July 9-10, 2013
San Francisco, CA

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Caine Moss and Alon Rotem work for international law firm Goodwin Procter.

Congratulations! A big-name serial acquirer is preparing a term sheet to purchase your company. While your attention may naturally focus on negotiating the purchase price and closing the deal immediately, here are 6 things you can do before signing the term sheet to streamline the deal process and maximize the return for your investors and your team.

1. Why are you selling? Why are they buying?

These are threshold questions that will drive the entire M&A process. You and your board should contemplate if now is a good time to sell your business (and at what price). Achieving alignment between founders and investors before the company receives a term sheet is one of the most important things you can do to reduce friction during the term sheet stage. Once you and your board agree on the parameters and timing for a sale, consider establishing a strategic committee comprised of a subset of directors to work with management and your stockholders. This committee will be closest to the deal negotiations, will liaise with the legal team and advisors on behalf of the board, and (ideally) will be able to make decisions quickly to maintain deal momentum.

Whether the buyer is looking to acquire your company because of its killer IP, strategic value, customer base or engineering talent (aka an “acqui-hire”), understanding a buyer’s motivation will inform how the deal is structured. For example, in an acqui-hire, a buyer want to may allocate a significant portion of the deal consideration to employment retention packages with merely token consideration leftover for investors. Conversely, a buyer targeting your strategic value is less likely to optimize around retention but instead may serve up incentive-laden earn-outs tying the purchase price to the achievement of future milestones.

2. Have you conducted a market check?

Try to get a sense of what your company is worth before the term sheet is signed to ensure you are maximizing value for your company’s shareholders. Depending on the dynamics of your market and the time you have to negotiate your term sheet, you may want to engage an investment banker to spearhead the process. Conversely, if your company is in a concentrated space where all the major players are known, you may decide to conduct a market check yourself. But if your product offering straddles different markets, it could be attractive to buyers in different market segments (for example, a fintech or healthcare IT company) and in this case a banker can be helpful. There are many good bankers out there who specialize in market sub-segments and add significant value by creating a market for your deal and enhancing process efficiencies.

3. Should you establish a Management Bonus Plan?

If you have gone through several rounds of financing, the liquidation preference of your investors may be higher than the enterprise value of your company on an exit. Since its equity stake would be worthless in a sale, management may not be motivated to drive toward a sale transaction merely for the benefit of the investors. One way to re-balance the incentives of the management team is to implement a management bonus plan (MBP), which contractually allocates a portion of the sale proceeds to the management team before anything is paid out to the stakeholders. While some investors may balk at a perceived land grab by the management team in some contexts, these plans can be an effective tool to get management to drive toward an exit and support the sale process.

4. Are your employees coming along?

If the acquirer values your key employees, then its critical to make sure the terms are acceptable to them. Does your company’s culture mesh with that of the acquirer’s? How long will the acquirer expect them to stay? Under these circumstances, it’s likely that a significant portion of the proceeds will be held back for employee retention purposes. Additionally, to retain competitive advantage and to reduce post-merger attrition, buyers typically impose non-competes on key employees which can last several years after the acquisition. Employees are also customarily asked to sign release agreements to protect the buyer from employment law skeletons that may be hidden in your company’s closet. Try to get out in front of these issues with management and with the acquirer, because the longer these issues remain unresolved in a sale transaction, the less leverage a seller has to negotiate a desired outcome.

5. Corporate housekeeping

After your company receives a the term sheet, it may be limited in its ability to make option grants because of potential tax implications associated with your existing strike price. Accordingly, try to deal with capitalization table issues (like clearing out a back log of option grants and formally terminating stale advisor relationships) before a formal offer comes in the door. This will serve the added benefit of increasing the acquirer’s confidence in your corporate governance and HR practices.

Likewise, you will want to clean up any outstanding intellectual property issues. Now is the time to settle or resolve any open disputes with third parties so you are able make clean representations regarding your IP in the definitive agreement. At a minimum, ensure that all patent filings are current and confirm that all of your employees and consultants (current and, if possible, former) have entered into inventions assignment agreements. Just like being able to present a clean capitalization table, having a handle on your IP affairs will affirm that your house is in order – which can pay dividends by shortening the due diligence period in a sale.

6. Lawyer up

Sophisticated buyers use every tool and tactic in the M&A playbook when making acquisitions. To optimize your outcome, you will need a seasoned M&A attorney who is an expert in deal strategy and who knows the market for deal terms – both what to fight for and what to concede.

Caine Moss is a partner in Goodwin Procter’s Business Law Department and a member of the Technology Companies Group. Mr. Moss has significant experience working with software, telecommunications, Internet, and financial services companies through all stages of their growth. In addition, he has broad transactional expertise, particularly in the areas of venture capital, public and private mergers and acquisitions, and representation of issuers and underwriters in public equity offerings.

Alon Rotem, an associate at Goodwin Procter. Alon practices in the Technology Companies Group and represents clients in a variety of corporate transactions, including mergers and acquisitions, securities offerings and other general corporate and securities matters, as well as in intellectual property transactional and commercial matters.

Photo Credit: Shutterstock

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

AllThingsD reported this morning that Yahoo’s board approved a $1.1 billion all-cash acquisition of microblogging site Tumblr.

ATD had earlier stated that the board would be meeting on Sunday to consider the acquisition. Yahoo plans to announce the acquisition on Monday, according to “numerous sources” contacted by ATD.

“We don’t comment on rumors or speculation,” a Yahoo spokesperson told VentureBeat this morning.

Yahoo has scheduled a mysterious event for Monday morning in New York, to announce “something special.” If that “something” is the Tumblr acquisition, it would be quite surprising, since the event was announced before the board reportedly confirmed the acquisition. But it would also be a convenient venue to announce a major deal like this.

If it pans out, this would be Yahoo’s largest and perhaps riskiest acquisition since former Google executive Marissa Mayer assumed the chief executive job. By one metric, Tumblr is massive: It hosts 51 billion blog posts, a number that grows by 74 million new posts each day. It draws 216 million visitors globally each month, who collectively generate 16 billion monthly pageviews. That kind of monster traffic puts Tumblr in the ninth position among the most-popular U.S. websites.

However, it generated just $13 million in revenues last year, its first year of revenues, as it slowly began integrating ads into its content stream. The company anticipated making $100 million in revenues this year.

As with Facebook’s acquisition of revenue-less Instagram, the acquisition is less about bringing in a new source of revenue and more about capturing growth and traffic. Yahoo’s traffic, while enormous, has stagnated. It desperately needs a faster-growing property, along with a younger, hipper demographic, and Tumblr would seem to provide both.

That is, if Yahoo doesn’t kill it off or stifle its growth through negligence and mismanagement, as it has done with so many previous acquisitions, including Flickr, Delicious, Geocities, Upcoming, and more.

Top photo: Tumblr founder David Karp is about to be a very rich man. Source: Sean Ludwig/VentureBeat.

July 9-10, 2013
San Francisco, CA

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Fjord, the high-end design firm, has been scooped up by Accenture for an undisclosed sum.

The news was announced today on the company blog. CEO Olof Schybergson writes that the team is excited by the opportunity to work at one of the largest global consulting firms. “It’s almost like graduation day: proud of what I’d achieved, emotional about the past, and facing a new world of possibilities.”

Fjord counts Nokia, Citibank, Harvard Medical School, and PayPal among its clients (the firm was responsible for the redesign of Nokia.com).

The firm’s chief client officer Mark Curtis once remarked that design is sparking a similar revolution to marketing just a few decades ago. “We’re beginning to see the very best products marketing themselves through design,” he said on stage at VentureBeat’s Mobile Summit in April.

Fjord’s 200 or so employees will make the jump, and will join Accenture Interactive, the consulting giant’s design and marketing wing.

This is the latest in a series of acquisitions of design studios: Jawbone has added design talent to its team by acquiring Visere, and Google bought husband-and-wife creative studio Mike & Maaike last year.

Top image from a Fjord company retreat via the Fjord blog

July 9-10, 2013
San Francisco, CA

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This is a guest post by Keary Crawford and Wayne Simmons, the authors of “Growth Thinking”

“If it’s not growing, it’s going to die.” Michael Eisner, Former CEO, Walt Disney Company

The relationship between politics and business growth has long been a flashpoint between competing political ideologies.

