Ravi Narayan, Director Microsoft Ventures, spoke to Entrepreneur at Intech50 last week on M&A criteria’s for startups and promising domains of 2016.
Understanding corporate acquisitions
Acquisitions are driven by certain strategic alignment. There is a certain product group or certain direction that corporates look to go into and it’s based on that context corporates decide on which company to invest in. Sometimes it’s the customers that they have, or it’s the technology or maybe it’s just the team and the business model that the company brings in. So basically, it’s the technology, product and the team that are usually the drivers of an M&A discussion.
Like how Ola Cabs bought TaxiForSure, they basically eliminated competition and got a much larger chunk of the market share. Participating at these events gives corporates a sense of what is going to come in the near future and allows them to make informed decisions while acquiring.
Promising domains of the startup space
India produces very interesting startups that combines clouds and mobile technology extremely well. Companies that are targeting the enterprise companies (B2B companies) are the ones that capture more interest. These startup have a fair representation at Intech50 which is well attended by larger corporates and enterprises. Events like this serve as a platform for corporates and startups to engage and mutually benefit from each other in go to market strategies. As these corporates are already into enterprise it is easy for accelerators like us to provide that other B in the loop completing the circle. Its these discussions that enables both parties to learn more about each other leading to potential future M&A decisions. But this is very preliminary and is a great way to start filling the funnel and build upon it.
Checklist for Corporates before investing in a startup?
Corporates continue to directly invest in innovative startups. The criteria for acquisition varies depending on a company’s business objective. Sometimes corporates want to acquire startups that help them get a better understanding of certain markets such as technology, data analytics and in some cases elimination of competition. This could also be a step towards expanding into other geographically lucrative markets like China. For example, in the realm of bots, augmented reality and virtual reality there are a whole lot of things going on. Corporates have made some bets there. So startups who have the best chance of filling out the portfolio are the ones that are watched closely by corporates.
Advice entrepreneurs in 2016
I think entrepreneurs should just build companies on sound business principals. If the principals stands to scrutiny then I don’t think they should worry about the changing funding patterns. Good companies will get funded whatever the situation is.