The phenomenon of active companies buying startups is becoming increasingly common in today’s world. Unicorns are booming in the current market and not the magical sparkly kind. Unicorn is a coined term that refers to startup companies or businesses that are valued at $1B or more.
Unicorns can effectively be seen as companies with a high potential for success in busy and blooming market industries. These companies are identified early on and secure vast amounts of venture capital to gain traction in the business world. Industries like the technology industry comprise the technology, information technology, and even mobile technology sectors.
Finding a unicorn used to be rare but has been on the rise for several years, with companies such as Epic Games, Robinhood, and even SoFi. However, these days, more giant corporations are seeing the underappreciated value of investing and later on owning smaller companies that can later expand into territories that these larger companies did not previously cover.
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.
With the introduction of the technology-driven 21st-century, large companies had to make changes to maintain their control over their market shares. As a result, the workforce and working industries have undergone monumental changes regarding technology and how businesses now operate.
One could even say that productivity levels mirror how technology develops by introducing new forms of technology. As the field of technology rapidly grows thanks to innovative and hard-working individuals, companies have had to adjust and change their manner of operation to include these technological updates.
Due to the rapid increase of attention and demand in technology, many industry giants have begun to invest in smaller tech companies that operate within and outside their industry markets. Thus the age of venture funding and venture capital began, and alongside venture investing came more unicorn businesses.
Venture investing, better known as the financial term venture capital, is a private equity firm wherein investors provide capital and funding to startup companies that they have identified as having possible long-term growth and long-term potential. The term venture capital or venture investing means that more giant corporations look into smaller and developing companies or businesses that have been performing well or have the potential to perform well for extended periods in the future and then invest or purchase these companies.
Keep in mind that in fundraising or acquisitions, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
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What often occurs is that larger companies buying startups invest in the smaller companies for a range of reasonings, including but not limited to:
- Gauging the actual performance of the smaller company in its industry
- Exploring an industry or market that the larger company is unfamiliar with
- Determining whether the smaller company would be an excellent investment to own for the larger company
- Spotting potential in a smaller unnoticed company
- Acquiring key metrics
- Beating the competition to critical assets
- More efficient growth
When it comes to investing, the larger companies have to decide whether or not they are going to fund the smaller companies to become a majority stakeholder at a later stage or if it would be a better decision to take the plunge and outright buy the company from the owners.
Many giant corporations decide to invest in a company for a relatively short period before buying the business. This is because big corporations want to determine the smaller business’s capacity for growth.
An excellent example of this would be when Kylie Jenner sold 51% of her company Kylie Cosmetics to the industry giant Coty. Although Coty is one of the world’s leading companies in the industries of both makeup and fragrances, this company spotted the value of Kylie Cosmetics. It then proceeded to become the company’s majority shareholder through venture investing.
See How I Can Help You With Your Fundraising Efforts
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If You Can’t Beat Them, Own Them
One of the main reasons larger corporations purchase small corporations in the same niche is to maintain their control over the market. Instead of fighting new competitors or determining whether new entrants to market industries will be a threat, the more giant corporations purchase the smaller corporations.
Companies buying startups and smaller corporations allow the giant corporation, or parent company, to expand and diversify the products and services by testing them on customers using the smaller companies.
This way, the parent company determines a strategic plan to expand its services without taking as much risk. The smaller company risks failure, while the parent company decides how to proceed based on the experimentation results.
Industry giants such as Google, Amazon, and Meta (previously known as Facebook) identify threats with potential and buy these companies, allowing them to maintain their control over the tech industry. These companies and other industry giants want to ensure that their businesses remain the leaders of their respective industries. They do this by purchasing and developing companies that have immense potential.
Instead of fighting their competitors, industry giants invest and purchase their competing companies, ensuring that the industry giants stay relevant by purchasing groundbreaking companies that operate in various new ways.
The proof is in the pudding, or in this case, the 10 most active companies that have been purchasing startup companies. Many smaller companies do not see the business’s true potential, and when it comes to tech startups, the big five. Industry giants are always on the look for new and exciting companies to buy.
Who or What are the Big Five?
The big five are tech industry giants well known for purchasing and investing in smaller companies. The big five are:
Microsoft is a huge tech industry giant well known for producing products and services such as Microsoft Teams, Microsoft Word, Microsoft Excel, and the list goes on quite extensively. This tech industry giant built its empire by continuously improving upon the excellent products and services, silently working to obtain new companies through mergers such as the one with LinkedIn. Microsoft worked hard to provide a service with a track record that is almost top tier and allows the company to carve a niche in the tech industry.
