
Paul Graham on a New Attitude for Startup Acquisitions  - jmorin007
http://www.leveragingideas.com/2008/10/13/paul-graham-attitude-startup-acquisition/
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Prrometheus
The problem from the other side is harder. Given that Google finds a talented
startup team, how do they know that the startup is in a business that Google
should be doing? Should Google ever turn down a good startup team? Most of
what Google does is opaque to me. They are becoming the GE of the internet.

What is the purpose of a firm? Is it a collection of synergistic business
ventures? A source of capital? Does it make sense to continually expand it's
scope of activities? Would investors be better off if Google kept the equity
it needed to run its search business and paid the rest out in a dividend to
shareholders?

We think of the big boys as a black box - a black box full of money. I'd like
to understand them, how they operate and how they could be better. I don't
understand their purpose in pursuing many of these acquisitions, besides
making sure their rivals don't buy the target first.

~~~
netcan
That's true in a sense.

Acquisitions only really make sense if a company is creeping horizontally.
Otherwise not that man opportunities make sense.

Say Apple decide to concentrate on what their exisitng lines (they've pretty
much said so), how many startups would they find to buy? Probably not enough
for a CAO.

~~~
jimbokun
iTunes was an acquisition. So was GarageBand. And I think some other software
acquisitions that directly made their hardware more valuable.

I think that says a lot about how Apple's acquisitions strategy.

Although, they also bought PA Semi, and we still don't know yet just what
they're doing with them.

~~~
netcan
So was OS X (I think). I'm not saying there's room for them, I'm saying 'how
high could the volume get?'

The volume of software start-up acquisitions should be directly related to the
volume of software product lines.

~~~
netcan
Oh & so was Steve Jobs. But how many CEOs do you need?

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jhancock
This quote is the gist of the article:

"At the moment, there is no one within big companies who gets in trouble when
they buy a startup for $200 million that they could have bought earlier for
$20 million. There should start to be someone who gets in trouble for that."
\- Paul Graham

I think its well understood that there exists a tremendous amount of
inefficiency. That large companies should spend some energy identifying what
they need so it costs them 20 million instead of 200. I'm know some large
companies already try to do this. They will get better at it over time and
others will emulate their models. As a result, the investment and startup
model/process/vc-lifecycle will shift accordingly. I feel PG thinks that
ycombinator is on the leading edge of being able to take advantage of this
shift as...he probably is.

My attitude for my startup has always been that if I sell early, I get 20
million and get to keep all of it. If I take on lots of VC, I have to sell for
200 million and I still net out at 20. Most stertup founders are happy to take
the early 20 and get on with their next big idea. I do think PG is correct
that the model is slowly shifting in this direction. And its the right
direction for innovation to continue.

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phil_KartMe
there is someone in a big company who gets in trouble if they buy a start-up
for more than $50M and it doesn't meet forecasts each of the next few of years

~~~
jfischer
I agree that the ROI of the investment is more important than the idea that
someone should be punished for passing on a cheaper acquisition - that doesn't
take into account the higher risk of the $20m purchase. That being said, I'm
not so sure companies really hold people accountable for even ROI and
forecasts. For example, I know of a company which made a $200m acquisition,
ran the product into the ground, and then paid even more for a second
acquisition in the same space. Sure, a few middle/lower managers were moved to
less influential positions, but the people with the overall responsibility got
promotions.

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tptacek
_I think acquirers may eventually have chief acquisition officers who will
both identify good acquisitions and make the deals happen….Maybe in the future
big companies will have both a VP of Engineering responsible for technology
developed in-house, and a CAO responsible for bringing technology in from
outside._

 _At the moment, there is no one within big companies who gets in trouble when
they buy a startup for $200 million that they could have bought earlier for
$20 million._

Isn't he talking about the VP/BizDev here? I know, for instance, that Cisco
has an entire group dedicated to evaluating and executing acquisitions.

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fallentimes
Boo acquisitions. Yay dividends.

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MicahWedemeyer
_I always feel guilty quoting others because I want to be my own thinker. That
said..._

There's really no reason for this blog post, and especially no reason to post
it on HN. It's just a repost of an essay, with absolutely no additional
analysis. The HN link should just go directly to the essay.

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paulsb
It will only happen when $200 million is "nothing" to a company.
Pharmaceutical companies have an equivalent of "chief aquisition officer" who
deals with finding partners and aquiring companies, but they only do that
because the cost of developing a succesful drug is ~ $1 billion (no
exageration). Drug companies often partner with someone and will aquire them
if the partnership proves fruitful.

It is often much quicker, and ultimately cheaper, to aquire someone than to
develop the software themselves. When software development costs reach the
dizzy heights of drug development costs, then there will be the necessity for
a cheif aquisition/partnership officier.

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bayareaguy
_I see starting to get standardized is acquisitions. As the volume of startups
increases, big companies will start to develop standardized procedures that
make acquisitions little more work than hiring someone._

I might agree with that statement if it wasn't so obviously self-serving
(given pg's role in YC) and if it were a little more qualified.

If acquisitions go the way of existing standardized hiring practices then it's
more likely that they will become burdened with the very kind of bureaucratic
and institutional nonsense that has traditionally prevented big companies from
hiring high quality hackers.

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davidw
Are we going to see a new essay soon?

~~~
pg
I've been travelling all fall, but I'm flying home tomorrow. Lots of new
ideas, but I have to read YC applications as soon as I get home, so not sure
when I'll get to write something.

~~~
davidw
Well, "what I did this summer (or fall)" is always a classic essay title.

~~~
pg
<http://www.paulgraham.com/sfp.html>

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qhoxie
This is a take on acquisition that I had not previously considered. The idea
of a CAO seems almost tongue-in-cheek at first glance, but I would not be at
all surprised to see this a reality in coming years. It is a clearly evolving
process as PG illustrates, and some do it better than others.

~~~
ram1024
"At the moment, there is no one within big companies who gets in trouble when
they buy a startup for $200 million that they could have bought earlier for
$20 million"

this comment is amusing although i do believe he is being facetious.

i am of the opinion that everyone in a company should have an eye out for
innovation that is relevant to the company and should call it upon themself to
escalate an emerging "acquisition worthy" startup to the attention of the
powers that be. and of course let it fall upon their heads if they fail to
take action.

it would show how well communication flows in your company as to how agile you
are in making these kinds of acquisitions. a company that did it well would be
fearfully predatorial indeed

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ryanmahoski
the audio:
[http://dl.getdropbox.com/u/142733/Audio/Lectures/future_of_w...](http://dl.getdropbox.com/u/142733/Audio/Lectures/future_of_web_startups_pg.mp3)

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alaskamiller
I guess pg hasn't seen that lame ppt from Whiner Perkins yet. Google is the
problem.

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fbailey
why he basically says that there should be somebody who gets the blame if they
don't buy the startup early and cheap instead of late and expensive

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nir
I suppose it's the flip side for no one getting the blame when a big company
spends a few mil buying a startup which turns out to have no value. (Did
anyone at Conde Nast get fired for acquiring Reddit?)

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maurycy
Why do you think that reddit has no value?

~~~
nir
Have you seen its home page recently?

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trapper
Now that's independent advice! ;)

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petergroverman
This is well thought out.... Thanks PG