Reinforcing the idea that growth is political, terms like sequestration, quantitative easing and austerity are now being viewed as the determining factors in whether companies can grow in the future. This is, of course, a myth.

Companies that are inherently growth-focused replace political ideology with the pragmatism needed to achieve and sustain growth. These companies acknowledge that they have virtually no control over political outcomes, and that some level of political volatility will always be present in the business environment. From this understanding, rather than be transfixed or even paralyzed by these factors, they look to convert the ever-changing political winds into opportunities for growth and expansion.

The myth that growth is political is one of many myths that can inhibit the ambition and future growth prospects of companies.

As the pursuit of business growth becomes even more urgent, companies must overcome these myths, some of which include:

Companies Can Buy Growth

Modern finance encourages companies to use mergers and acquisitions to “buy growth.” This process results in the application of favorable accounting treatment that allows companies to adjust their growth rates retroactively— a proxy for real revenue growth. Growth-focused companies don’t buy growth, rather they focus their M&A activities on emerging technologies and complementary offerings that provide them with the differentiation, first-mover advantage and critical mass required to drive high growth.

Finance creates growth

In some finance-dominated corporate environments, growth can be viewed as a mathematical output of complex, internally focused formulas and financial engineering. In the 1990s, for example, while revenues fluctuated or generally trended downward, Exxon was famous for building its culture and communicating its value by using the internal metric of return on capital employed (ROCE). In contrast, growth-focused companies view their health and viability, first and foremost, through the ultimate metric of top-line revenue growth and their ability to sustain that growth. Internal metrics are critical, but top-line revenue growth is an outside-in measure that determines the ultimate outcome—the rate at which companies are creating value for customers.

More growth equals more jobs

In many industries, growth has become synonymous with an expansion in hiring. Business leaders exacerbate this misconception by measuring their “status” by the number of the people working under them. However, as the Federal Reserve Bank of Chicago reports, “work that took 1,000 people in 1950 now requires only 170 people.”

Growth-focused companies concentrate on productivity relative to revenue growth, rather than headcount, to determine their competitive advantages and the long-term sustainability of their enterprises.

Growth is tactical

Many companies view their growth exclusively as a function of their marketing mix and sales force. Unfortunately, marketing campaigns and sales activities are inherently tactical and designed to deliver short-term results.

Growth-focused companies also focus on improving long-term growth prospects by creating highly differentiated customer value propositions and pursuing first-mover advantages. This approach takes companies from tactically fulfilling demand to strategically creating the new demand that leads to high growth.

Growth is a “black art”

With well-known stories about Silicon Valley startups and breakthrough companies going from dorm rooms to oversubscribed IPOs, high-growth can be easily viewed as a pop culture phenomenon rooted in some sort of “black art.”

In practice, regardless of the size, growth-focused companies go through an entrepreneurial thought process similar to that of a startup. This often involves using outside-in observation to formulate a divergent view of the future, applying intellectual curiosity to identify areas of opportunity within that future, and executing the ability to convert these hidden opportunities into high growth.

Growth-focused companies dispel the many myths associated with growth by focusing on the factors that really determine business growth:

• Reframe market volatility to uncover hidden sources of growth.
• Reposition tangible and intangible assets to improve future growth prospects.
• Renew products, services, and experiences to create unique sources of value and differentiation.
• Realign the competitive landscape by strategically changing the basis of competition.
• Reinvent business models to create structural competitive advantages.

Left unchecked, the many myths associated with business growth can be paralyzing. Fortunately, individual companies can take a different approach by formulating their own views and taking preemptive action to achieve and sustain business growth.

Wayne Simmons and Keary Crawford are the founders of The Growth Strategy Co. From their research, writing and experiences as successful serial entrepreneurs, in the spring of 2013, they will be launching GrowthCloud, an enterprise SaaS platform for business growth. For more strategies to achieve sustainable business growth, read their book “GrowthThinking: Building the New Growth Enterprise”.

Top growth myths image via Shutterstock

Intel is hatching plans to acquire Israeli gesture recognition and tracking technology firm Omek Interactive, three people close to the matter said.

Competitors Qualcomm and Samsung are also considering making an offer — although one source said that a bidding war for Omek is unlikely.

For these companies, gesture control technology is attractive as it offers a way to simplify increasingly sophisticated devices, draw customers to cool sci-fi-like devices, and chew up a lot of computing power that can be produced by their future chips.

“I know that Qualcomm and Samsung are in for natural user interface and biometrics,” said Motti Vaknin, a partner at Israeli venture firm Cedar Fund. By “in,” he refers to partnership, investment, and acquisition opportunities. Intel is currently partnered with competing startup SoftKinetic, and its investment arm Intel Ventures led Omek’s first round of funding.

In July 2011, Omek — with its gesture tracking and recognition technology — raised $7 million. A spokesperson from Intel Capital declined to comment on the acquisition talks.

Omek needed to find another round of financing, so the timing on the bidding isn’t surprising, according to one source familiar with the matter.

VentureBeat also reached out to Omek Interactive. CEO Janine Kutliroff said, “Omek is always having conversations of a strategic or financial nature. We never comment on rumors in the marketplace.”

Jim Moore, the founder of technology M&A firm J Moore Partners, said the intellectual property would be an asset to buyers. “In this case, using depth of field camera data for gesture input will allow people to control their computers without touching them,” he said. He continued, “It is [the] early days for this technology as the application builders will need to build this into their interface and functionality. But the possibilities are enormous.”

The race for ‘perceptual computing’

The race to pick up the technology reveals the hype and reality around cool new technologies that cross multiple markets. Gesture controls have been hot in games since Nintendo debuted the Wii motion-sensing game console in 2006. The Japanese company sold more than 100 million systems, beating out Microsoft and Sony, who were taken by surprise by the popularity of the new ways to control games.

Microsoft bought several companies in response and debuted its rival technology, Kinect, with great success in 2010. Sony followed, less successfully, with its PlayStation Move controller. But it continues to invest in its EyeToy camera-based technology. Microsoft clearly tried to lock up the intellectual property for motion-sensing technology, but it still bought commercial chips from PrimeSense when it shipped Kinect.

While the technologies succeeded in the game market, players cried out for better gesture recognition. Kinect couldn’t detect movements that were too close to it or too far away. A distance of about 10 feet is the sweet spot. Newer technologies can detect subtle finger movements and motions that are inches away from the screen. Intel is particularly interested in such technology for the PC.

As the world’s biggest chip maker, Intel’s focused on “perceptual computing,” or technologies for controlling a computer or tablet that include voice recognition, face recognition, eye-tracking, and motion sensing. Qualcomm and Samsung, likewise, also want to bring such technologies to their mobile markets.

Along the way, the hype cycle has grown as companies try to recapture the experience that Tom Cruise demonstrated with a gesture-controlled computer in the sci-fi film Minority Report. But consumers are likely to reject technologies that fall far short of this target. Omek’s early technology fits into this category, and marketers are still searching for the ideal markets for gesture-based controls.

Omek’s earlier focus was doing full-body motion-tracking systems, dubbed Beckon, that competed with Kinect. The idea was to enable gesture controls for movies or music playback, as Microsoft’s Kinect can also now do. But there wasn’t much of a market beyond Kinect.

PrimeSense showed new 3D cameras at the Consumer Electronics Show this year. These cameras featured much reduced costs so that the gesture controls could be taken into new markets such as tracking goods on retail shelves. Qualcomm has acquired its own technology for gesture control as well.

Now Omek is focused on a technology that it calls Grasp, which is the recognition of small finger movements at closer range. Omek is working with various Intel divisions on that technology, which could be part of the larger perceptual computing offering. In software, Omek’s rivals include Softkinetic, Pointgrab, and Eyesight. The latter use 2D webcams, rather than the more costly 3D space cameras.

Gestigon and LeapMotion are competitors in hand-movement recognition.

Check out the video below for a demonstration of Omek’s close-range gesture recognition tech.

This story is developing. We will update it as we learn more. 

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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July 9-10, 2013
San Francisco, CA

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MetroPCS and T-Mobile have passed all the regulatory chutes and ladders to complete the companies’ $1.5 billion merger. Now, all that’s left is the shareholder vote.

MetroPCS shareholders who owned stock before March 11, 2013 will vote on the deal April 12, 2013. However, the vote seems like little more than a formality, as the merging companies have already designated a new executive arrangement to lead the combined ship.

