lots of startup companies.

They start up to make a profit, not tread water until they are bought by a
bigger company.

The majority of the inhabitants of "silicon roundabout" are carbon copies of
whats been before. whats more the service they provide is usually free. So
there is no hope of long term success without a buyout.

In short, the very definition of a startup is unsustainable.

~~~
shubb
I get these sense that the UK has a startup culture, but Silicon Roundabout
isn't it.

Several major exchanges (in energy, commodities) are recently ex-startups, and
there is an ecosystem of innovative, fast growing companies servicing the
city. Because finance is what London does.

Outside Central London, often clustered around universities (Cambridge,
Surrey, and the Thames Valley) are interesting non-internet start-ups. Chip
design startups, making IP they hope will be acquired by ARM or Qualcom.
Startups creating software for the UKs huge, NHS motivated big pharma
presence. These are B2B companies that you don't hear about unless you are
involved, so I'm sure there are plenty popular niche I'm unaware of.

But Silicon Roundabout, or UK web service companies? I've looked at the
companies there, hoping for one that looks interesting enough to grow,
interesting enough to join. Nothing caught my eye. Datasift maybe.

~~~
mikebutcher
Which shows how much you know about the area. Datasift is not even based in
London, it's in Reading. Here's a list for you to peruse
[http://www.builtinlondon.co/](http://www.builtinlondon.co/)

~~~
shubb
Yeah, they are based in Reading, on the UoR campus, which is in the Thames
Valley area I mentioned. I though they were exciting, and considered using
them for a project.

I guess my comment was a bit negative. I wish good luck to anyone trying to
make it. You'll have the last laugh when you cash out.

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anovikov
My belief is that the focus on exits in startups is an American effect in
nature - because it matches the VCs business model. Why not just building
sustainable businesses and make VCs do with dividends on them? That will be
way more beneficial to the economy than building Zynga-style bubbles.

~~~
pg
That is a common misconception, but it's usually founders who are eager to
sell, not VCs. There is a power law distribution of outcomes in startups. The
big successes are so big that that's where all the returns are for investors.

VCs routinely reject startups because they worry that the founders are only
interested in selling the company. We tell founders who are about to present
to VCs never even to use the word "exit."

~~~
anovikov
I think in part this is because the founders reach the point where they feel
it's 'enough' way before VCs do, because VCs are risk hungry (distributing
their risk across dozens of deals makes that easy) and want to roll the dice
again and again. In the end, i believe that timeline of the VC's fund
existence preclude them from meeting their return goals otherwise than through
exits.

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hardwaresofton
This article should have been called "The UK Needs An Acquisition Culture If
It’s To Have a Sustainable Venture Capitalist Culture"

+1 to what anovikov and KaiserPro have said already -- If these founders are
building things they love, to solve real problems, they should be building
sustainable businesses and doing what they set out to do, not waiting on a VC
to buy them out.

~~~
mikebutcher
Thats fine for some. Run on revues and retire in 40 years satisfied. But
sometimes other founders need financing to build the things they love, and
that require capital. European banks are not good at risk capital. So you're
going to have to get it from somewhere. If eventually a founder has a big
exit, maybe they can finance their OWN NEXT STARTUP? How about that for you?

~~~
hardwaresofton
Without being combative, who, exactly needs the financing that badly?
Certainly not the large percentage of social startups, right?

And also, if they need the capital to enable/manage growth, a reasonable
business model should get them SOMEWHERE close to sustainability. What I mean
to say is that if people are falling themselves to use your creation (so much
so that you must expand infrastructure significantly -- keep this in mind that
many of the open source software that is available these days "scales" to
thousands if not millions of users without much more than one guy sitting
behind a computer) it should not be difficult to get some portion of people to
PAY for the service.

Now, of course, this is very different when it comes to something like a
manufacturing-based startup, in which someone is looking to achieve mass-
production from the get go (which I don't even think is a reasonable approach)
-- or break into some sort of heavily "regulated" area and needs money for
patents/licenses/whatever. But even to that, I'd say more introspection is
needed -- VCs are not just looking to hand out money without prototypes, and
if you have prototypes that are good, and work, and show that you know what
you're doing, even regular banks can give loans with a good enough business
plan (especially with all that internet money everyone's been trying to get a
hold of recently.

Also, I think that maybe this ultra-transient mentality to startups might be
wrong, unless you are in the business of incubating. You don't often enter
relationships with the mindset of gathering experience for the next one right?
Most people would like to think that people enter relationships with the
intention to make them successful. I think startups are the same way,
especially given how people think about them on sites like these and others.

Also, keep in mind that building something you love and making money from it
instead of taking VC cash doesn't mean you'll be poor by a long shot, it's
very possible (and I'd like to say probable, but I don't have a link to an
article posted on here last week about non-VC exits being generally worth more
to the founder). If your idea really is good, then it will make you a LOT of
cash, even if you collect $10 from 1000 people on a yearly basis, you'd only
need 3000 people to think your app is useful to make somewhere close to min
wage in the US (which is higher than many around the world are paid)

But anyway, that's just my opinion

[EDIT] - Also, another point worth thinking about here -- what about your
users? These are the people that subscribed to you, your methodology, your
culture. I think there's more than enough proof out there to show that users
don't get quite treated the same after acquisitions (to put it mildly)

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hobs
I read the title and immediately thought to myself "What about a startup that
just becomes a successful business, does that need an acquisition to breed
more startups?"

