The Business of Venture Capital, 3rd Edition

34Acquisitions

THE PRIMARY PATH TO AN EXIT

Acquisitions are seen as the fastest way for larger companies to expand, whether vertically or horizontally. Such growth by acquisition strategies can bolster companies' revenues, profitability, and entry in new markets, or often fend off competition. VC-backed companies make strong acquisition candidates, as they often offer an established revenue/customer base and proprietary technology, are profitable and receptive to fair valuation metrics, have a unique and defensible market position, and employ strong management teams. For larger companies, especially the ones with significant cash, stagnant revenues, and limited growth potential, acquisitions is a core component of their growth strategy. Exhibit 34.1 lists motivations for buyers (acquirers), as well as sellers.

Exhibit 34.1 Exit drivers.

Acquirers' Motivations	Sellers' Motivations
Growth and increased revenues via access to new products, geographic markets Operational synergies and reduced risks via diversification Accelerating innovation, minimizing research, and development risks Access to talent (or acqui-hires) Industry consolidation Defensive / Competition	Positive market/macroeconomic conditions Financial trade-offs: time and capital required to create future value versus present value Investor liquidity Inability to raise capital to fuel additional organic growth Reduced pace of growth Ability to sustain competitive pressures Margin erosion Regulatory ...