In an announcement of the new board of directors, T-Mobile revealed it will contain 11 members, including two current MetroPCS directors (W. Michael Barnes and James Perry) and Deutsche Telekom CEO/CFO Timotheus Höttges.

The current MetroPCS board has already unanimously recommended that stockholders approve the merger. Interestingly, the companies are asking voters to ignore a mailing sent out by one rogue “dissident stockholder” asking for shareholders to vote against the deal.

The FCC approved the merger a few days ago, saying the deal “will benefit millions of American consumers and help the U.S maintain the global leadership in mobile it has regained in recent years.”

Sept. 9 - 10, 2013 San Francisco, CA

Early Bird Tickets on Sale

Salesforce.com announced this afternoon that it will raise $1 billion in convertible debt with the potential for $150 million more.

The cloud computing giant will float convertible bonds due in 2018. Since the news was released, shares are down 35 cents at $185.59.

We reached out to multiple representatives from the company, who would not offer further comment.

The company will use a portion of the proceeds for strategic acquisitions. Salesforce is no stranger to M&A: In the past two years, its corporate development team has picked up over half a dozen small companies.

In a statement, the company revealed the funds will be used for “possible acquisitions of, or investments in, complementary businesses, services or technologies, working capital and capital expenditures.”

The company told ZDnet that it will take steps to minimize dilution once the convertible bonds convert to shares.

Salesforce is currently worth $27 billion and reached its 2012 goal to complete $3 billion in sales. In its most recent earnings report, it witnessed an improvement in revenues from all its business segments.

Marc Benioff photo via Sean Ludwig/VentureBeat

Practice Fusion provides free web-based health records to doctors, and now it’s expanding to serve the general public, too. The company has just acquired 100Plus, a mobile app maker that helps regular folks track the health impacts of their behavior.

The company won’t disclose the final sum, but did tell us that the acquisition was a combination of stock and cash.

100Plus’s mobile apps use analytics to show how minor behavioral changes like drinking a glass of water in the morning or walking to work can lead to a longer and healthier life. The startup’s first app demonstrated the impact of alcohol consumption on lifespan, and it launched at the SXSW conference in March.

This is Practice Fusion’s first major acquisition, but it has ample budget given that it raised $34 million in June. The relationship appears to be longstanding — Practice Fusion’s CEO Ryan Howard is listed as 100Plus’s cofounder on Crunchbase, and he provided a small amount of funding in the company’s early days.

In a recent interview at the San Francisco headquarters, Howard revealed that Practice Fusion plans to roll out consumer health products in the coming months, so the acquisition is in line with the broader strategy.

Practice Fusion is best known for its free web-based electronic health record (EHR) for doctors, which became big business in 2009 when Congress passed the Health Information Technology for Economic and Clinical Health Act, a mandate that pushes doctors to adopt an EHR by a fixed deadline of 2015.

The 100Plus apps will likely be rebranded, and the 100Plus team will be brought into the Practice Fusion fold.

The existing apps are an impressive technical feat, but it did not gain a strong foothold with consumers (it’s a similar story to design-focused health app maker Massive Health).

According to Practice Fusion’s associate vice president of corporate development Patrick Dugan, these insights should be made available to physicians. The goal is to keep doctors informed about a patient’s health in between visits. ”100Plus was interesting for us because they make it easy for people to engage with their health on a daily basis,” he said in an interview.

Chris Hogg, CEO and cofounder of 100Plus

Through the strategic acquisition, Practice Fusion will also gain an analytics expert in the form of 100Plus CEO Chris Hogg, who will assume a new role as the vice president of data science. “We were trying to make health feel like less of a chore,” Hogg told me, adding that in his new role he’ll “create a link between the doctor and patient between visits.”

Practice Fusion is accumulating a vast store of information about the patient experience, which may prove to be a valuable revenue stream. “We have more calendars, reviews about doctors, and records of visits than anyone else,” Howard told me.

The company has about 150,000 users, including doctors, nurses, and hospital admins, which accounts for about 6 percent of the addressable market.

100Plus was founded in 2011 and raised $750,000 in funding from Founders Fund, Greylock Partners, Felicis Ventures, and Band of Angels Acorn Fund, among others.

Private company research firm Privco has ranked the top 20 merger and acquisitions of the top 20 technology VC firms of 2012, including Ancestry.com’s $1.6 billion sale to private equity firm Permira and other top tech acquisitions such as Yammer, Meebo, Instagram, and NextG networks.

The biggest 2012 private exit on the list is Ancestry.com, for $1.6 billion, while Meraki, Yammer, NextG Networks, and Nicira all passed the billion-dollar mark.

Just a little more than a week, ago, PrivCo revealed the most acquisitive companies of 2012, which included Facebook, Google, Groupon, and the still-private Twitter, which was the first time a private company had made the top 10 list.

“We had our data team pull the largest exit for each of the Top 20 tech VC firms of 2012, including company sold, date of sale, and acquisition price,” Privco CEO Sam Hamedeh told VentureBeat in an email. “Most of the deal prices below have never before been disclosed publicly, including by us.”

Here’s the data, in visual form.

Note that some exits that appear smaller are ranked higher, as they returned more capital to the venture firm that primarily backed them.

photo credit: epSos.de via photopin cc

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Video delivery platform Vuclip has made its first ever acquisition, scooping up mobile video streaming startup Jigsee.

Vuclip serves videos ‘on-the-fly’ to people on any device in any country. Its goal is to make videos accessible to everyone, and to strengthen the connection between brands and an audience they wouldn’t otherwise be able to reach. The company claims to deliver 25 million videos a day.

In November, Vuclip closed its fourth round of funding from New Enterprise Associates, Singtel Innov8, and Jafco Ventures, bringing its total to $35 million. Now, it is putting some of this money into Jigsee, which makes it easier to receive video on low-cost phones. Jigsee’s technology and team will serve to further engage users in emerging markets. The terms of the deal are undisclosed.

Read more about Vuclip on VentureBeat.

July 9-10, 2013
San Francisco, CA

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Just in time for Valentine’s Day, Ernst & Young released its quarterly report about unions in the technology world.

The report found that the total value of global technology mergers and acquisitions declined by 35 percent in 2012. While at first this seems startling, the good news is that the deal value for the fourth quarter is only down 4 percent as compared to last year, and deal volume remained consistent.

“Back in 2011, there were a couple deals in the third quarter worth over $10 billion,” said Joe Steger, head of Global M&A at Ernst & Young in an interview with VentureBeat. “This year, the largest deal was only $5 billion. This means that we are seeing some caution in the marketplace due to valuations and macrocosmic uncertainty that made buyers reluctant to do large transformative deals.”

The deals that did occur were on a smaller scale. In most cases, the activity surrounded nontechnology companies buying technology companies to adapt quickly to a changing market. Larger companies that operate using older models often find it more beneficial to acquire startups to make use of their technology rather than to build it from within.

“Companies are very interested in doing smaller, strategic deals to get a leg up and improve their stance in some f these newer and emerging technologies that are a driving orce iwhtin the sector,” Steger said. “Tech is becoming a more-and-more important enabler in other sectors as a way for businesses to meet their objectives.

Most of the acquired companies work in cloud computing and Software-as-a-Serivce, as well as big data analytics, smart mobility, social networking, advertising and marketing, security, payments, and health care IT. While they are driving the market, valuation gaps are contributing to its decline.

“We still have the whole lifecycle of tech and disruptive innovation, and the continuing proliferation of new startups coming up, being funded by venture capital, and looking for exit through M&A,” Steger said. “That doesn’t change. But if you’ve got buyers and sellers that are out of line when it comes to valuation, certainly that can impact the whole ecosystem.

Cross-border deal volume saw significant decrease in 2012, as compared to 2011, but the value rose. Americans dominated the social, mobile, cloud, and “big data” analytics while the online and mobile video and games were the most significant driver in the Asia-Pacific region and Japan. In Europe, the Middle East, and Africa, cloud/SaaS, smart mobility, and social networking propelled most of the activity.

Ultimately, Steger’s takeaway is that we may be “nearing the bottom” and as confidence in the economy returns and valuations get back in line with expectations during the first half of 2013, M&A values will go up in the second part of the year.

