Part of the Silicon Valley mythology is the image of the dedicated founder leading a company to a huge IPO success. In reality, startups are 16 times more likely to get acquired. It’s a path that isn’t talked about enough in the tech world.
“It’s one of these things that a lot of people don’t really talk about. In Silicon Valley, we always talk about IPOs,” said Naveen Rao, VP of AI at Databricks and two-time founder, at TechCrunch Disrupt 2024. The lack of discussion around acquisitions can make the process even more challenging for founders.
“Acquisitions statistically are more likely than IPOs — arguably more successful in many scenarios than IPOs — and certainly something that founders have to kind of mentally and physically prepare for. It’s an endurance journey,” said Kamakshi Sivaramakrishnan, head of data clean rooms at Snowflake and a two-time founder.
Both Rao and Sivaramakrishnan built and sold two companies each. They can attest that selling the company wasn’t their original plan, but when the right opportunity arrived, it made sense.
“I personally believe that you should build a company and try to make that into a real entity,” Rao said. “If something comes along the way, great. If you try to set yourself up to sell the company, it’ll always be bent that way, like you’re always for sale. And I think the outcome will never be as good.” Dharmesh Thakker, general partner at Battery Ventures, shared that most investors aim for big hits that can make 100x returns to fund their portfolio.
To determine whether to keep going or sell, Thakker looks at three key points of analysis. First, he considers the product’s market fit. If customers aren’t using the product, it could be time to pivot or sell. Second, he evaluates the company’s sales performance. If sales are struggling, that could be a sign to consider an acquisition. Lastly, Thakker checks the balance sheet. If funds are running low, it might be time to look for a buyer.
Thakker advises founders to negotiate equitable deals that benefit not just themselves and investors but also their employees. A fair retention package for employees can lead to future success stories, as many former employees may return to start new ventures that are funded by the founders.
