M&A, IPOs & Exits

What If There Are No Natural Acquirers (For Your Company)?


Jason Lemkin

Screen Shot 2013-06-05 at 2.58.16 PMI recently had coffee with a very successful VC and we chatted about our views of what’s happening in SaaS.  The things we are both interested in are very similar, our thoughts on risks and markets were well aligned.  At the end, he noted how the key final thing he looks for in SaaS start-ups is potential acquirers.  Would Salesforce buy this company?  Would Google?

I totally get it.  Indeed, I’ve lived it and practiced it.  Of the 4 start-ups I’ve been a part of, 2 as a co-founder and 2 as an executive — 3 out of 4 were acquired by a Logical Acquirer than was predicted at Day Zero or close enough.  The fourth had an IPO, eventually.

But lately, as I’ve had a chance to meet more and more up-and-coming SaaS entrepreneurs, I’ve started to reconsider.   If you’ve built a $1m+ ARR business in 12 months, a $3-$4m ARR business in 24 months … is that enough?  Does Salesforce really have to be interested in buying you, at least in theory, at least on paper, for it to be worth it?

It’s an interesting time to revisit the question, as Salesforce has made its first multi-billion SaaS acquisition (of ExactTarget).

Because as the number of SaaS companies continues to grow and explode, and as SaaS changes and penetrates more and more market segments … it seems like there are more and more exciting SaaS companies without a natural acquirer.  At least that I can see, or believe.

And if it’s IPO-or-bust … for many entrepreneurs at least, that’s pretty intimidating.

So I guess the key higher-level questions are two:

  • If I’m thinking of starting a SaaS company that I really believe in, in a good market — but I see no logical acquirers — should I still do it?  IPO again seems so far when you are at $0, especially if you don’t even have a Beta yet.
  • If I’m running a SaaS company that’s post-Traction, and it’s getting tough and I can’t see an IPO — should I just quit if there are no logical acquirers?  Or maybe, check out a little?

Personally, my answer to the first question when I was co-founding both my companies was No – I Wouldn’t Do It without a Logical Acquirer or Three.  My answer to the second question was … I Just Don’t Know … I don’t know what I’d do if it turned out there were truly No Logical Acquirers once I was into it and didn’t feel an IPO was in the cards.  I do know I would have felt boxed in.

Today, I have at least the privilege of a certain amount of objectivity.  And I see so many SaaS markets just exploding.

So Today.  Today, I think I would go for it even without any Natural Acquirers.  Why?  I believe there are enough great opportunities to just kill it in SaaS, get to seven figures and then eight figures in ARR.  The markets and market pull are bigger.  And once you get to $10-$20m in ARR … it’s just really fun.  Having Scale.  It’s worth it, if you have a great team.  I didn’t really know this before, in SaaS at least.

And also, as long as you are in Tech … priorities can change.  At EchoSign, we had a number of potential M&A conversations over time.  All but one were with Logical Acquirers.  But there was one I would never have predicted on Day 1, or even Day 365.  It came about over time, as the markets changed, and as the markets grew.  And as we grew.

I think today in SaaS, if you have a great market and market pull … it will work out.  I wouldn’t worry — as much — about Lack of Natural Acquirers.  It wouldn’t stop me.  Not anymore.

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Published on June 6, 2013


  1. There is a shortage of quality SaaS companies out there. The VC’s neglected them for a period of time and created a gap in the supply chain. At the same time, the world has decided SaaS is the future. That ensures that there will be a logical acquirer for almost any SaaS company in the form of the aggregators who wait at the top of the food chain.

    Oracle, Computer Associates, SAP, and a bunch of Private Equity firms are waiting there patiently, catcher’s mits on. They own machines that can convert an acquired company into shareholder value. They are diversified enough that the acquisitions don’t have to be strategic. Their currency is valuable enough that it can get the job done reliably.

    Over time, there will be more of these. Salesforce would like to be the pure-SaaS play. It has a few more years to go before it can afford to dabble too far afield, but as it cements its marketing and customer service segments into viable billion dollar businesses, it will be able to do so.

    Despite that, the VC-created shortage will ensure that valuations rise. This dynamic will drive decent valuations, though not as decent as a true strategic acquisition or IPO. But that’s fine. This scenario is just the downside buffer if you have a good business that isn’t going to get to escape velocity.

    We will reach a point where CEOs with money in their pockets want to buy more SaaS revenue dollars than are for sale, and we will get there in the next 5 years as things continue to heat up. So quit worrying about it. Build your business. SaaS revenue dollars are worth a premium in today’s market and for the foreseeable future.



  2. Good points & agreed. There will only be more opportunities in the next 5+- years for great SaaS companies, not less. That’s why I think it’s OK if you can’t see the Logical Acquirers today.

  3. Interesting perspective What years were the VC drought in SAAS-funding? It felt like in 2008-9 the startups got a lot more revenue-focused, did the funding not follow those companies?

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