Successful small start-up companies are bought for a pittance by big foreign companies. This is an usual for many countries, e.g., for Israel.
Interesting question.
From the point of view of the big companies, it is a way to eliminate potential future competitors and this seems a rational choice especially when this small start-up is particularly innovative . However, in the shoes of the founder of the start-up firm it is more difficult to explain the choice of selling it. If you believe that your firm will be able to generate high returns (and this is probably the case if your firm has attracted the attention of a big fish) in future, why are you willing to sell it?
I do not have specific data, but in Poland acquisition of start-up is very common. However, in many cases, this decision is planned by the owners and is the result of their financial calculations (desire to make a quick profit).
Small biotech firms in Sweden are starving - not enough capital is available for a sustaining growth of the company. The capital today is very volatile and there is no patience. The development of new drugs takes a very long time.
Hi Mattias, you are right!
A very simple example:
You have a nice idea of Coca-Cola production. This company will pay you 10,000$ as
compensation. Your startup cannot compete with Coca-Cola !
Not even AstraZeneca goes safe. An hostile bid from Pfizer might end up with a huge global drug company, which will earn money by avoiding taxes rather than by developing new drugs.
We are in a very difficult period for capital infusion into life sciences given 1. difficult biological challenges, 2. cost to comply with regulatory and pricing restrictions, 3. capital finding IT and energy more attractive at the moment. VC returns in USA have been extremely poor for a decade. Corporate capital then allows for faster development, scale up, distribution channels. At the same time, pharma is not doing well at discovery. Thus buying a small entity with some risk already taken out reduces their risk... Hopefully life science will get more investment as IT becomes crowded, saturated as happens on roughly 10 year cycles. All generalization are likely not useful in specific cases... We must keep trying.
Israel seems to have a vibrant startup culture, but I suppose even there IT has perceived advantages in the current climate... I wish this were not true... :) Peter
Dear Peter, look
http://www.jpost.com/Business/Business-Features/Israeli-companies-sell-prematurely-345770
Interesting article. One component of this in the USA is the cost of raising small amounts of money is very high given SEC regs. Public markets tend to not be working if a company needs $10-25M, but does not need (have any justification for) $500M . Many early stage firms can use more than 10 and less than 500 and about all they can do is sell or run out of cash. In the USA, you can gamble away money on government lotteries, but you can not INVEST without all sorts of qualifications and disclosures.
Yesterday I was with a the heads of several start-up companies in Kansas City that has a start-up village that has grown up around the Kauffman Foundation (for entrepreneurship) and the grand Google Fiber launch there.
Many had been involved with other start-ups before. When someone else described them as highly successful, the response was something like: "If a start-up lasts a year, it is considered a success."
They described the perils of sustainability, financing, and the like. Financing is a significant issue; however, start-ups are unusually lean and if all are not passionate and rowing the boat in the same direction, they indicated the start-up is doomed. They also mentioned that they do not bring people on board for a specific position; instead, borrowing a sports metaphor, they hire athletes (i.e., talent).
Some of the things these start-ups are doing are amazing and I cannot escape without offering the conjecture that start-ups are part of a different culture that may be a drain and at the same time an invigorating infusion of creativity and talent that ensure the giants in almost any industry would be unwise to ignore.
I love this stuff. It is in my blood. One must be agile and not be obsessed with security or entitlement. We fail more often than not when we try bold things, so we try again. This is a sport that drives accountants nuts....but it is not for very many. It can be painful for family values with its long hours and old cars... but I'm married to an entrepreneur who also prefers making a difference to working with a bunch of 'normal' schleps.. :)
Big fish are hungry: http://online.wsj.com/articles/roche-to-acquire-intermune-for-8-3-billion-1408896002
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