In our discussion area, I posted a while back an item on the Slow death of Dopplr. It didn’t receive a lot of comments, but the two that were posted got me thinking for the almost 10 days that this is actually a very interesting, yet very sensitive, topic. Vanity acquisitions are those where the acquirer is mainly buying the talent of the startup and does not have much of a will to integrate the startup’s tech or business into their own line of business. Yet, be it a vanity acquisition or not – these sort of deals are (almost) always celebrated in the startup community by all. Is it the ultimate goal of an entrepreneur to sell your company no matter what the consequences? Should we be more interested in whom we sell to or does it really matter if the check is big enough?
David Heinemeier Hansson of 37 Signals, writes a timely piece on the issue titled Acquisition Condolences. He reasons that there are different kinds of acquisitions out there; those that succeed and those that don’t – from the acquirer’s point of view. He names the purchase of Bloglines and Dopplr as examples of vanity purchases. Bloglines is shutting down October 1st and we haven’t heard of Dopplr since Nokia bought them.
The topic is an interesting one. I could argue (without any M&A experience) that founders and investors don’t differentiate too much between acquisitions. If they are priced correctly – it’s a deal worth doing. Investors at least, are in the business of creating returns for their LPs in the form of their fund. The more homeruns they have the better and more professional they’re considered. Founders too, can add a badge of honor to their LinkedIn profile once they’ve done an exit. And rightly so, not many can ever achieve that.
Then again, one could argue that there are no vanity purchases or acquisitions at all – each acquisition is still an acquisition. It shouldn’t be too big of a worry for the investors or founders what the acquirer does with the purchase.
In another post by David Heinemeier Hansson, he says that there are only two things worth buying: products and customers – you should be buying a solid stream of revenue. I mainly agree with this view, companies should only by assets that add dramatically to their business in the form of revenue.
However, what I’d really want to know is how the startup community thinks of these acquisitions? Do you pity or appraise them? Does it even matter?
(Photo by Johnny Vulkan)