The future of startups and entrepreneurship will be the battle of creating 3-year hyper specialised companies that are looking for trade-sale exits only.
If you look at the trends of all the largest core-tech and also non-core companies - acquisition is a really important strategy to innovate.
Amazon, Facebook, Apple etc. etc. are slowly becoming more and more vertical - which means every part of your life sooner or later will be part of the lifetime experience with one of the majors. As they become bigger behemoths, product and market segment focus becomes harder and volume/ growth becomes more important.
This is where the 3-year hyper focussed startup comes in.
Find a gap or something a large player isn't doing that well - absolutely crush it and get acquired. In saying this - it means startups will become even more competitive, because the big guys are only going to acquire one of each type or element that is missing in their larger ecosystem.
Plenty of investors in Fintech are saying that you need to be as underground as possible until you reach 1m users, otherwise a bank may do it themselves and out-distribute you. However at 1m users - you are almost guaranteed an acquisition proposal.
Acquisitions historically come in 3 ways:
1. Acquihires - acquisitions for the true purposes of gaining elite talent
2. 10x IP Acquisitions - acquisitions to 'shelve' or leverage extraordinarily unique IP
3. User Acquisitions - acquisitions to acquire user bases that boost, underwrite or will become the future of your organisation
A deal that I am currently structuring has this method in mind with two variations.
1. The larger/ more established company I am dealing with is looking specifically for their own IP and User Acquisition with a very specific larger business - they want to acquire my team for talent (Acquihire), but we aren't ready yet.
2. We structure a deal that we have major ownership in a particular product that was going to be part of their suite. We pre-agree on a certain milestone, once we reach that milestone there is an automatic trigger for acquisition into the larger group (this timing should coincide with one of their capital raise or trade-sale goals) - they then integrate our offerings and brand as-if it was theres all along. They get our IP, Users and experienced team to join the larger org.
In this way you may be able to hedge investors 'bets' in your business - where if you hit a milestones under the goal, it's likely an acquisition will still take place, but at a smaller valuation. If we hit the goals the investor gets the promised upside. If the investor decides to leave their money in and continue on with the roll-up, they get their 10+x.
As a founder - you hedge your risk by knowing the exact targets and exit goals before even starting. This project should take 2-3 years to complete on our behalf.
*my prediction is that this trend starts today. It will become a full blown trend 2024.
P.s all of my posts are first drafts, my researcher will buff them out — so make sure to write in and ask for extensions or explanations if you are interested.