After reading this article and a few related ones, I began to think of startups in a new different light: the light of independence! Why do we assume it is always great to be acquired while there is a potential for growth and maturity without the acquisition? Google is a great example here.

I wrote a post which I think you’d all find intriguing since it encourages the opposite of acquisition for many stated and proved reasons and given examples.

I’d be very interested to hear your opinions concerning my arguments.

Regards..

http://whatmatt...novation-nation

Some other supporting evidence can be found in this recent NYT article:

http://www.nyti...tion&st=cse

A co-founder and I recently sold our company. As we begin another startup, we’re looking for 2 or 3 people to round out the group, people who have worked together and founded modestly successful startups in the past. Being from the Kitchener-Waterloo area in Ontario, kinda in the middle of nowhere, we considered whether a move to Silicon Valley was necessary. Now we are open to other opportunities.

Btw, Tony Wright should get kudos for initiating the data compilation. Check out his blog at tonywright.com. And thanks to Crunchbase for making the data available.

It would be interesting to see a second chart showing their geographical distribution.

There are a huge number of factors involved in the sale of a business. M&A is notorious for something that is not driven by perfect information but many other factors too.

The first criteria for selling your business is someone actually knowing about it, meeting you in person and liking the company and the team. All of these are easier to do in the valley. Events, parties and networking mean that over time you start to know (and be known by) many more people than you would if you were remote.

The number two factor is literally completing the sale process. Like any sale process there are a number of things that can knock it off course or interfere with it. Physical proximity, in-person meetings and being in the same time zone are factors that are extremely important to keeping a deal on track.

A factor which I did not anticipate but which turned out to be very important is also that the legal resources in the valley are trained and tuned to deal with the nuances of tech acquisitions. We started talks with a company whose lawyers were from a non-tech state and things were excruciatingly painful and expensive.

Valley lawyers know how to do these acquisitions, what to worry about and what not to. In addition they often have working relationships with the other side’s lawyers so everything simply goes smoother.

“Deals fall through” is the number one mantra in YC re: acquisition. Since it’s easier to execute when you’re nearby and have lawyers who know what they’re doing it does not seem surprising that Silicon Valley has higher success rates.

Also when the purchase amount isn’t disclosed sometimes the acquisitions aren’t a ’success’ either…

What a ridiculous attitude. I could be equally as ludicrous and say, “If you must bask out in the sun all day and don’t care about staying inside to get work done, move to California.” After all, if all Seattleites are lazy ski bunnies, all Californians must be dumb surfer dudes, right?

Lots of companies are CA start-ups due to funding sources. Those funding sources come with connections, and it is those connections which often guide an acquisition.

Therefore, a start-up can be based anywhere, but if they have the right connections (and of course a great product/business) they have a higher likelihood of being acquired.

Of course, on the surface, these statistics can be read as ’start-up in the valley if you want to be acquired’ when in reality working and making the right connections will get you much further.

I think a lot of these exit-haters (”why is selling the goal? What about a business model, profit, yadda, yadda”) are thinking that the no-profit 1-2 year flips are the norm. I’d wager that they aren’t and that MOST companies that sell have a nice revenue/profit. growth curve.

Anyhoo, just an idea. I’m really psyched that you guys are taking the data farther than I could with my posts and Jim’s first pass on CrunchBase analysis. Cheers!

“A startup based in Silicon Valley has a 6.9% chance of being acquired. New York startups come in second with a 4.9% acquisition rate.”

How about taking another look at the data? WA is FIRST, at 8.2% acquisition rate. THEN CA at 6.9, and then NJ at 6.6%.

Where did you get the idea that Silicon Valley was in first place, and that New York was in second, when the chart clearly shows completely different data?

It is the primary goal of just about any startup that takes investment (angel or VC) to get acquired, because that’s the only way the investors can get their money back (or, ideally, make a profit).

Mean length of time before investors see an exit is 8ish years– these are generally businesses that have long since found their business model. These 1-2 year no-biz-model flips that you read about are actually the exception, not the rule.

Yes the Redfin essay quoted another CEO about the fishing and skiing, even as I registered it as “something I still barely understand.” But it also discussed Silicon Valley’s work ethic — its youth cult, its obsession with the new — as what I felt I had lost when I came here. On the bright side, I still believe that being in Seattle gives me the space to think a little differently, but maybe that’s just how it has affected me.

What I don’t get about your point of view now is why acquisition is judged as an unalloyed, inarguable good. What really set Silicon Valley apart when I was there was the size of people’s ambitions: instead of getting bought by Google, entrepreneurs wanted to start the next Google. Hopefully that’s still true.

Could you write a post about where to start a tech company that is most likely to make its own money and go public? I bet that would be in Silicon Valley too:
http://blog.red...50_at_home.html

I like that you ask these these broad questions occasionally but all you’ve done is asked the question here. Where are the conclusions from your preliminary analysis?

Maybe save yourself some work? Here are some of the conclusions you’ll have once your number crunchers re-cut the data:

- It was clear even without the data that Silicon Valley would see a majority of the startup M&A activity because of reasons cited below and possibly others
- It begins with where VCs are located, and they began locating in Silicon Valley because CA is a dominant economy, there is a top talent pool coming out of Stanford, the weather is usually nice, etc
- All things being equal VCs would prefer to have their portfolio companies local which is why much of their investment is focused in Silicon Valley
- VCs build portfolios that have inherent M&A potential and talk to each other about M&A exits all the time therefore there is increased likelihood that more M&A will occur where there are more VCs
- Because VCs were there years ago funding companies that are now big, (Yahoo!, Google, Oracle, etc.) even more M&A exit opportunities exist (and doing local M&A is, again, easier)
- Success breeds success – entrepreneurs and investors tend to knock on the same doors that have had success in the past
- It doesn’t really matter whether Silicon Valley is #1 or #2 in M&A and we regret potentially alienating readers for sounding like we care so much here at TC
- If we were still in the days of the horse and carriage we would strongly suggest moving your family to Silicon Valley to increase your chances of success, but with the invention the airplane a VC and management talent can go pretty much anywhere

It’s easier if you live there to make contacts, but not impossible.

I think you may have stumbled upon the new TC spinoff “BusinessCrunch”. It could feature startups that become sustainable businesses by focusing on profits and…no, I don’t think anyone wants to hear about that.

If your primary motivation for creating a start-up is to get acquired you’re (probably) not creating i just for the passion of doing it. This TechCrunch post is about acquisition percentages by geography.

Richard Florida recently reported that Paul Graham argues that “If startups end up being like the movie business, with just a handful of centers and one dominant one, that’s going to have novel consequences.”

So it might be good for everyone if the next big thing wasn’t started in Silicon Valley.