March 11, 2016

Outlook for Silicon Valley startups uncertain

Will Silicon Valley startups reach their desired M&A goals?

Eat or be eaten. This has not been the Darwinian methodology companies in Silicon Valley emulate, particularly in terms of mergers and acquisitions. Through successful M&A deals, giant organizations such as Google and Facebook have become worldwide leaders in their respective fields and broadened their market reach.

Meanwhile, other former industry revolutionaries, such as Yahoo, struggle to stay afloat amid massive layoffs, market competition and poor M&A deals. To benefit from a successful M&A deal, companies must be proactive about pursuing agreements with the best possible outcome for the future of their business. Far too many companies have gone bankrupt or lost substantial revenue streams through bad M&A deals, whether because of misinformed management decisions or market changes.

For many startups, however, M&As are their only hope to thrive in an increasingly difficult time in their industry.

What is the M&A outlook for Silicon Valley startups?
According to the Silicon Valley Bank's 2016 Startup Outlook Report, of the 900 organizations surveyed, an optimistic 82 percent are confident that the momentum from M&As last year will continue throughout 2016. Despite this confidence, initial public offerings in January were at their lowest since September 2011, Sara Ashley O'Brien at CNN Money reported, though Silicon Valley Bank did issue the survey in December 2015 before this anomaly.

This annual report quizzes startups about the economic outlook and other policy or hiring issues their companies face. Shockingly, only 64 percent of all respondents stated they were confident that their company will become more successful in 2016 than they were in 2015. Robert Galbraith at Reuters reported that the optimism index was at 82 percent in 2013 and has not dipped below 70 percent since 2009.

Silicon Valley Bank's CEO and President Greg Becker explained that the industry is going through a transformation rather than a bust. Companies are using this time to invest in new technologies and business models to better prepare themselves for the future. A future for startups that includes M&As.

The report found that 56 percent of these surveyed startups are aiming for an eventual acquisition in their long-term strategy. Though, these startups hope to be bought, not sold. "[Entrepreneurs] are anticipating a more balanced funding environment," Becker explained. "They are considering M&A an even more viable exit strategy."

Essentially, many startups are hoping to expand their services, technology or market reach exponentially within the following few years in order to make an M&A deal that exceeds their initial expectations. Though, with the current M&A lull, slowdown in hiring and industry transformation, this future is less than certain.

For startups looking ensure the best deal for your company, consult an M&A advisor today. With expert assistance, your company can make a deal that goes far beyond its initial growth goals. Contact us to see how your company can benefit from a partnership with our skilled team of professionals.