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𝗜𝘀 𝗠&𝗔 𝗮 𝗭𝗲𝗿𝗼-𝗦𝘂𝗺 𝗚𝗮𝗺𝗲?

A startup founded in 2020, valued at $1B in 2021, and sold for $450M in 2024 for ~20x sales!

Akamai, a public cloud company trading at 𝟰𝘅 revenues, announced last month to acquire Noname Security, a 200 employee API security company, for ~𝟮𝟬𝘅 revenues!

Now, in Dec 2021, Noname raised $135 million from VC investors in a Series C round at the 𝗵𝗲𝗶𝗴𝗵𝘁 𝗼𝗳 𝘁𝗵𝗲 𝟮𝟬𝟮𝟭 𝘁𝗲𝗰𝗵 𝗯𝗼𝗼𝗺, 𝗮𝘁 𝗮 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 $𝟭𝗕.

And 2 years 4 months later, the company is sold for less than 50%. What changed:

  1. High interest rate environment
  2. Frozen IPO market
  3. Many late-stage VC looking for liquidity.

𝗗𝗶𝗱 𝘁𝗵𝗲 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗹𝗼𝘀𝗲? NO
– Not the early investors – they made high risk investment and got a high return
– But the late-stage investors only got a full return on the capital they put in even when sold for less than peak valuation.

𝗗𝗶𝗱 𝘁𝗵𝗲 𝗳𝗼𝘂𝗻𝗱𝗲𝗿𝘀 𝗹𝗼𝘀𝗲? NO
– Guessing not, as often they retain a portion of equity that can be worth a lot, especially if they’ve negotiated well during funding rounds. Even if the sale price is lower than the valuation, they might still make a substantial profit.

𝗦𝗼, 𝗔𝗸𝗮𝗺𝗮𝗶 𝗺𝘂𝘀𝘁 𝗵𝗮𝘃𝗲 𝗹𝗼𝘀𝘁 𝗺𝗼𝗻𝗲𝘆? NO
– They seem to have made over 30+ acquisitions in the past, many being early stage companies, at valuations much higher than their own. And yet their stock has only grown from about $15 to over $100 over the past 20 years. Why? Because these acquisitions demonstrates the 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝗰𝗲 𝗼𝗳 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗰 𝗳𝗶𝘁 (expand product offering and strengthen its position in the market) in M&A deals. It may not seem immediately apparent, as it takes time and experience to materialize those and Akamai has reputation for successfully consummating acquisition.

𝗦𝗼 𝗶𝘀 𝗠&𝗔 𝗮 𝘇𝗲𝗿𝗼-𝘀𝘂𝗺 𝗴𝗮𝗺𝗲? NO
– Even when price is 20x revenues, 𝗠&𝗔 𝗰𝗮𝗻 𝗯𝗲 𝗮 𝘃𝗮𝗹𝘂𝗲 𝗰𝗿𝗲𝗮𝘁𝗶𝗼𝗻 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆 for acquirors, shareholders, employees, customers and the community.
 
𝗟𝗲𝘀𝘀𝗼𝗻𝘀 𝗳𝗼𝗿 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗢𝘄𝗻𝗲𝗿𝘀:

  1. 𝗥𝗲𝘀𝗲𝗮𝗿𝗰𝗵 𝗮𝗻𝗱 𝗧𝗮𝗶𝗹𝗼𝗿 𝗬𝗼𝘂𝗿 𝗣𝗶𝘁𝗰𝗵: Understand the buyer’s current offerings and long-term strategy to align your pitch.
  2. 𝗙𝗼𝗰𝘂𝘀 𝗼𝗻 𝗚𝗿𝗼𝘄𝘁𝗵 𝗮𝗻𝗱 𝗖𝗼𝘀𝘁 𝗦𝘆𝗻𝗲𝗿𝗴𝗶𝗲𝘀: Emphasize how your company can contribute to the buyer’s growth and create cost efficiencies.
  3. 𝗠𝗮𝗿𝗸𝗲𝘁 𝗣𝗼𝘀𝗶𝘁𝗶𝗼𝗻 𝗮𝗻𝗱 𝗖𝗼𝗺𝗽𝗲𝘁𝗶𝘁𝗶𝘃𝗲 𝗔𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲𝘀: Highlight how your offerings will improve the buyer’s market position and competitive edge.
  4. 𝗣𝗹𝗮𝗻 𝗳𝗼𝗿 𝗜𝗻𝘁𝗲𝗴𝗿𝗮𝘁𝗶𝗼𝗻: Consider aspects like cultural fit, technology compatibility, and employee retention early in the process.

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