Last month, rumors spread that Google was interested in acquiring cloud security startup Wiz for a record-breaking $23 billion. However, the deal fell through, prompting questions about the decision-making process for startups faced with such acquisition offers.
Jyoti Bansal, founder and CEO of Harness, a developer tools startup that has undergone several small acquisitions, shared insights based on his experience with Cisco’s acquisition of his previous startup, AppDynamics, for $3.7 billion just before its scheduled IPO in 2017.
Bansal highlighted three key factors that influence decision-making in such scenarios. Firstly, the seriousness and specificity of the offer play a crucial role. For private companies like Wiz, initial offers are often exploratory due to limited public financial information available.
Secondly, evaluating the compatibility and strategic rationale behind the merger is important. Considerations such as employee retention, product integration, and company culture alignment are essential.
Lastly, analyzing the economic value of the deal is crucial to determine its benefits for shareholders. Despite Wiz receiving a substantial offer, they decided to remain independent, believing it was in their best interest.
In the case of AppDynamics, the impending IPO deadline and Cisco’s attractive offer led to the acquisition. Bansal emphasized the challenging nature of such decisions, involving input from various stakeholders with differing interests.
Reflecting on AppDynamics’ sale, Bansal acknowledged the potential growth and success the company could have achieved post-IPO, especially considering the subsequent boom years in the tech industry. However, he expressed contentment with his decision to start Harness and build a second company.
While the rumored offer for Wiz remains uncertain, founders may face regrets if the company fails to realize its full potential post-acquisition. The decision to sell or remain independent involves weighing short-term gains against long-term growth prospects and risks.
Ultimately, the acquisition process for startups involves complex considerations beyond financial gains, including strategic alignment, cultural fit, and future growth opportunities. Each decision presents its own set of challenges and uncertainties, highlighting the intricate nature of navigating acquisition offers in the tech industry.
