Startups are saying “sayonara” to strategic acquires as the IPO market heats up. At least that’s the finding from a recent study by Dow Jones VentureSource, which shows that as IPOs increased, corporate acquisitions of venture-backed startups fell. The number of startups sold to big buyers during the second quarter fell 13% compared to the same quarter last year, according to the report.
Blame the recent spate of IPOs. Although the number of IPOs was down during the second quarter—14 as compared with last year’s 15—the excitement and size of each offering is unparalleled. Just the amount raised at IPO has doubled year over year to $1.7 billion during the second quarter.
What’s more, there’s another 45 startups in registration, ready to pull the trigger at any moment.
That’s given many startups a good reason to rebuff would-be buyers. Groupon’s decision to turn down a $6 billion offer from Google is looking pretty shrewd now that the company is eyeing a $30 billion valuation when it goes public.
And the high-tide of big IPOs is lifting all the small boats in Silicon Valley. Zynga, for example, has become an active acquirer of smaller companies in the casual gaming sector.
Of course the flip side of this is that strategic acquirers are thinking twice about what they see as an over-inflated market. Valuations are a big issue. There’s a sinking suspicion that the market capitalization of recent Internet IPOs is supported by happy dreams and fairy dust instead of fundamentals.
Consider LinkedIn’s offering. There was the euphoric enthusiasm running up to the offering, pushing the bankers to up its offering range. Then, a first day pop that forced comparisons to the Dotcom days. Then came the downers, skeptics and industry pundits anxious to pop the perceived irrationality. They drove the stock down through mid-June. And as the media-attention flew elsewhere, LinkedIn stock began to rise again to its first-day high. Where would you start the bidding on a buyout offer with that rollercoaster?
What’s more, some of the Valley’s biggest buyers have temporarily folded their acquisition activity. Cisco announced earlier this year that it was going to substantially slow its buying pace to focus on its core business.
Alexander Haislip is the author of Essentials of Venture Capital