Some politicians and commentators have voiced concerns about this exodus of intellectual property, technological know-how and brains. But while it can be frustrating to see algorithms, artificial intelligence capabilities and software engineers lured away, no-one should blame entrepreneurs for selling their business.
Christophe Cauvy is a Partner at Intersection M&A Ltd, a new M&A advisory firm with a focus on creative, content & digital tech industries explains in Wired why you need to appreciate the sheer pressure involved in running a startup.
Today, the battleground for tech is essentially global. Competition can come from anywhere, in any shape or form. Every single morning, when entrepreneurs wake up, they are fully aware it might be their company’s last day. A student in Stockholm, Austin or Shenzhen may have created a better product overnight; a prominent group in Silicon Valley may have launched a new cutting-edge service; a Chinese company may have acquired a competing technology with a view of rolling it out to their millions of customers.
New ventures are regularly being wiped out, even if their technology is faultless. If you were a digital mapping startup a year ago, chances are you could have had some traction with venture capital firms. But when, in July 2016, Uber announced it was investing no less than $500 million to build its own mapping system, it sent two strong messages: first, Uber would be soon a major player in this sector, making the viability of emerging mapping solutions less favourable. Second, it may indeed cost half a billion dollars to build a leading digital map platform from scratch. Even if some of the existing mapping start-ups had superior technology, in the eye of potential investors their value collapsed, because the mountain to climb suddenly became steeper.
There are no guarantees of success. First mover advantage? Remember the likes of Netscape, Yahoo and MySpace. Secure and reliable technology, with unique features? Even that can still be trumped by the network effect. Deep understanding of consumers, through thorough research, provide actionable roadmaps? Famously, Steve Jobs launched the iPad without taking into consideration consumers’ opinion.
All in all, entrepreneurs, more than CEOs of listed corporations, are alone at the top. What’s more, in addition to highly unpredictable external factors, personal issues can also drive the willingness or necessity to sell. After five or ten years of incessant fighting, an entrepreneur is entitled to think about selling his business to a dominant player.
The ongoing and rational anxiety that entrepreneurs experience is not necessarily a bad thing: it can generate resilience, commitment or creativity. But in frequent doses, they have a pernicious impact on morale and the ability to work efficiently.
Some entrepreneurs are less risk averse – or more stubborn. In Europe, Spotify and Blablacar remain fiercely independent, while Criteo opted for an IPO. It might come from the founders’ personality or personal situation, or it could simply be related to the superiority of their product and the weakness of the competition. But we can’t ask all entrepreneurs to take all risks and only aim for an IPO.
Every time an entrepreneur sells her or his stake to a large corporation, the best way to understand it is to think that years of endless effort can suddenly translate into hard cash. After a usually lengthy roller coaster experience, the security of having savings in the bank is attractive.
Perhaps the reason European entrepreneurs are stigmatised for lacking ambition when they “sell too early”, is because the buyers are often not European groups. Compared to Silicon Valley, Europe has been unable to create large emerging technology giants, on which entrepreneurs can rely on when exiting.
But things are changing. Established European companies, especially in telecom and media, have started to acquire tech ventures for significant sums. Last week, Dutch telco Altice bought video ad tech startup Teads for a reported $308 (£246) million. Last year, Telenor and Axel Springer acquired New York-based firms Tapad (for $360 (£288) million) and Business Insider (for $343 (£274) million).
That’s good news for European entrepreneurs, because it enlarges the number of potential companies that could buy their business. And it means that, when they do get acquired, they won’t be blamed for selling too early.
