The Worst of Times for M&A & The Best of Times
Opportunities Always Exist...Just Sometimes in Different Ways
Traditional tech M&A has taken a nosedive off a cliff. It makes sense when Salesforce is preaching efficiency and cash flow that they’re not going to be doing big M&A but instead digesting. This is happening across the space as even Cisco, Microsoft, IBM, and HPE who have been serially acquirers have slowed down their pace (although Cisco perhaps slowed down as they were hunting bigger fish….cough cough Splunk).
So it’s a terrible time for startups right?
Well not quite. One trend that I’ve been paying attention to is how every company is a software company has been playing out. Before, the only acquisition path for a tech startup was FANG (or whatever the new acronym is but basically big tech). Then in recent years, as more startups have become scale-ups with plenty of cash and growing TAMs to execute against, these startups have become natural acquirers. So that actually led to a broadening of the acquisition base.
As every company realizes they’re a tech company that base is broadening out once again! John Deere, Siemens, Honeywell, Nike, etc are all making tech acquisitions. Why? Well they are facing a deeper talent shortage then anyone else. And while they want to make use of the new technology that has come out, first they need enough knowledge of the technology in the org and how to build solutions around it! Notice the acquisitions span everything from Data to AI to Cybersecurity. None would be classified as immediately accretive to the business but instead are key infrastructure technologies that will help accelerate these companies’ products and internal systems.
I think especially with the impact of AI, non traditional tech companies will increasingly be looking for ways to help their internal and external products evolve. With strong free cash flow profiles, these businesses have the ability and need to speed their way to leverage newer technologies.
One of the most fascinating companies that has transitioned to tech acquisitions is Roper. What started as an industrials company is now a majority vertical software business. Over that transition, the stock price has handily beat the S&P. Do I expect other companies to follow the same path, no… but I do think more tech acquisitions will happen from non-traditional areas given what we’re seeing recently.
What I Enjoyed This Week:
- so-called “Beginner’s Guide to Cyber Security” is far from that. Everyone can learn a lot from reading how all the components of cyber fit together. And why cyber investors always shudder when other investors say “it’s all too similar” :)
Great post by Alex Mackenzie
, demystifying how Transformers in LLMs work and a new approach that is emerging called Hyena Operators
Lenny’s publishing an awesome 7-part Series on how to start and scale a B2B business with insights from cofounders of many of the leading growth stage startups
. This post on How to Win Early Customers highlighted how there are so many different ways to approach it and founders should leverage all the potential channels they can.My colleague Ed crushed it in last week’s
talking about how there’s too much focus on the definition and type of particular gtm (in this case PLG) vs mapping what’s needed to efficiently acquire customers for a company’s particular product. In the end, especially for the missionary founders out there, revenue growth is needed to be able to support the company’s innovation and sustainability going forward. Without revenue, it doesn’t matter how much you care about the product, community, specific gtm motion that is considered the best, the company won’t last too see any of that come to fruition.
A good example of what security attacks of the future will look like as LLMs become more prevalent in attacks: https://retool.com/blog/mfa-isnt-mfa/
Last week’s podcast was with Dave Dorman, VP Self Serve of Grafana. Tons of actionable advice around growth, OSS & Cloud offerings, content marketing and much more.
A major fallacy Dave has seen across various companies is people assuming usage because of OSS and signups but in reality:
"They may have interacted with the product, seen a dashboard but have they come in and set up a data source from scratch? You can have lots of traction and inbound awareness already but figuring out how you actually drive the users to do a thing, see value in the product, adopt the product, and eventually pay is a completely different game vs demand generation"
