Venture Acquisition Strategies

In today's era driven by systemic innovation, acquiring and integrating capabilities, know-how, and technologies has become an efficient route to growth and a strong alternative to internal research and product development. Acquisition and integration of ventures is an effective method for supplementing a product and business portfolio with the best available technology, as well as enter emerging markets, with speed.

Companies that chose a venture acquisition strategy are challenged to rethink the role of R&D and knowledge management within their corporations, to fit the new offerings with the near-term strategic and operating portfolio, and to prepare a sales, manufacturing, and distribution organization. This challenge requires learning about priorities, markets, technologies, speed of product/service development, integration of achievement-oriented people, and cultural fit. "These challenges are viewed from the perspectives of acquiring management and the about-to-be-acquired entrepreneurial leader and organization. This is an art, not a science, and it is easier to develop as a plan than it is to implement. After all, the human element is a critical component of this process."¹

 Case in Point  Cisco Systems Inc.

Cisco Systems Inc. used the venture acquisition approach with remarkable success. The company has pioneered the use of carefully designed and effectively operated acquisition process governed by hard-and-fast criteria and and ability to strike a deal within twenty-four hours and close it within two months.

Cisco listens to the market, and if it doesn't have what the market wants, it uses company stock to buy a start-up or an emerging company that already has the product and integrates the new company along with its technology, as fast as possible. In 1994, Cisco acquired three companies, in 1995 – four, in 1996 – seven, in 1997 – six, in 1998  – nine, in 1999 – eighteen, and in 2000 –  twenty-three.

Being Acquired

Ideally, a company considering being acquired can first work with its corporate candidate to sample the relationship. One way of accomplishing this is by accepting a strategic investment. However, the benefits and the risks for both sides must be weighed carefully. Relationships don't always develop into the merger or the acquisition.

Having a strategic investor is definitely a double-edged weapon. Before accepting corporate investments, companies should be sure that the investing company's agenda is consistent with theirs and be certain that they are prepared to manage conflicting agendas. Start-up companies must be sure to consider the universe or potential investors and what effect having one of those investors on their board will have on the others.

Winning is not necessary achieved without partners and parents. Expand your search to the international marketplace. Prepare the team, as well as your investors, for the possibility of acquisition as means to realize the full potential of the company's entrepreneurial vision.

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