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Daniel_Burfoot comments on March 2015 Media Thread - Less Wrong Discussion

7 Post author: ArisKatsaris 02 March 2015 06:51PM

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Comment author: Daniel_Burfoot 02 March 2015 09:31:49PM *  7 points [-]

I just finished Founders at Work by Jessica Livingston, cofounder of YCombinator. I strongly recommend it for anyone who is thinking about doing a startup. The book consists of a collection of interviews with company founders. Some of the interviewees were extremely successful; others achieved a good modest success quickly, followed by a buyout; and others seemed like they were on a path to success but then failed.

One clear message from the book is that taking VC money is very decidedly not always a good thing.

Another depressing trend was how many companies startup, expand, and do very well, then are bought out by BigCorp, which then fails to manage them correctly, so the product effectively disappears.

Comment author: passive_fist 02 March 2015 09:44:43PM 5 points [-]

Buying out is often done for this exact purpose.

Comment author: Vaniver 02 March 2015 10:39:50PM *  4 points [-]

I immediately thought of the last footnote (and accompanying text) of Growth.

But acquirers have an additional reason to want startups. A rapidly growing company is not merely valuable, but dangerous. If it keeps expanding, it might expand into the acquirer's own territory. Most product acquisitions have some component of fear. Even if an acquirer isn't threatened by the startup itself, they might be alarmed at the thought of what a competitor could do with it. And because startups are in this sense doubly valuable to acquirers, acquirers will often pay more than an ordinary investor would. [14]

[14] I once explained this to some founders who had recently arrived from Russia. They found it novel that if you threatened a company they'd pay a premium for you. "In Russia they just kill you," they said, and they were only partly joking.

Comment author: passive_fist 03 March 2015 12:01:51AM 4 points [-]

Yes that's indeed a big part of it, and there are other issues to consider as well:

  • smallCo's product may be directly competing against a product that BigCorp has invested a lot of money in; pursuing smallCo's product seriously could imply abandoning that large investment.

  • By taking over the product and having it fail, BigCorp can try to make it look as if the product was destined to fail all along, justifying to investors why it wasn't the first to produce that product.

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