July 9-10, 2013
San Francisco, CA

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This is a guest post by Reed Taussig

Virtually all tech acquisitions are characterized by large companies buying small companies, often for cash. But why does this have to be the case? Why can’t small companies also participate in this bonanza of great technology destined for the trash heap?  They can, but first all of the interested parties have to change their thinking.

Acquisitions: the exit of choice

In 2012, there were 39 tech company IPOs and 2,277 private tech acquisitions. Yet it is widely estimated that in 2013, more than 1,000 angel funded startups will fail to secure the necessary venture funding needed to continue operations and will be forced to close their doors.

Acquisitions have become the de-facto exit of choice in Silicon Valley. In fact, many angel funded startups formulate their entire business model around the hopes of being acquired.

They often plan their development strategy around attracting the attention of one of the usual suspects, such as Apple, Google, IBM or Cisco, and hope for a quick acquisition. This happens often enough to reinforce the behavior, making it a dangerous cycle.

Similarly, it is a misconception that most tech acquisitions make the company founders and investors rich. Many acquisitions are actually the result of a company failing to secure adequate funding to continue operations, forcing the startup to either close its doors or, for the more fortunate, sell the business to a larger company.  These transactions typically take the form of asset sales to larger businesses looking to acquire much needed technology at very attractive prices. The founders are then rewarded with some stability, and the opportunity to continue building the angel funded technology that they are so passionately committed to.

Typically, the investors are not so fortunate.

How about partnerships?

Rather than calling it quits, it is often in the best interest of the entrepreneur, the angel investor, and the acquiring company to form a partnership with another private company in order to preserve the investment.

However, this is easier said than done. Private-to-private deals are always difficult.

Investors are reluctant to give up their preferred shares in exchange for common shares. Conversely, investors in the acquiring company most often will not dilute their preferred position to bail out a failed startup. Moreover, cash is king for all startups as equity financing is hard to come by and is always expensive.

As a result, the bailout for angel investors is a bet in the form of common stock at a price that is often arbitrary and with an uncertain future.

Despite these risks, it’s a better deal to hook your wagon to a train that is moving forward, than one that has no chance. The new company will have committed investors, and at least a future to realize an exit. Any return, potential or otherwise, is always better than zero.

The problem is that most struggling startups never see this as an option. All the reasons above take this option off the table, but there is value in these companies that can be realized. The technology can be preserved and new value can be created in the hands of the right company. This preserves the work done by the entrepreneur and some of the investment originally put in by the angel.

If your angel investment is in jeopardy, don’t just look for acquisitions from the usual suspects. A startup on the verge of insolvency cannot attract a Series A investment, and is a lost investment to all. There is a way to come out on the other end, it just might not be the route you originally set out on.

Reed Taussig is president and CEO of ThreatMetrix Inc., a provider of integrated cybercrime prevention solutions. In 2012, Taussig led ThreatMetrix’s acquisition of TrustDefender, an Australian-based secure browsing technology company, enabling ThreatMetrix to offer the most complete integrated malware detection and device identification solution on the market.

With more than 30 years of experience in the computer hardware and software fields, Taussig served as president and CEO of three other successful technology companies prior to ThreatMetrix.

Big fish, little fish image via Shutterstock 

July 9-10, 2013
San Francisco, CA

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Just weeks after we reported a shift in strategy at VMware, the virtualization giant has announced its intent to acquire Virsto Software, a provider of storage performance optimization software.

VMware is refocussing its efforts to what it knows best: infrastructure. The company had intended to branch out to provide products at every layer of the entire software stack, including cloud-based applications. But with competition from scrappy startups and legacy vendors, VMware is concentrating its energies on the virtualized data center.

John Gilmartin, vice president of VMware’s storage and availability unit, said the company intends to extend the “benefits of virtualization to every domain of the datacenter — compute, network, and storage.” VMware has made a number of strategic acquisitions to bolster its technology in each of these domains, including the high-profile purchase of Nicira for $1.26 billion.

The buy-up, which the company announced in a blog post today, is expected to close at the end of the quarter. The terms of the deal were not disclosed.

The Sunnyvale, Calif.-based Virsto has raised over $24 million in venture capital from investors, including August Capital, Canaan Partners, Interwest Partners, Southern Cross Venture Partners and Correlation Ventures.

Hewlett-Packard‘s acquisition of Autonomy in 2011 would later earn the ignominious title as the worst corporate deal in recent memory.

Today, Autonomy is being investigated for misrepresenting its sales and accounting prior to the acquisition by Britain’s accounting watchdog, the Financial Reporting Council. The regulating body made the announcement on its website today, and reported that would also examine Autonomy’s accounting from Jan. 2009 to the middle of 2011.

Autonomy CEO Mike Lynch (pictured, left) has denied the charges of accounting misconduct. “We are fully confident in the financial reporting of the company and look forward to the opportunity to demonstrate this to the F.R.C.,” he said in a statement.

HP paid $11.1 billion for Autonomy in August 2011, around the same time that it announced it would be shuttering its tablet computer and smartphone products. Even then, the price tag seemed high, given that Autonomy amassed about $870 million in annual revenues.

In November 2012, amid disappointing earnings, HP announced it would write down $8.8 billion of its acquisition of Autonomy — as the New York Times pointed out – admitting that the company was worth 79 percent less than H.P. had paid for it.

HP’s CEO Meg Whitman inherited the messy acquisition, but was on the board when the deal was approved. In the course of a year, HP executives have changed their tune from being excited about the deal to openly disappointed about lower-than-expected revenues.

A spokesperson from the Financial Reporting Council told the New York Times that the investigation may take around a year to reach disciplinary proceedings if evidence of wrongdoing is uncovered.

Top image via wrangler // Shutterstock 

Salesforce.com has acquired EntropySoft, a French startup that offers content integration solutions.

A spokesperson confirmed that the deal recently closed, but the company won’t be making a formal announcement.

EntropySoft’s sales executive Serge Guillerme updated his LinkedIn account this month to reflect his new position as a customer success strategy manager at Salesforce.

The technology is used by software vendors and large companies to simplify integration of their products with enterprise content management (ECM) tools and cloud repositories.

EntropySoft has pulled in $3.5 million in funding from French venture firm, Alven Capital, and has teams in France and in the United States.

The company has signed agreements with over 25 U.S. vendors over the years, including Symantec and EMC.

This story will be updated as we learn more. 

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Facing unstable global markets and an upcoming presidential election, venture capitalists took a more disciplined approach to their investments in 2012 than in previous years.

Results from a MoneyTree report in partnership with the National Venture Capital Association (NVCA) found that investments totaled $26.5 billion in 2012, with VCs closing 3,698 deals. This is a 10 percent decrease in dollars and a 6 percent decline in deals over the prior year.

Related: Check out the top investment deals from the fourth quarter.

Tracy Lefteroff, global managing partner of Pricewaterhouse Cooper’s venture capital and private equity arm attributed the decrease to unstable markets and “taxes, government policy, the general environment in the stock and equity markets, troubles in life sciences, [and] the regulatory market” in a call with press and analysts.

However, investors and financial analysts agree that there is cause for optimism in 2013. For the fourth quarter, venture investment of $6.4 billion into 968 companies fell 3 percent in dollars but rose 5 percent in deal volume over Q3 2012. With the re-election of President Obama and burgeoning excitement about the JOBS Act, deals kicked into high gear.

Mark Heesen, president of the NVCA, said there would be a decline in “me too” investments in 2013, meaning that VCs won’t just follow the herd. With the industry facing constriction, “more seasoned entrepreneurs” will get funding over 20-something Internet wunderkinds.

In addition, the experts anticipate a steady pipeline of high-profile IPOs in 2013, particularly in the business-to-business (B2B) software sector. Research firm CB Insights predicts that 80 percent of the companies in a position to go public target their products at businesses rather than consumers.

Related: We predicted that SurveyMonkey, Dropbox, and Square would be among the companies to go public in 2013.

Indeed, software is the only sector to see a steady increase in venture capital dollars, while biotech and life sciences, clean-tech and consumer products and services, failed to capture VC attention in the final quarter of 2012. Investment dollars rose 10 percent over 2011 to $8.3 billion, which funded 1,266 software deals.

This represents the highest level of investment in the software sector in over a decade.

It seems the reports of a “series A crunch” have been exaggerated. For the fourth quarter, early stage investments increased 5 percent in dollars and 9 percent in deals over the previous quarter.