~~~
petenixey
Those businesses are awesome and I think more people should build them.

The point I wanted to make in the article is that most startups are a high-
risk experiment. A side effect of that is that most of them will fail and you
need a lot of liquidity to fund that failure-level.

I wish more developers would just create 1-5 man businesses that make
$100k-$2M/year. It's exactly the right thing to do as an individual but it
doesn't sustain a startup culture it just sustains a set of solid, long-term
businesses.

~~~
takluyver
> but it doesn't sustain a startup culture it just sustains a set of solid,
> long-term businesses.

Who is that a bad thing for? Small, solid businesses sounds like a better
option for customers and the country as a whole than frenetically building new
things knowing most of them will fold. It doesn't give the founders the same
chance at celebrity, but they get to do something reliable and potentially
fulfilling.

I guess I'm not convinced that the UK wants a 'startup culture' at all. I'd
like to think people could focus on building stuff that's useful or
entertaining, rather than what sounds like desperate attempts to become a
millionaire.

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beat
This article is UK-specific, but I'm personally concerned about the same
problem in the US. There's a limit to how many great startups can be built if
they are dependent on M&A for exits/liquidity events, and the larger companies
don't start buying more startups. Also, competition on the M&A end will lead
to lower exit pricing, which will eventually impact valuation and early stage
investment.

The improvements in early stage investment in recent years may just wind up
throwing other parts of the system out of balance.

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optimus65536
You need successful exits for a startup culture, you don't necessarily need
acquisitions and therefore tax breaks for acquisitions would be a mistake

What about the other path - why don't successful UK startups go public on the
AIM? In the UK, companies can go public for much smaller market caps than they
ever would in the US.

The UK is not burdened with the bureaucracy of Sarbanes–Oxley, so the UK
doesn't necessarily need to adopt the US' cultural shift to stay private as
long as possible.

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timthorn
Acquisitions are often seen as a route to value destruction in the UK - that's
received wisdom and I suspect it will take a lot for startups to challenge the
thinking.

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mikebutcher
Everyone here is welcome to look at a good selection of "Silicon Roundabout
Web companies" and realise that there is a huge diversity, far beyond the
stupid characterisation that they are built-to-flip app/web crap:
[http://www.builtinlondon.co/](http://www.builtinlondon.co/)

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michaelochurch
I think the issue is that a larger number of people are becoming involuntary
entrepreneurs. They don't want the long-term "lifestyle" business that
delivers a high-but-not-stratospheric income for 20 years, because they
actually aren't cut out for running businesses (or very interested in it).
They want the 5-year plan to exit-- because they're not really entrepreneurs,
but either (a) want to be rich, or (b) want autonomy that no longer exists in
any corporate job-- not even R&D. They're involved in these red-ocean VC-
funded get-big-or-die gambits because those are the only game in town for
them.

In 2006, class (a) was working on Wall Street; but the pool of get-rich
opportunities has dwindled. In 1975, class (b) was working in R&D labs on
basic research. However, those options have dwindled too. As the few
buttresses preventing the corporate world from falling under the weight of its
own mediocrity give way, it's forcing a lot of the best people into one
narrowly-defined class of entrepreneurship: VC-funded turn-the-crank franchise
bids with a bit (ok, a lot) of random risk thrown in. It ends up requiring
long hours, alternating unhealthfully between being over- and under-funded
(relative to one's scope) and is generally unsustainable. Many of these people
can't hack it for more than a couple years; that's why the acq-hires are so
necessary-- turn the business over to something that can use it
prophylactically before the founders burn out.

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lmm
Amusing that Autonomy is listed as an acquirer, given how desperately they had
to be acquired themselves.

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freyfogle
Wow that link to the Internet Peeps article brings back so many memories. It's
true, the whole scene was basically one room full of people.

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mikebutcher
Great post Nixey!

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jmduke
This is a case where the TechCrunch headline is a lot more reasonable than the
HN one. I read "You need an acquisition culture to sustain a startup culture"
and thought it was going to be an article about how a business's culture
should be primarily about acquisition, which was a little more outlandish.

~~~
petenixey
It's actually just a case of Techcrunch allowing more characters than HN.
Unfortunately the full (and I agree very good one) didn't fit in.

~~~
bencoder
"You need" -> "UK needs" would work I think

