Paul Graham on a New Attitude for Startup Acquisitions

Paul Graham

I always feel guilty quoting others because I want to be my own thinker. That said…

[Something] I see starting to get standardized is acquisitions. As the volume of startups increases, big companies will start to develop standardized procedures that make acquisitions little more work than hiring someone.

Google is the leader here, as in so many areas of technology…One problem they’ve solved is how to think about acquisitions. For most companies, acquisitions still carry some stigma of inadequacy. Companies do them because they have to, but there’s usually some feeling they shouldn’t have to—that their own programmers should be able to build everything they need. Google’s example should cure the rest of the world of this idea.

One reason Google doesn’t have a problem with acquisitions is that they know first-hand the quality of the people they can get that way. Larry and Sergey only started Google after making the rounds of the search engines trying to sell their idea and finding no takers. They’ve been the guys coming in to visit the big company, so they know who might be sitting across that conference table from them.

Acquirers will also have to get better at picking winners. They generally do better than investors, because they pick later, when there’s more performance to measure. But even at the most advanced acquirers, identifying companies to buy is extremely ad hoc, and completing the acquisition often involves a great deal of unneccessary friction.

I think acquirers may eventually have chief acquisition officers who will both identify good acquisitions and make the deals happen….Maybe in the future big companies will have both a VP of Engineering responsible for technology developed in-house, and a CAO responsible for bringing technology in from outside.

At the moment, there is no one within big companies who gets in trouble when they buy a startup for $200 million that they could have bought earlier for $20 million. There should start to be someone who gets in trouble for that. – Paul Graham at Future of Web Apps Conference

Update: Here is the link to the audio file

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