Investors on the call, including John Backus of New Atlantic Ventures, said there were a healthy number of companies receiving first-round financing. Seed deals are notoriously difficult to track as family and friends often privately invest. “I don’t believe we had a series A crunch,” said Backus, who said he witnessed an “angel feeding frenzy.”

With entrepreneur-friendly government regulation and high-quality late stage companies on the cusp of going public, VCs expect to see solid returns in the coming year. “It’s a terrific time to be investor,” said Jim Healy of Sofinnova Ventures. ”We expect to be highly active in 2013.”

The quarterly Moneytree report is issued by PricewaterhouseCoopers and the NVCA, with data collected by Thomson Reuters. The full report is available online at NVCA.org.

Image: igor.stevanovic |Shutterstock 

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Most entrepreneurs will tell you they’re going big and will accept nothing less than an IPO. But when the reality of running a business sets in, getting acquired is no small feat, itself.

“With the exception of about half a dozen companies, every tech startup is for sale,” said Jim Moore, founder and CEO of J Moore Partners, a firm that specializes in tech M&A.

In Silicon Valley, where startup activity is at an unparalleled high, mergers and acquisitions are the fastest-growing exit for venture-backed companies. According to a recent study by Ernst and Young, the volume of M&A in the technology space surged 41 percent in 2011, reaching levels not seen since the dot-com boom.

“When you think about your startup’s strategy, you’d be stupid not to leave the door open to M&A,” said Leonard Chung, CEO of Syncplicity, an online data-management provider acquired by EMC in May. Chung advises entrepreneurs to maintain a low profile when it comes to shopping for a potential buyer without denying their true goal altogether.

“In Silicon Valley, everyone knows what everyone else is doing,” he said in a phone interview with VentureBeat. “Secrets don’t stay secrets for long.”

M&A is an outcome every founder will need to consider. But entrepreneurs may encounter unexpected administrative costs, potential horror stories, and plenty of speed bumps in the process of getting acquired. All told, the process is about as glamorous as putting your house on the market: It involves a thorough spring clean, a litany of experts to appraise the property, and mountains of paperwork. It’s often a painful and emotional process, and negotiations falling through at the last minute is a very real risk.

Related: Even if you’re an expert, it can’t hurt to brush up on the basics. Read VentureBeat’s idiot’s guide to the venture capital game and angel investment ecosystem.

Jim Moore, founder of J Moore Partners

VentureBeat: What are the different flavors of M&A?

Jim Moore: There’s the asset purchase and the equity purchase. The former involves buying all the intellectual property but not the equity (you leave the liabilities and customers and everything else), and the latter means buyers will take company stock and the liabilities. In Silicon Valley, a good number of these are asset purchases. The IP is attractive so they just want to buy that. In terms of mergers, we often see some of these companies jammed together by the VCs. It’s a cosy relationship between portfolio companies; one is struggling and might need a little extra horsepower.

VB: Why do founders sell? Why not just raise another round?

JM: The startup doesn’t want to get to the next level. To get from A to B, they might need to hire a huge sales and marketing infrastructure, or a global distribution channel. At this point, they need to consider, “Do I want to raise more capital, or do I want a quick exit?”

VB: What are your thoughts on “acqui-hiring?”

JM: I like to call this “the M&A of last resort.” There’s a ton of it going on too, especially with the companies that don’t have strong IP. The acquirer will look at it and say, “We’ll cherry pick the employees and give you a fair price, a decent salary, and a little bit on exit.”

VB: People-focused acquisitions seem problematic. Do the founders typically stick around for long?

JM: Often, they get into these large companies and feel like caged animals. Sometimes, they are locked in for a year or so if there’s an earn-out. If there’s a wide gap between what the seller wants and what the buyer is willing to sell for, a deal is struck where the founder will get a percentage of the operating earnings once a certain threshold is hit, like $100 million in annual revenues.

Leonard Chung: After we got acquired, it was no exaggeration to say that we were sitting in front of CIOs at Fortune 500 companies. Literally, we were sent on a roadshow. I never could have done that as an independent entity. That is super exciting and a reason to stay. But at the end of the day, we worry about going into a large company and being swallowed up into the mother ship.

VB: With all these experts on board, M&A seems like an expensive process.

LC: Top-flight specialists are not cheap. They are typically looking for fractions of a deal size. It’s not uncommon that $50,000 or $100,000 will be spent on legal fees alone. Scale that up to an M&A transaction or an IPO, it could be millions of dollars in fees.

JM: Well, it depends. There’s sell-side M&A, which is paid for by the seller. About 90 percent of our work is sell-side, and we are compensated on a success-fee basis. We only ask for a small retainer to keep the lights on. On the buy side, we try to put together a disciplined competitive process where we position the company to be attractive to several different parties. The way we articulate that attractiveness will be different to Oracle than it would be to Microsoft.

VB: How does the process work once you’ve established interest from potential acquirers?

JM: It’s a closed bid. If there’s enough interest, we set milestones. You have to give us an indication of interest before we give you access. We set a value range so we can determine if we’re in the same ballpark. We give potential buyers about two weeks to submit a firm bid. Everyone knows they have to put their best foot forward. Unlike a private placement or an IPO, where we’d have a number printed on the cover of any report, we price according to demand. Let’s say there are one or two parties; we get them to put bids in. We select one of the bidders, and it triggers the “no shop,” meaning that the founders can’t have conversations with anyone else for two months.

VB: Once you’re in the “no shop” zone, what’s next?

JM: The buyer does due diligence. They confirm everything that they’ve been told is true. They will typically interview with key employees and ask what’s good and what’s bad? You can start to do a little trend analysis over time to figure out the company’s culture. If there’s something that isn’t totally kosher, you can still pull the plug.

VB: When it comes to tech startups, who are the potential buyers?

JM: There is more cash on the books for acquisitions in corporate America. Large companies are under pressure to deploy cash from Wall Street. The other party doing M&A is private equity. Ten years ago, they wouldn’t look twice at software companies. We convinced them to look at how predictable the cash-flow stream had become. Sybase and some of the more legacy players were quite sticky. Over time, they realized the ability to grow a software company could lead to tremendous leverage. If you can keep the operating expenses steady, you can drive profitability. What these private equity guys did [was] bring in some C-level talent and new strategies to drive the cash flow up.

VB: What drives up the value of a startup?

JM: You will get approached if you’re hot. Sometimes it’s about the people, especially if they have domain expertise. Salesforce bought Chicago-based Model Metrics because they needed a Midwest office. But if there’s a moat around the castle when it comes to IP, you can drive a much higher valuation. That happens a lot when it’s early stage and there’s a bunch of smart guys who don’t know how to sell. Cisco and some of the other large players will pay enormous amounts for companies that make little or no revenue. The final factor is market presence; if a company has thousands of customers, there might be an opportunity to cross-sell.

LC: If there are multiple bidders, align with people that can provide you with brand name recognition, and an ability to scale.

See more on M&A, including the benefits of private equity and the most common horror stories, on the next page.

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July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

M&A, not to be confused with MMA (a mistake I initially made), were jumping and kicking all over the tech radar today. While Funding Daily is a round-up primarily dedicated to private equity investment deals, I figure a few of you deal nerds (present company included) are interested in some of the the hot mergers and acquisitions that went down. Sprint announced its intent to buy out ClearWater, Corona Labs added Game Minion to its fiefdom, AirBnB scooped up Localmind, Juniper Networks procured software-defined networking startup Contrail Systems, and Play LA bought NFC Data. Thats what I call Mixed Mergers and Acquisitions.

For more funding news as it happens, subscribe to our Deals Channel feed. You can also follow VentureBeat on Twitter, @venturebeat, to view funding news as it’s published.

Stion burns a little brighter with $25M

As SolarCity prepared to go public, another solar tech company raised $25 million. Stion is a USA based startup that manufactures high-efficiency, thin-film solar panels. This year has been tough for American solar companies because of the cheaper panels coming out of China, and many investors have been shy about putting their money into solar tech. According to the filing, Stion is seeking to raised $55 million, but for the moment has settled with $25. This brings the total investment to $220 million, following a $130 million investment from last year led by Avaco. Read the filing.

