Creating an impactful company and following up with a correct market fit is all you need to get right for a monetization event. These events are usually called exits and there are many ways we can look at exits ranging from an opportunistic exit to going public.
Few of the exits in the Indian Market which we can view under different categories:
Exit at the right time and merge with the competitors
Zomato acquired Uber Eats for a deal value of $350m in Jan’20 and considering the kind of cash burn Uber was going through to compete with Zomato and Swiggy, it made sense for Uber to sell the business and acquire a stake in Zomato. Through this deal, Uber was able to get a good value for the company with the upside potential of a stake in Zomato, which was scheduled to go for an IPO in 24 months of time.
The acquisition of Jabong by Myntra would fall into this category. Jabong was not able to sustain the market share and its cash burn was very high. Instead of letting the value of Jabong completely eradicate, it made sense to sell for the value left. Myntra bought Jabong for $70m in Jul’16 and the brand Jabong was subsequently killed.
Another deal in the same category would be Paytm’s acquisition of Nearbuy and Little in 2017 for just $30mn even when the companies had received combined funding of $80mn from various sources. At the time of the merger, the companies were in distress – Nearbuy was almost running out of cash with less than $133K in reserve while Little had around $17 million in the bank. Paytm facilitated a share exchange agreement between shareholders of Little and Nearbuy following which Nearbuy became a wholly-owned subsidiary of Little Internet. These two acquisitions were considered as proof for Paytm to be going deep into the Online to Offline business model, backed by their mobile wallet.
Financially Motivated Acquisition / Exit
The acquisition of WhiteHat Jr by Byju’s could be considered as an opportunistic or financially motivated exit as the offer of $300m cash was good and it would have been difficult for WhiteHat Jr to maintain the run-rate at the time of acquisition without raising a significant amount of funds.
Tech Motivated Acquisition / Exit
In a tech-motivated acquisition, deals can be beneficial in two ways: where the founder not only receives good cash out of the deal but is also able to retain the talent and find a good home for the team. Ola, while acquiring GeoSpoc, was more focused on the tech team and the tech which the team built. However, since the company was not burning cash and was growing at a good pace, GeoSpoc’s founder was able to fetch a good value for the company, even though it was an acquihire.
There have been a few acquihires where the product/company was not able to fetch a good value, however, the team was retained, and the founder got a good position in the acquiring company. This led to a win-win proposition for both acquirers and target companies.
All the acquisitions in the market have a story to tell and when we get into the details of the deal structure, valuation, and founders’ role post the deal, we will be able to understand the real story.