I’ve been learning more about start-ups recently and have noticed a lot of them want to be acquired. Why is this? Could they also choose to grow their business?
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Being acquired usually means having a really neat payday.
People in the business world are constantly deciding whether to continue playing or to cash out.
Playing means absorbing all the stresses of being part of a growing company. Some love it, some grow to disdain it over time.
This is why some cash out. They get that $10 million or $100 million and they live the rest of their lives in comfort (or they start a new startup and do it all over again, but they take a chill backseat as an investor).
That is the way to make money fast.
Have a look at zip2 or paypal.
The founders sold them a few years after startup
and each time cashed out a lot.
Because it’s quicker and easier to sell your business and walk away with (hopefully) a ton of money than it is to slowly build it up and eventually (hopefully) make some money. It’s a quick, immediate payout versus years of hard work to eventually get the same amount of money (or potentially more). This also means less risk and less financial burden cause the cost of doing business is no longer your problem.
In biotech, if you want to bring your drug candidate to the market, it has to go through human trials. Human trials are prohibitively expensive (anywhere between USD 10-120 million), so only a pharmaceutical giant can readily afford them.
Selling your biotech startup to one of these is the difference between your product ever seeing the market – or not.
An acquisition is the generally the cleanest way to exit or what’s known as a “liquidity event”. It’s an opportunity for the founder, employees who have shares and investors to get a return on their time/effort/money.
The other ways to do it either take longer or have a lot more regulatory stuff involved:
* IPOs are the toughest by far. You gotta get through a ton of filings and expose all your numbers then go on a roadshow and find investors. After all that your stock is likely to tank once it goes public if you can even get the valuation you want (price per share).
* Buy out – very hard to find someone to raise the money and buy out your company. Very few folks have the money/connections to outright buy a business and the ones that do generally don’t have an interest in running one.
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