Seed&Spark raises seed round to support starving artists of the filmmaker persuasion

Films are not only the seventh art, they are also business ventures. At least the startup Seed&Spark and its investors thing so. Seed&Spark is a video platform for independent filmmakers to fund, produce, and distribute their films. It applies crowd sourcing, ramification, and social media tactics to help the artists build an audience. Seed&Spark launched on December 1 and announced today that it has closed its seed round, although did not reveal how much. Manitou Ventures, SourceN, and angels contributed. Read the press release.

DropThought like it’s hot

I drop things a lot. My backpack after a long day. My morning coffee on fellow commuter. My pants (just kidding…I swear). Sometimes, I even drop my pearls of wisdom and opinions on the unsuspecting public. DropThought, an company that helps businesses collect these thoughts and turn them into actionable insights, filed with the SEC for $1.3 million equity investment. The application gathers direct and instant customer feedback. It enables businesses to communicate with customers in real time and has tools for social media marketing and data analytics. Read the filing.

Stipple builds $3 million bridge into the future of monetized images 

Stipple may rhyme with nipple, but that doesn’t mean it should’t be taken seriously. The startup has raised $3 million for its set of tools that tag and monetize images. Hoorah! Advertisers can use the platform to automatically place ads and tags inside popular photos that contain their products. Publishers can earn money off the photo content by opening it to advertisers. Photographers can also benefit, by claiming their images and tracking their progress around the web. This investment was led by Sands Capital, and will serve as a bridge round following Stipple’s Series A in May from Floodgate and Relevance. In 2010, Stipple recieved seed financing from Kleiner Perkins Caufield & Byers, putting its total capital raised at $10 million.

Viva la mobile video advertising revolution

Revolution is upon us. No, I am not talking about the upcoming release of Les Miserables the movie. Rather, I am referring to the revolution of mobile video advertising, which Vdopia is helping to start. Vdopia is a mobile advertising platform and network used by brands like Coca-Cola, Walt Disney and McDonalds to distribute their video ads. It also offers solutions to publishers trying to make money. An SEC form filed today indicates that Vdopia is raising a $7 million Series B, $3.3 million of which is in the bank. This comes more than three years after its first round in 2009, led by Nexus Venture Partners. Read the filing.

Life is hard. EasilyDo makes it easier. 

Our lives are filled with a constant stream of plans, activities, lists, tasks, and social engagements and various services to keep track of them. EasilyDo is a productivity app that works as an all-in-one assistant. It connects to your social networks, emails, calendar etc…to create daily to-do lists and helps stay on top of those tasks by sending useful reminders. EasilyDo launched today for iPhone and iPod touch, with $4.3 million in financial support from U.S. Venture Partners and the Mayfield Fund, as well as angels. Read the press release.

Panorama sets its sights on investment krone

Cloud-based IT management platform Panorama9 has raised $900K in seed financing from private investors in Denmark. The company offers a dashboard that small to medium businesses can use to monitor and control all IT operations in their network. The system offers real-time alerts of issues and security vulnerabilities, as well as support across multiple devices and operating systems. Panorama was founded in Copenhagen and was first active in Scandinavia. It entered the US market in April of 2012, and will use this financing to deepen its American presence, as well as explore potential partnerships.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

The enterprise is red-hot now, but pragmatic investors have been quietly investing for decades.

According to technology research firm CB Insights, these investors will reap the rewards in the next few years. The firm’s Tech IPO Pipeline report found that 80 percent of the technology companies that will likely file for an initial public offering by the end of 2013 aim their products at businesses, rather than consumers.

Business-to-business (B2B) companies like Workday and Splunk experienced stellar IPOs this year, fueling interest in the space. When Facebook and Zynga’s IPOs failed to meet expectations, the enterprise was declared “sexy.”

“The chatter about enterprise startups is more a function of the fact that consumer startups look less appealing [to investors] more than anything else,” said CB Insights’ CEO Anand Sanwal. ”Folk are saying now that enterprise is the place they should be playing.”

Related: Read more about the 12 investors that are on the hunt for the next Microsoft or Oracle.

All eyes are on high-performing startups like Box, Github and Square, which are rumored to go public in the next few years. Ones to watch also include Stripe, Palantir and Hubspot. “These companies are all attacking different spaces from infrastructure to payments,” said Sanwal on a phone interview. “But they have one thing in common: they are all targeting businesses.”

The average amount raised to date by companies in CB Insights’ report is $84.7 million, which proves that it takes significant capital to build technology for businesses. Investors backing the companies include Intel Capital and Sequoia Capital, as well as Goldman Sachs. About a fifth of the companies were backed by private equity firms.

The 472 companies on CB Insights’ list are all currently valued at $100 million or above. When compiling the report, the firm also took into account hiring patterns, and the quantity of media articles.

According to Sanwal, venture firms that have recently began paying attention to B2B are a little late to the party. Many of the companies that he expects will IPO in the coming years were founded in the late 1990s and throughout the 2000s.

Overnight success isn’t the norm; many of the most successful B2B companies have been around for decades, and have experienced ups and downs. The most common year the startups on the list received financing is 2007, which is significant, as this marks the beginning of the global economic recession.

“It’s telling that these companies go through tough times and emerge stronger,” said Sanwal.

$100 bill image via Shutterstock

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Zenprise has been acquired by Citrix, which may come as a surprise to Silicon Valley insiders who expected an initial public offering from the red-hot mobile security startup.

Zenprise lets companies’ IT departments wrap security measures around employees’ iPhones, iPads,  and tablet devices. The technology is currently in effect in over a million personal devices, and is used by employees at big brands like the Boston Red Sox.

As employees continue to bring their own devices to work (a trend frequently referred to as “BYOD”), companies like Zenprise have stepped up to help large corporations that are struggling to centralize their data. Zenprise users are immediately alerted if a hacker attempts to break into a company device. If an employee leaves their phone in a bar, sensitive data can be wiped from the device remotely.

“Consumerization and BYOD have given rise to very difficult challenges for businesses in enabling a productive, mobile workforce while still maintaining tight controls over company information,” said Sumit Dhawan, Vice President and General Manager, Mobile Solutions at Citrix, in a statement. Dhawan described the acquisition as a “clear choice” for Citrix as a means to bolster its mobile device management (MDM) product.

“With a complete Citrix enterprise mobility solution, customers have all the necessary pieces to manage and secure mobile apps, content and devices,” said Dhawan.

The terms of today’s deal were not disclosed, and Citrix anticipates closing on the acquisition during the first quarter of 2013. Silicon Valley-based Zenprise has raised over $60 million in venture capital funding from Greylock Partners, Shasta Ventures,  Ignition Partners, and the Mayfield Fund, among others.

Mobile security image // Pavel Ignatov, Shutterstock

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Google confirmed to VentureBeat it has purchased BufferBox, a startup seeking to remove as much friction as possible from the online shopping delivery experience.

Online shopping is all about convenience. While developments in data analysis, marketing, and payment technology have improved the overall flow of e-commerce, delivery is still a frustrating obstacle at the end. If the recent shopping frenzy following Thanksgiving revealed anything, it’s the explosion of online commerce. There is a greater need for shipping options that don’t entail waiting at home or missing deliveries.

The BufferBox concept is refreshingly simple. BufferBox sets up green pick-up lockers that serve as shipping addresses. Consumers enter that address instead of their own, receive a PIN in the mail, and then can pick up the package at their convenience. It’s a bit like a privately owned, communal P.O. box.

“We want to remove as much friction as possible from the shopping experience, while helping consumers save time and money, and we think the BufferBox team has a lot of great ideas around how to do that,” a Google rep told VentureBeat via email today.

BufferBox is based in Waterloo, Ontario. The founding team came to the Bay Area over the summer to participate in Y Combinator where it was one of the more talked-about startups following the demo day. With this acquisition, employees will join Google’s Shopping team in Kitchener-Waterloo and continue business as usual.

Six months ago, Google changed its Shopping feature to “a purely commercial model” where top results are dictated by the highest bidder. Microsoft, in an attempt to undercut Google’s marketshare, launched a “Scroogled” campaign on Wednesday. While Google won’t comment on its Shopping roadmap (or the terms of the deal), BufferBox will obviously benefit from Google’s massive resources and use them to move faster and its scale.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Networking and infrastructure giant Cisco Systems is showing no signs of slowing down. It just acquired its third company this month.

Cisco will pay approximately $141 million in cash for California-based company Cariden, a network traffic-management software maker. Cariden’s suite of products will augment Cisco’s offering to service providers.