Microsoft is a company that recently obtained the company RiskIQ and Linkedin to pair together different services in a unique way. The creation and merging of reliable new features are why this silent giant is up to par with companies such as Google. Microsoft has purchased some of the following smaller companies:
- ZeniMax Media
- Affirmed Networks
Google is perhaps the kingpin of all tech companies buying startups, having created the world’s largest technology company specializing in internet-related services and products by making a search engine, cloud computing services, and other technologies and services.
Google practically invented a space wherein new technology and information can be accessed at the tips of your fingers. This company created a market where tech companies can thrive and become even more innovative as productivity slowly becomes technologically driven. Among the new companies that Google has acquired are:
- Motorola Mobility
- Nest Labs
- Double Click
Amazon has continued elevating its dominance and outstanding delivery service to the next level. Amazon recently acquired the majority shares of the Whole Foods Market, meaning that the delivery company has just expanded its services into a whole new industry.
It was already cornering the service and product delivery market by creating a platform for different companies to advertise their products and deliver them through Amazon. In addition, Amazon has increased its potential to delve into other markets and expand its services by venturing into food delivery.
Amazon is one of the top companies buying startups and here are some of the brands it has purchased recently:
- Whole Foods Market
Meta, previously known as Facebook, is well known as being a social media giant by creating platforms such as Facebook (now Meta) and purchasing the social media platforms of Instagram and Whatsapp.
Meta has delved into newer technological advancements with the purchase of the Oculus VR company. Some of the companies that Meta has purchased are:
- Oculus VR
Apple has become a leader in innovation and technology by embracing new trends and working hard to stay relevant. Most recently, this company, well known for creating technological devices that have somewhat stood the test of time, has begun to invest in companies that can provide excellent and diverse services in conjunction with their phones.
Apple recently acquired Beats Electronics and an Intel-Smartphone Modem Business and has diversified the products and the services they offer to the public.
The basis of any successful acquisition is knowing how to value a company. If you would like more information about how potential acquirers evaluate the worth of a company before bidding to purchase it, check out this video I have created.
Many other industry giants have purchased smaller companies to expand their services. Some of these companies include:
Not many people know this, but Unilever is a company that expanded its services to purchase smaller companies and brands. Through the investment, support, and development over time, the following companies have thrived under the parent company Unilever:
- Ben and Jerry’s
Coca-Cola has been smart about diverging into different segments of the food market by creating a fizzy drink known worldwide and investing and purchasing the majority shares of the smaller company Honest Tea. Coca-Cola thus made a way to branch out and produce different types of drinks for the general public.
Walmart recently acquired ownership of one of its biggest competitors, Jet.com. As a result, when searching for Jet.com, customers are now redirected to the website of Walmart. This was an innovative and strategic business move by Walmart as it has joined forces to become a more significant threat to other competing businesses.
Cisco is a tech giant and is well known for creating its computer hardware and software in networking products. They have bought a majority stake in the company AppDynamics. AppDynamics is the company that developed the “world’s first business-first öbservability platform.” Cisco expanded its networking infrastructure by investing in a company that prides itself on creating a program that critically observes business productivity and customer service patterns to determine how to improve your company.
PayPal is an industry leader in both the finance and tech industry. In addition, this company has just engaged in venture capital by acquiring Honey. So now, in addition to the stable online financial platform, PayPal users have the opportunity to browse and buy products from a merchant website linked directly to their accounts. Thus, PayPal has increased its services to include online shopping and being a stable financial network that operates online on a global scale.
Staying the Big Fish in the Pond
Essentially what the larger companies buying startups have done is to maintain their industry dominance. Instead of competing with new threats and entrants, the industry conglomerates have developed two successful strategies:
Creating and expanding their reach
Instead of competing, industry giants have found that joining forces with smaller companies through becoming the majority shareholders is far more rewarding than engaging in competitions with new threats. This has given large corporations the ability to expand their reach in new market industries and increase their market dominance,
By increasing their market dominance, these companies effectively ensure that any threats or competing companies they do not own have less market share than the large corporation does.
Investing in smaller companies with different and fresh outlooks gives giant corporations the chance to determine whether they are on a strategically sound path. Instead of having a more narrow perspective on products, services, and even advertising, the incorporation of smaller companies allows the parent company to see whether or not there are different ways in which the parent company could foster their strategic development.
As a tech startup, you should know that just because your company is new and still in its development phase does not mean that it does not have the growth and potential to become an industry giant in the future.
If anything, as a startup company, you have the advantage of trying out new ventures and pathways without taking on as much risk as the more giant corporations. Thus allowing you to thrive in areas and ways that are unheard of.
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