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.