Lew Tucker, Cisco’s CTO of cloud computing said Cisco is constantly on the lookout for M&A opportunities to boost its software suite. These three deals have been months — if not years — in the making, and happened to close at almost the same time. Cisco recently closed a deal to buy Meraki, a Bay Area startup that provides cloud controlled wireless networks for medium-sized businesses, and followed up with a $125 million deal for Cloupia.

The Cariden deal is expected to be completed in the second quarter of Cisco’s fiscal year 2013.

The Cariden acquisition reinforces Cisco’s commitment to offering service providers the technologies they need to optimize and monetize their networks, and ultimately grow their businesses,” Surya Panditi, senior vice president and general manager of Cisco’s service provider networking group, said in a statement.

“Given the widespread convergence of IP and optical networks, Cariden’s technology will help carriers more efficiently manage bandwidth, network traffic, and intelligence. This acquisition signals the next phase in Cisco’s packet and optical convergence strategy and further strengthens our ability to lead this market transition in networking,” he continued.

Cariden was founded in 2001, and its major customers include Verizon and Swisscom.

Buying spree image // Shutterstock

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

PowerInbox, the consumer-focused startup that makes email interactive, has merged with its biggest competitor on the enterprise side, ActivePath.

These technologies add email applications to your inbox; instead of a boring HTML message, you’ll be able to engage directly with multimedia content. For instance, you may receive a notification from Kickstarter about a cool project. Without clicking away from your inbox, you’ll be able to watch the video and “like” the page.

In the wake of the merger, the new company (which will go by “PowerInbox”) has pulled in $10 million in funding from Atlas Ventures, Longworth Partners, Battery Ventures, Genesis, GIMV, and Correlation Ventures.

The new company will have offices in Cambridge, MA: New York City; and Tel Aviv. The CEO will be ActivePath chief executive Jeff Kupietzky. PowerInbox founders Matt Thazhmon, Dileep Thazhmon, and Lance Jackson will focus on product development.

United, these companies are a powerful force. More than 50 email applications will serve 500,000 users, who will collectively receive 5 million emails per year.

As is to be expected with M&A, Dileep Thazhmon, the COO of the new entity, told VentureBeat that there will be a few routine layoffs on ActivePath’s team. The combined team will include just 17 people.

“Rather than using our resources to compete with each other, we are going to work together,” said Thazhmon in a phone interview with VentureBeat.

The team will be squarely focused on building out the product and pitching its technology to Fortune 500 companies. Thazhmon said the company will push its product to email marketing service providers such as Constant Contact and MailChimp.

“We see email as ripe for innovation and believe both companies are bringing complementary experience to exploit this huge opportunity. Putting the teams together just makes sense and is a great way to establish the industry standard for interactive mail,” said Scott Tobin, partner at Battery Ventures and a PowerInbox board member, in a statement on the news.

Interactive email image // Urfin, Shutterstock 

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Zillow is acquiring HotPads for $16 million in cash.

Zillow is a real estate marketplace that lists “practically every home in the U.S.” It can be used to find homes for sale, apartment rentals, market records, mortgage rates, statistics, and even advice. Like any enterprising real estate mogul, Zillow has been on a buying spree, snatching up startups to expand and improve its offerings. The HotPads purchase marks Zillow’s sixth acquisition in less than two years.

HotPads’ map-based real estate search engine is known for its split screen search interface that lets visitors view multiple listings side-by-side to make comparisons. Of the millions of visitors to HotPads, almost 70% were looking for rentals. This fits into Zillow’s recent launch of Zillow Rentals, which offers a suite of tools for rental professionals.

“This acquisition represents a significant step-change for Zillow Rentals, allowing us to dramatically increase the number of leads we send to landlords,” said Spencer Rascoff, CEO of Zillow. “HotPads has a younger, complementary and rental-focused audience. Now Zillow will become even more relevant to consumers at the beginning of their real estate life cycle.”

This is Zillow’s first acquisition of a primarily consumer-facing company. Earlier acquisitions include Mortech, Inc; Buyfolio; RentJuice, Diverse Solutions, and Postlets.

There are mixed sentiments about Zillow’s future within the technology community. While the company had a strong third quarter with $27.8 million in revenue and saw 36 million unique visitors in October, a recent report from research firm Citron undermined investor, share-holder, and consumer confidence.

HotPads will not only supplement Zillow’s rental offering but will also help build out its mobile presence. Zillow recently launched the Rentals for iPhone app and saw record mobile usage in Quarter 3. HotPads’ five mobile applications will “complement Zillow’s growing rental marketplace.” HotPads will also serve to bolster Zillow in its competition with Trulia, another real estate listing company.

HotPads has 19 employees and is based in San Francisco, where it will remain even though Zillow is based in Seattle. Read the press release. 

Sept. 9 - 10, 2013 San Francisco, CA

Early Bird Tickets on Sale

Claranet, a London-based cloud hosting provider, has scooped up Star, a company that delivers managed technology services like unified communications, and advanced security services.

According to an official statement released on Star’s website, this acquisition has turned Claranet into the largest mid-tier provider of integrating hosting and networking services in Europe.

The local media views this as evidence of “cloud hosting consolidation;” Europe-based cloud companies like Claranet need to grow quickly, and bolster their range of services to compete with global cloud hosting giants like Amazon Web Services (AWS) and Rackspace.

Related news: AWS recently announced that it would expand to its ninth region; it already has a strong footing in Europe with a data center in Ireland.

“This announcement confirms our ambition to become the clear European leader in the delivery of managed services,” said Claranet Group CEO, Charles Nasser. In a statement, Nasser termed this an “British entrepreneurial success story”, as both companies were founded in the UK.

The new business will incorporate an extended range of managed hosting and network services, Infrastructure-as-a-Service (IaaS) offerings, and virtual data centers.

Claranet claims that this new and expanded company will have revenues of over $150 million, about 700 staff, and over 4,500 customers, and operations will be expanded to the UK France, Germany, the Netherlands, Spain and Portugal.

In addition, new customers gained through the acquisition include Airbus, Amnesty International, Care UK, Channel 5, Veolia, Signet, CSH, IRIS, De Vere Hotels and Richmond Events.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

 Torch Partners entered the US market today and opened an office in San Francisco.

Torch is an international investment bank that focuses on technology, media, and telecom. It is based in London with offices in Berlin and primarily works with European companies and deals. The decision to set up shop in America is in an effort to strengthen the ties between its European clients and Silicon Valley.

“With the proliferation of entrepreneurship and startup culture around the world, we saw a vacuum of talent helping the global tech community,” said Sanu Desai, Managing Director.   While Silicon Valley remains the startup capital of the world, places like London and Berlin have become tech leaders in their own right.  The flow of ideas is outpacing the flow of capital.”

The firm provides strategic investment banking services on mergers and acquisitions, fundraising, IPO advising and any other financial concerns. Desai said that the time is ripe for a firm like Torch, because the entrepreneurship is heating up in Europe and startups are beginning to see the value of hiring on investment bank to act as a middleman.

“The bigger story here is the rise of a new generation of firms advising tech companies,” he said. “In the last five years, things have gotten very interesting as the bigger banks blew up and it created opportunities for a new generation of boutique firms to provide support for the best new companies trying to grow. The idea of startup culture has spread all over the planet and companies around the world want to make deals in the US and companies here want to be international. There is a need for people like me to bridge that gap.”

Torch Partners was founded in 2003. It has served clients including online travel business Secret Escapes, collaboration leaders Huddle and Workshare, data center company TelecityGroup, equity investor Summit Partners and food ordering service JustEat, which secured one of the largest fundraising rounds in Europe this year.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

There is not much confidence in the global economy right now. Just as anyone with uncertain  finances is hesitant to make large purchases, so to are technology companies.

Ernst & Young released its report on global technology merger and acquisition deals for quarter 3 today. The total value for all M&A deals fell dramatically by 52%, from $58.3 billion in Q3 of last year down to $28.2 billion this year. This quarters largest deal was the smallest number 1 deals since thee beginning of 2009. However, the number of total technology deals remains stable which means that companies are conducting smaller, more strategic deals.    

“In order to do a large technology deal, you need to have confidence,” said Joe Steger, head of Global M&A and Transaction Advisory Services Leader at Ernst & Young. “In light of global macroeconomic issues like the Euro zone crisis, the fiscal cliff, the U.S. Presidential election, there is a lot of uncertainty which make investors and buyers of large companies stay on the sidelines.”

