Companies can only acquire companies they can afford. When you take outside investment, your investors want a significant return, which places a floor on your acquisition price. The value you have to create gets bigger, and the pool of companies that can acquire you gets smaller.
Raising money is hard, but should you want to and manage to, it's very easy to paint your self into a high-valuation corner that blocks all sorts of opportunities to make life-changing amounts of money.
No, raising money doesn't put a floor under your acquisition price. It puts a floor under the acquisition price at which the founders make money.
So while a company can certainly paint itself into a corner by raising too much, that phenomenon is not what's responsible for the statistic quoted in this article. If you paint yourself into a corner by raising too much, it doesn't decrease the probability that your company will be acquired, just how much money you'll make personally if it is.
If anything, raising too much money increases the probability a company will be acquired, because (by definition of "too much") it increases the probability the company will fail, and a fire-sale acquisition is the default outcome for companies that have raised a lot of VC funding.
Comments
I'd expect this to be the case every year.
Companies can only acquire companies they can afford. When you take outside investment, your investors want a significant return, which places a floor on your acquisition price. The value you have to create gets bigger, and the pool of companies that can acquire you gets smaller.
Raising money is hard, but should you want to and manage to, it's very easy to paint your self into a high-valuation corner that blocks all sorts of opportunities to make life-changing amounts of money.
No, raising money doesn't put a floor under your acquisition price. It puts a floor under the acquisition price at which the founders make money.
So while a company can certainly paint itself into a corner by raising too much, that phenomenon is not what's responsible for the statistic quoted in this article. If you paint yourself into a corner by raising too much, it doesn't decrease the probability that your company will be acquired, just how much money you'll make personally if it is.
If anything, raising too much money increases the probability a company will be acquired, because (by definition of "too much") it increases the probability the company will fail, and a fire-sale acquisition is the default outcome for companies that have raised a lot of VC funding.
Fair enough, fire-sales happen all the time.
Perhaps I should have written 'puts a floor under your acquisition price until your company fails.'