Why There has been a Startup Acquisition Boom
Companies have always acquired other companies. Whether the purpose is to eliminate a competitor, strengthen a position in a market, bolster two companies’ core competencies, or give a boost to stock price, there has long been a history of mergers and acquisitions. But it seems that since the rise of tech companies these startups are being acquired at a much more rapid rate and the M&A is becoming the norm, not the outlier.
So what is the cause of this acquisition boom, and how can a virtual data room help facilitate the process?
What is Driving the Startup Acquisition Boom?
The first cause of the startup acquisition boom is the fact that it’s becoming increasingly easy to form a startup. Before the advent of the internet and other technological advances, companies required a great deal of capital, staff, and assets to function. Now, a single coder with an idea can launch a new startup from their personal computer. As the product gains traction, they can bring in more staff–sometimes working remotely so there’s no need for even an office–and soon there is a full-fledged business up and running and churning out a good profit, or possibly eating into the market share of the industry leader.
So, with these startups appearing all over the place, it’s only natural for larger companies to want to merge or acquire them, either to adopt their unique technology into the larger portfolio, or to stop the startup from digging into their profits.
There have been a number of very significant mergers and acquisitions of startups in the last year: Honey, a popular deal-finding app, was recently acquired by financial tech giant PayPal for $4 billion. At the time, Honey was run by its two co-founders and 350 employees in Los Angeles. Dan Schulman, the CEO of PayPal, said “Honey is amongst the most transformative acquisitions in PayPal’s history. It provides a broad portfolio of services to simplify the consumer shopping experience, while at the same time making it more affordable and rewarding. The combination of Honey’s complementary consumer products with our platform will significantly enhance our ability to drive engagement and play a more meaningful role in the daily lives of our consumers.”
It’s for reasons such as these that we’ve seen so many big-name M&As in recent months and years.
How Does a Virtual Data Room Help with Startup Mergers and Acquisitions?
A virtual data room (VDR) is an online version of the old lock-and-key data room where financial and operational documents were reviewed during the merger and acquisition process. Where once an executive (or team of executives) had to travel to the acquiree’s headquarters, sign all manner of documents, get ID’d, enter a secure room, and then view documents pertinent to the M&A. It was a time consuming, labor intensive process that required a lot of expense, time, and headache.
With a Virtual Data Room, the interested parties are granted security access to the appropriate documents, allowed with permissions to see exactly what they’re supposed to see, and all records are viewed, time-stamped, and a record is kept of who saw what when.
These VDRs are especially valuable to startups, as startups do not run like the old-school, classic suit-and-tie business world. They are looking for tech solutions, not the button-up classic way that business was done back when their fathers and mothers were running companies. There is a sleekness and utility to a VDR that appeals to a startup owner even before they experience the nuts-and-bolts of how it works.
But when it does come down to nuts-and-bolts features, the VDR really blows the brick-and-mortar data room out of the water. It makes the process instant, convenient, and accurate. A startup owner isn’t a startup owner because they’re satisfied with the old way of doing business; they’re a startup owner because they have a vision of a better, tech-oriented way of doing things that cuts out needless waste, expense, and time.
Streamlining Startup Acquisitions Through Virtual Data Rooms
To a modern startup owner, someone who built their company behind their computer keyboard as a business of one person, it seems ridiculous to use a classic data room. They are looking for tech solutions, not antiquated methods of doing business. And when you’re trying to merge or acquire a business like that, you need to appeal to their business sense. A startup owner–even if you’re offering them a great deal–is passionate about their company and they want to see that it is going into the hands of a company that will appreciate it and that has shared values.
On top of that, it’s highly unlikely that a modern tech startup will even have a physical data room. They will have backup storage of their date, certainly, but to assume they have a room filled with filing cabinets where their financial documentation and operational notes are kept is foreign to a tech startup. They want technical solutions to corporate issues.