Netscape founder and VC titan Marc Andreessen famously wrote back in 2011 that software is steadily eating the world, disrupting industries like music, retail and more. Now large corporations in these industries are starting to eat startups.
Over the past year or two, non-tech corporations have begun to actually open their wallets to arm themselves with talent and technology that can help them enter the digital and data-focused world we now live and work in. It’s no longer Google, Facebook and Yahoo that are competing to acquire the best and the brightest startups in Silicon Valley. There are plenty of corporations in retail, health, agriculture, financial services and other industries that are sending their corp-dev talent to scout out possible acquisitions in the Bay Area and beyond.
Their main motivation is realizing that software is eating the world.
Exitround, the website that
launched earlier this year and lets startups anonymously seek acquirers, has been seeing a strong uptick in non-tech, corporate acquirers joining the marketplace to find potential talent and startups.
“Their main motivation is realizing that software is eating the world, and they have to add software talent and technologies to their products,” explained Exitround founder
Jacob Mullins. On the marketplace, Mullins says that 10 percent of buyers are Fortune 500 companies and 20 percent of acquirers are publicly traded, with a good percentage of the group being non-tech companies.
For many non-tech companies, Exitround is providing a compelling service by which to find startups early. Mullins says that there are increasingly more and more corp-dev execs joining the marketplace to scout for talent. But traditionally the mechanism by which acquirers found acquirees was done either through word of mouth and networking or through investment banks. But Silicon Valley is seeing more and more executives from corporations and non-tech companies visit the region and VC firms to potentially network with startups. Many Sand Hill VC firms are now holding regular events with representatives from some of these non-tech acquirers in the areas of health, retail, financial services and more.
“Walmart was the earliest traditional non-tech company to figure this out,” says
Jon Sakoda,
NEA Partner and VC. Walmart famously bought Kosmix in 2011 and set up a Labs group in Silicon Valley, far away from the retailer’s Arkansas headquarters. The retailer has steadily acquired more companies and technologies in its fight to compete with Amazon, including
four startups this year alone.
Aileen Lee, founder of
Cowboy Ventures and Partner at Kleiner Perkins, believes that retail will continue to be an industry where you are seeing large companies eat software.
“A lot of physical retailers saw soft foot traffic in their stores in Q3 and they are more nervous about how e-commerce is eating into their sales,” she explains. Companies like TJ Maxx, Urban Outfitters and others can easily make a $100 million to $400 million acquisition in the current market, she adds. In fact, earlier this year, Urban Outfitters
reportedly did try to buy NastyGal, a fast-growing e-commerce site for young women.
“Lots of these retailers have no commerce strategy, but startups have the potential to expand consumer reach to a younger demographic,” says Lee.
David Blumenfeld, SVP of Westfield Labs, the innovation arm of shopping mall developer Westfield, tells us that the company is definitely evaluating potential acquisitions that they can bring into their Labs groups.
“While Westfield itself is not a tech company, we believe that there is not a delineation between online and offline shopping, and we have to be a part of that,” he says. “We believe tech is core to the future of how products are bought even in malls.”
He adds that with the company’s malls, they have the distribution (to potentially 1.1 billion people, he says), and they are actively looking for technologies they can integrate into their malls.
Hunter Walk, the co-founder of VC firm
Homebrew, explains that developing a deeper relationship with the customer online is a strategy that more corporations realize they need to be working on. Part of this is actually being able to connect with a potential customer where they are interacting and spending time. “Movie theaters have no idea what their customers are watching at home, and there is no personalization,” he says. He adds that he sees many of these acquisitions being under $200 million.
It shouldn’t be surprising that a mattress company may buy a sleep app.
In Under Armour’s case, the company didn’t have much of a direct relationship with the customer beyond purchase. And as a wholesaler, the clothing manufacturer needed a better way to engage with their customers. MapMyFitness is now going to be the foundation on which it plans to build a new digital training experience and mobile fitness platform.
The other benefit to buying platforms where there is engagement is the data collected, which can help potentially boost sales and personalize experiences. “It shouldn’t be surprising that a mattress company may buy a sleep app,” Lee says.
Sakoda agrees that data, and the technologies behind mining this data, are big tipping points for acquisitions from non-tech companies. “These companies have fallen so far behind when it comes to data collection and analysis and seeing how customers think and what pricing should be,” he adds. In the case of Monsanto buying Climate Corporation, the large agricultural giant was accessing massive weather data processing and collecting technology that could help in optimizing farming globally.
“Big companies are finally waking up to fact that they needed to embrace big data yesterday,” says
Zach Bogue, the founder of
Data Collective, a fund devoted to backing startups in the big data space. “Now every single large company has massive amounts of data, and figuring out how to use that is complex.” This is why many non-tech companies are sniffing around big data startups.
Data is a key area for content owners and publishers as well. Barin Nahvi, who works with emerging tech and new product development at Hearst Corp., says the company is looking to make more acquisitions in core technologies around data. “We’re thinking about how do we resemble a technology company more, and part of this is building platform and core capabilities,” she explains. “How to use data as a driver of content is something we are evaluating.”
Big companies are finally waking up to fact that they needed to embrace big data yesterday.
Nahvi says that video technologies and mobile are other key areas for a potential strategic acquisition for Hearst. E.W. Scripps, the storied owner of 19 local television stations and daily newspapers in 13 markets across the U.S., just
bought Newsy to give the media company access to an audience that consumes their news (and video) on devices like tablets.
Of course buying startups in Silicon Valley is just one part of the challenge for non-tech corporations. The next is actually being able to keep talent happy. The cultures of these companies are vastly different from Google, Facebook and the startup culture in Silicon Valley. The true test is being able to retain talent and ensure that they feel they are part of an innovative team.
Walk explains that these companies are not just buying technologies, but also talent, and they have to be mindful of how to manage and foster that talent. “Just adding small pieces of technology doesn’t commit an organization to a new path,” he says. Adding to that,
Halle Tecco, founder of health-focused seed fund
Rock Health, says that many challenges come from not being able to actually deploy the technologies successfully.
Just adding small pieces of technology doesn’t commit an organization to a new path.
Ethan Kaplan, the VP of product and technology for Live Nation Labs, explains that the labs group was created to house technical talent and acquisitions. He says that the labs group itself was structured to make it feel like less of a conglomerate and more of a startup. There isn’t a deep hierarchy, and Kaplan and others at the group have worked to make the engineers and other staff feel unencumbered, fast-paced and not beholden to a strict road map.
Mullins says that retaining talent is now at the top of mind for most non-tech acquirers. “Most of these companies want to make sure the transition is successful and are talking with potential acquirees early on where a startup will live and who will own the technology once it is placed in-house.”
At the end of the day, non-tech companies infiltrating Silicon Valley gives many startup founders additional exit options beyond a potential acq-hire from Google, Yahoo or Facebook. But the continued success of these acquisitions (and founder interest in being acquired by an outsider) will depend on how these companies pursue and view innovation and culture. And that’s easier said than done.
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