GUEST BLOGPOST: WHY MOST STARTUPS THAT GOT BOUGHT DON’T HAVE A VC FUNDING

From time to time we’ll publish a guest blogpost by the editors at Fueled. The first one is from Chrissy Giglio. Enjoy:

Why Most Startups that got Bought Don’t Have VC Funding: With new data from 2012, we’re able to see some interesting trends that are occurring in the world of startups. This past year there were 2,277 private technology companies acquired all around the world. From this overall number, we’re able to look into each broken down category and see what’s really going on.


According to the official report from CB Insights, out of the total number of companies acquired, 331 of them disclosed information about the finances of their deals. For 331 companies, the total price for all of them was $46.8 billion. The final total would be a great deal higher if more, or all, companies shared their financial information. Of that amount, there were only eight $1 billion dollar deals. The majority of the lot, 80 percent, of the deals were for less than $200 million. And to break it down further- 50 percent of transactions were for less than $50 million.

Beyond the price tags, one of the most interesting things to take a close look at is the fact that the majority of the companies acquired have never received any form of funding. To be exact, 76 percent of the 2,277 companies never received any form of of institutional investment before they were acquired. This number comes as a shock since many people are under the assumption that in order to succeed as a startup, you need to be backed by some financial mavens.

Generally there are many reasons behind one being interested in receiving some form of funding. An article from Forbes lists out the major reasons behind a company needing/wanting funding, as well as some thoughts as to why it is or isn’t necessary.

The fact that the majority of companies hadn’t received funding is a positive statistic that must bring hope to many entrepreneurs who are hoping to expand in the industry. If these companies are surviving and growing without any venture capital or public equity funding, it must mean that they’re doing something right on their own. The general factors that are allowing these tech startups to thrive are their profits in general and also that of angel financing (funds from family or friends).

It’s important to look deeper and see the most important factor. Startups without venture capital funding are starting to be taken just as seriously as any other startup. Having venture capital funding isn’t the only factor that pre determines if you will be successful or not. Originally it appeared that a company had potential especially if a major backer was willing to give money. Now, perhaps, it is even more impressive when a startup can succeed on their own.

It appears this may be a trend in the tech startup world as we see reported by VentureBeat. Incubator, 500 Startups, is now accepting applications to join their program. Every time prior, the new startups were chosen based off of recommendations from others- including venture firms. Now, every startup is allowed to apply and doesn’t need any recommendations from other sources to be considered “qualified”. Starting on January 31st and ending on March 1st, 500 Startups are asking those interested to apply via AngelList.

Exciting and optimistic changes are on the horizon for young entrepreneurs who are trying to break into the tech scene. Based off of how things are going, it seems like now is a good time to jump in…and hopefully not sink.

 

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Comments

  1. Wow, I find this very motivating to read! I was involved in a startup some years ago. Sadly that one went down in a legal battle around trademark policies of a mayor company … Since then I’v stayed away from product startups and focused on services. Reading this makes me think about startups again. Goog to read that there’s many others thinking that working without VC money is a good idea :-)

    Reply

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