The top ten global deals from July to September 2012 were:

• Dell Inc. acquired Quest Software, Inc. $2.559 billion
• Micron Technology, Inc. to acquire Elpida Memory, Inc. $2.517 billion
• The Blackstone Group LP to acquire Vivint, Inc. $2 billion
• Roper Industries, Inc. acquired Sunquest Information Systems, Inc. $1.415 billion
• IBM Corporation to acquire Kenexa Corporation $1.361 billion
• VMware, Inc. to acquire Nicira, Inc. $1.26 billion
• Thoma Bravo, LLC acquired Deltek Inc. $987 million
• One Equity Partners LLC acquired M*Modal, Inc. $840 million
• Syniverse Technologies, Inc. to acquire MACH S.a.r.L $696 million
• Cielo SA acquired Merchant e-Solutions, Inc $670 million

The primary drivers of the activity this quarter reflect “megatrends” occurring in the technology industry. Most of the deals were to procure technology that manages large amounts of data in virtual or cloud environments, as well as for software-as-a-service. Payment technology, smart mobility, social networking, and big data were also a focus. 

The report states that deals in these areas will continue to close as companies seek to remain competitive by evolving quickly and adopting new forms of technology that optimize efficiency. Large infrastructure acquisitions, on the other hand,  will likely remain on the sidelines until economic confidence picks back up. Steger said that another contributing factor to the declines in this area is a misalignment between buyers and sellers regarding alignment.

“It’s like in the housing market,” he said. “If buyers believe values of the property will continue to go down, they will hold off on purchasing. A study we did on tech capital confidence indicated that 25% of respondents expect valuations to decline. Once the sellers realize deal valuations have gone down, we may see a pick up in deal value in upcoming quarters.”

Cross-border deal value declined by 40% this quarter. Despite major declines, Steger said the fact that value, but not volume, made a downturn means that the long-term outlook for global technology M&A remains strong. Companies may not be buying the proverbial mansion, but they are investing in technology that will enhance their operations over time.

Sept. 9 - 10, 2013 San Francisco, CA

Early Bird Tickets on Sale

This week, 100 employees received layoffs at Radian6, a company Salesforce acquired two years ago.

Salesforce called it a “rebalancing of resources” at Marketing Cloud, the new software suite that Salesforce created from Radian6 and Buddy Media, another relatively recent acquisition. But some in the media immediately reported “signs of trouble,” and referred to Buddy Media as a “money pit.”

Marc Benioff: Not crazy after all.

The layoffs reportedly occurred at Radian6, but within hours, Buddy Media found itself at the center of the storm. Business Insider released a snapshot of the company’s financials from the June 2011-2012 period, when it was still a venture-backed private company, and reported that it was “bleeding money” in the months prior to the $689 million acquisition.

Reality check: After two acquisitions of companies in a similar space, layoffs are a matter of course. Logically speaking, this creates some overlap of personnel.

“When you acquire two companies, it makes sense to slash a lot of jobs that are replicating each other,” said Jeremiah Owyang, an industry analyst at Altimeter Research. “How many managers or HR managers do you need on the same account?”

Salesforce is a public company and needs to make sure it’s still in the black — “downsizing the overhead makes sense at this time,” he added.

Adding to the speculation that Salesforce is in trouble, its competitors took the opportunity to offer the recently laid-off employees a job (most of the scale backs were in marketing and sales). View the comments here.

Still, the layoffs are not necessarily a vindication for competitors like Oracle and Adobe.

It’s also not out of the ordinary for a venture-backed software as a service (SaaS) company to overspend, then concentrate on monetization at a later stage. Before this summer’s acquisition, Buddy Media was still a private company in growth mode.

In response to the spate of recent articles that question Marc Benioff’s judgment, experts say it will be at least six months before we will say how the acquisition plays out.

“It’s just too premature to make a call,” said Jim Moore, the founder and managing director of J. Moore Partners, a M&A advisory firm. “If the layoffs were on the administrative, sales and marketing side, I don’t see any reason to say these acquisitions have not been successful.”

Salesforce declined to comment for this story beyond this official statement:

With the integration of Radian6 and Buddy Media, the Salesforce Marketing Cloud is re-balancing its resources to support its growth, including moving from a hub to a distributed model for certain customer-facing roles, consolidating marketing and dramatically increasing investments in R&D. Fewer than 100 people were impacted globally.

Top image via Sarah Deer. Benioff photo: VentureBeat.

TechStars’ New York greatest success story to date? ThinkNear, a hyper-local mobile ad service that was acquired today by Telenav for a whopping $22.5 million.

Telenav is a GPS navigator for your smartphone. With this buy-up, it will launch a new mobile advertising unit called “Scout Advertising” that will investigate new ways to connect with retailers and brands, and provide a new source of revenue for the company.

This provides much-needed legitimacy to TechStars, which competes for technical talent with a growing number of accelerator and incubator programs, including Y Combinator and StartEngine.

In September 2011, its New York branch was featured in a 7-episode series produced by Bloomberg TV. The show followed six startups in the program, and their drama-filled struggles to build a company and raise funding. At that time, none of the startups in the TechStars New York alumni network could claim a successful exit.

ThinkNear, a Los Angeles-based startup, began its life as a yield management tool for local businesses. However, the attempt to drive foot traffic into a store during slow hours failed as company simply could not attract a base of users. It pivoted to an advertising company that can target consumers within a 100m of their location.

TechStars was founded by entrepreneurs Brad Feld, David Brown, and Jared Polis — it’s a 13-week program that is held in a handful of cities around the country and is differentiated by a focus on mentorship.

Read more about the spring class of TechStars’ companies here.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

From tech events to scientific research, startups are proving that you can crowdsource and crowdfund almost anything.

Startups often turn to crowdsourcing sites like Kickstarter and IndieGoGo to get their ideas off the ground. But at a later stage, when they’re ready for an exit, can they crowdsource knowledge from the experts?

Likewise, companies often make erroneous decisions when it comes to M&A; they are losing millions of dollars in the process. Tech companies that frequently buy-up rising startups (Cisco, Oracle, Salesforce, Google, Facebook to name a few) aren’t immune from making mistakes. How can we bring the wisdom of the crowd to corporate development teams?

Merjerz has built a website to bring together acquirers with desirable startups — it’s like dating site for M&A. Anyone can lend their expertise to the process by reviewing a startup, and offering their take on the company culture, the market opportunity, and more.

On Merjerz, which has been in beta for over a month, professionals from any industry propose deals. Users can login with Facebook, LinkedIn or register on the site, and vote for, comment on and follow deals, which will push updates to their email. According to Schreiber, corporate development and M&A officers at several large-sized tech companies have already taken notice of relevant deals.

Other deal management software tools on the market include Midaxo and Axial Market. But this is the first attempt at applying the crowdsourcing thesis to M&A — the challenge will be to pique enough people’s interest in the topic and to convince the experts to contribute to the site. Merjerz will be most valuable if they can convince employees to anonymously tip off potential acquirers about potential problems with the company culture before the deal takes place. 

Arye Schreiber, cofounder of Merjerz

“We collect the insights and knowledge of the informed crowds and [we] make that available to companies doing M&A,” explained Arye Schreiber, the cofounder and chief executive. Prior to forming Merjerz, the Israeli entrepreneur worked at power-supply company, Lighttech Electronic Industries and Lehman Brothers. He has experienced first-hand how companies can be thoughtless when it comes to M&A.

When he was working at Lighttech, a light bulb went off.  Schreiber told me his company was approached by bankers representing a small public Canadian company, Carmanah, who made an acquisition offer.

“The deal didn’t make much sense, but they never asked for our opinions,” he said. “This was pure empire-building. We ended up signing a Merger Agreement, and they spectacularly announced the deal as dead.”

According to news reports, a lawsuit was filed, the executive who led this transaction was let go, and the company’s stock plummeted. In the end, Lightech was acquired by GE, “a happy ending” despite the circumstances, according to Schreiber.

“There has to be a better way for people to avoid stupid deals,” he added. “So I set about building one.” The team of three founders is based in Tel Aviv, Israel. They are in talks with investors, and are already in the process of closing a first round of funding.

Image via Shutterstock