Why the MnA Market for tech. Startups in India is a joke.

An Open Letter to CEO’s, Tech, MnA Execs of Incumbents, Entrepreneurs.

This letter is greatly inspired by Dalton Caldwell’s open letter to Mark Zuckerberg and is aimed at making a corrective impression with those who drive the M&A in technology companies across India. This is an opinion letter written by me based on my experiences of over 6 years as an entrepreneur in the Technology and Internet space in India. I have only the entrepreneurs perspective to offer. But I do believe my experience and views will matter to you, especially if you are in any way connected to or affected by MnA’s of startups. This was not my first conversation around acquisition, I’ve had several in my journey. The funny thing is this story repeats itself every time. In fact, several entrepreneurs who read this post relate to it with their own stories which follow this pattern. Enough that we might even call it a broad trend.

The backdrop.

A couple of months ago I was invited to meet with different executives of a potential acquirer with the purpose of acquisition of a technology that I’ve created. What we were selling was strategically ‘aligned’, could potentially expand the acquirers business, get  them to-market significantly ahead of time, and in turn solve a valuable business problem for both.

Before meeting with you (the acquirer), I made not-so-subtle inquiries about the seriousness of the proposal throughout the chain of command. I did this as I was mindful of past proposals which ranged from the truly laughable to the seriously nuts. I’ve learned the hard way that execs in India tend to grossly underestimate the cost that goes into creating technologies such as the one I was selling.

At the time, I was assured that you were reviewing this carefully and wanted to work this out. Right after, I moved forward to arrange a demonstration for your team and shared insights into what the technology could potentially achieve. To help, I ferreted out ex-colleagues who knew what we’d built, got them on-board to consult with and build substance into my proposal.

More time passed by. Your team came back to ask me if I could provide a related technology extension. Yes, we did have that extension as well. I once again setup the demo and this time I walked your team through the details of how it worked. As I write this I realize that I took the last step with faith in due process. Initially, I did wisely ask for a meeting with your key decision maker to discuss commercials in an attempt to push to understand if this was a serious proposal. As he wasn’t in the country, I missed out on that and decided to go ahead with the demo anyway.

After three months of conversations, I had a concluding conversation with your executives from the technology-side that went something like this – I paraphrase.

Me: I wanted to check in as I had not heard from you on what was holding things up.

Them: We’re leaning towards building this ourselves as it will be difficult to adapt your technology. We’re using a framework called foo and you are using bar. They’re not the same. We’ll need to understand and rewrite code, which I think will take longer so we’d rather build it ourselves.

At this point, I was on the defensive and I chose not to follow through. In hindsight, this was a strangely obvious conclusion on your part. So you’ve decided that it is easier to build everything from scratch. We’ve shown you this stuff, your team even took screenshots with the demo in action. Even if the practical value of the code to you is near zero, the best part is that the know-how is independent of the technology you’ve chosen.

This no longer sounds serious to me. I have a feeling that even if I came back to you with a rolled up printout of every line of code we wrote to beat your doors down with – I wouldn’t see success.

My motivations for writing this.

Obviously I have vested interests in what I build. I wanted to see this through. I respect that priorities change, therefore people, business and decisions change. But this post isn’t about eyeballs, getting acquired, or about sour grapes. It is about something I feel is much bigger than that.

I believe our attitude to M&A is what’s holding innovation at ransom.
As a first-time entrepreneur about to start out, I received these cautionary words from someone I look up to as a mentor. He was writing to explain why he’s holding back on Angel Investing in India.

“I do not know the M&A market in India. A robust M&A market is essential for fair valuation of start-ups. I read somewhere that M&A activity is picking up in India. But, I do not have adequate knowledge and/or contacts.”

This was one of the key reasons he cited, the others being that he did not know the market and the players as well as he would like. This coming from someone who has achieved significant success for himself with the company that commercialized the first web browser and who hasn’t forgotten his roots in India. In fact, I’d like to add that I don’t know *of* a robust M&A market in India where technologies, products were acquired rather than simply men or materials.

Over the past 6 years, I’ve heard these same words from at least another dozen angel investors from the west coast. This includes some of the smartest, most accomplished people I’ve met, NRI’s from Intel’s, Google’s, Salesforce’s, Valley-based entrepreneurs and more. To reflect on this advice, I’ve interviewed several entrepreneurs who have had similar acquisition conversations with folks across India’s medium and smaller technology players, including MNC’s. They’ve all been seriously interested in acquiring some of the more comprehensive and complete technologies built. Always, entrepreneurs come back baffled. We can understand when something isn’t a strategic priority for you. We don’t understand when you reject acquiring a technology that is strategically aligned, but hasn’t been invented in-house.

Are you even serious about participating in Startup and Innovation eco-system?

The word on the street is all about how the Infosys’s and Wipro’s of India are all about getting into Products these days. They’re finding it difficult to nurture in-house product visionaries and risk-takers. I understand that. This also why I believe that the independent startup eco-system is precious and needs your attention. The reality is, startups fail for a myriad of reasons, only some of which we understand well. However, the teams, technologies they create need not end there. Acquisitions, repositioning and redeployment of products are necessary lubricants that keep the system churning and ultimately drive long-term growth. I’ve experienced this first-hand working with west coast startups that die and are brought back to life in a more strategically valuable form. If you can’t justify upfront costs, there are simpler ways to work a deal around them.

The key is to empathize, to find a way to extend the knowledge encoded in the people, technology and not just replicate it. Call me an idealist, but I believe that economies of scale start with investments in people’s ability to produce. By validating a startup through acquisition, you’re also subtly encouraging more startups to sprout and explore the sharp edge of innovation.

If you are sponsoring hackathons, that is also where we’ll see more ideas being explored and built. But with these past experiences, I’d hesitate to refer another entrepreneur to you for a conversation about acquisition which might be the last link for her in the chain of completion. I don’t know what else I can do to change this other than to write an honest post asking you to internally review your collective attitudes towards acquisition of teams, startups and technologies. The way I see it, we can either do something about it or we could also choose to ignore the evolution of the west and simply wait for the China’s, Chile’s and Singapore’s of the world to close the gap and start running circles around us.

Here’s to changing our collective destinies together.

Santosh Dawara.