So there’s a strategy exercise I like to go through with startups I’ve invested in that are past $20m-$30m ARR or so:

Who would you buy with 10% of your market cap?

I.e., who would you give 10% of your company away to buy?  It turns out this is an important threshold.  The SEC generally defines this as “material”.  It’s also enough of your company that everyone will suffer a lot of dilution, and enough that you can’t do more than a handful of these deals ever.  Versus later, when you are bigger, you can do a ton of tiny acquisitions.  If you are worth $10 Billion and buy a small startup for, say $50m, really, you’ll never notice the dilution or, in some cases, even the cash spent.

But I like this exercise because it focuses founders that are starting to achieve scale on maybe just one out-of-the-box idea for combining with someone to do something even bigger and better.

And now is a good time to think about this.  Times are tougher, and egos are muted.  Now might be a good time to buy one of your top partners, a smaller but scrappier competition, or someone that’s built that key part of your vision that you yourself haven’t been able to build.

Mark Zuckerberg did this twice.  He paid 10% of Facebook’s stock for WhatsApp, and 10% for Instagram.  He knew.  He knew those deals, while big ones, would add far more than 10% value to Facebook.  Imagine, indeed, where Facebook would be today without either of them.

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