天使的退出策略——通常并购都是小于3000万美元的Exit Strategy - Acquisitions are usually under $30 million

The really interesting story these days about tech exits is not the small number of really big acquisitions, it’s the big number of smaller acquisitions. For the typical entrepreneur and angel investor, these smaller transactions are an excellent way to make several million dollar capital gains and should be part of every company’s exit strategy.

I’ve written before on why this is a great time to plan an early exit. The tech M&A market is hot. Big companies know they are better at acquiring than developing new ideas in house. And big companies have lots of cash.

The financial media, and most bloggers, write about the really big startup exits like Club Penguin, YouTube, Skype and MySpace.  Those are certainly exciting exits and great startup stories.

But for the other 99.99% of entrepreneurs and investors, the really exciting news is the large number of tech startups being bought for under $30 million. Many of these exit transactions are so small they aren’t even press released. In my own portfolios, where I have been generating some solid early exits, recent transactions have been in the $15 to 30 million range.

Several smart VC bloggers have also been writing about this trend over the past few years. I tried to find some quantitative data to illustrate what’s going on in early tech acquisitions, but I wasn’t successful. (I found one database that looked promising but didn’t feel like parting with several thousand bucks to back up this post. I also figured that many of the smaller transactions wouldn’t be included anyway.)

The best reference I found was an article by Om Malik titled “The New Road to Riches” which was in Business 2.0 a couple of years ago.  He reports that the Mergerstat database, which includes about 5,000 tech acquisitions per year, showed an average selling price of $12 million.

I spent some time on Google searching for recent acquisitions of tech companies and quickly pasted this list together. Most of these are pretty big successes that millions of us use every day.  They are also great startups that all sold for $30 million or less.

• Google bought Adscape for $23 million (now Adsense)
• Google bought Blogger for $20 million (rumored)
• Google bought Picasa for $ 5million
• Yahoo bought Oddpost for $20 million (rumored)
• Ask Jeeves bought LiveJournal for $25 million
• Yahoo bought Flickr for $30 million (rumored)
• AOL bought Weblogs Inc for $25 million (rumored)
• Yahoo bought del.icio.us for $30 – 35 million (rumored)
• Google bought Writely for $10 million
• Google bought MeasureMap for less than $5 million
• Yahoo bought WebJay for around $1 million (rumored)
• Yahoo bought Jumpcut for $15 million (rumored)

Why is this happening now?

One of my friends in a Fortune 500 company explained it to me this way (paraphrased): We know we aren’t good at new ideas or startups. We basically suck at building business from zero to $20 million in value. But we think of ourselves as really good at growing values from $20 million to $200 million or more. It’s a different skill set than starting things. If we see an acquisition priced at $100 million, then our view is that it’s already out of our sweet spot for adding value. But at $20 million, it’s really easy for me to get it approved.

How should this affect the exit strategies for entrepreneurs and angel investors?

It seems pretty clear that the optimum strategy for tech startups today is to design the company, and its corporate DNA, so everyone is aligned around the idea of an exit transaction in the under $30 million range. The good news is that these exits can often be completed in just a few years from startup. They also have a much higher probability of success than swinging for the fences and hoping for a big NASDAQ IPO.

This exit strategy is nicely summarized in “The New Homerun” by Tom Stein in Mergers & Acquisitions magazine, May 2008. He said: “Startups must be content with hitting singles or doubles, that is, a buyout of $50 million.”

As an angel investor that works well for me. What do you think?