Does the phrase “survival of the fittest” conjure up all things massive and powerful in your mind?
Do recent acquisition headlines — seemingly insignificant — give you any pause? If not, consider a burgeoning startup attempting to survive alongside the giants of the Silicon Valley.
Facebook, the social networking giant, purchased Instagram — the free photo-sharing app startup in its infancy with no revenue, no ad support, and no business model — for 1 billion.
Twitter, the online social networking and microblogging service, acquired another micrroblogging company Posterous for an undisclosed sum.
Have you stopped to ask why?
The Truth about Acquisitions
Mergers and acquisitions (M&A) and corporate restructuring are a large part of the corporate finance world. Every day M&A transactions, which bring separate companies together to form larger ones, occur. When they’re not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks.
Frequently, these types of acquisitions are also an attempt to dismantle a potential competitor — the acquihire. Other times it is an attempt to blend the best of both companies in order to meet the needs of its users effectively and efficiently.
But, do the David’s of Silicon Valley prosper by surrendering to these giants (Goliath’s) or will they profit more by standing tall and developing what is an obviously a competitive, fun, and user-friendly product?
Surrendering to Giants
When the David’s of the startup world (Instagram, Posterous, etc.) “surrender” to the Goliath’s of the Valley, there’s a big pay day that’s sure to come. First, there is tremendous financial gain for the individuals of the small companies. While the pay off between Twitter and Posterous is undisclosed, the funds doled out by Facebook to Instagram was astounding.
How much is a picture really worth? Apparently, billions.
Secondly, there are tremendous perks associated with impending opportunities for the design and development teams. Often times they are rewarded with credibility, posterity, and notoriety by industry leaders.