Anyone start search, pivot to startup launch, then use ETA mindset to grow?
February 29, 2024
by a searcher from University of California, Santa Barbara in Cincinnati, OH, USA
Let's try this again. My last post only posted the headline for some reason, not the full post.
Has anyone here started searching, pivoted to launching a startup, and then used ETA strategies to bolt onto the startup to increase enterprise value and/or improve cash flow? This is similar to a startup acquiring other complementary products in some ways, which is not uncommon, but I'm looking at it with the same value mindset that I did during Search.
There's something here: start the big swing with the 9-10 figure potential and raise some money, but safeguard it by acquiring a cash flowing, supporting business that absorbs some of the cost and helps finance the big opportunity. In today's VC environment, I'd imagine this balance would be highly desirable to some investors.
from University of Edinburgh in Singapore
Searching for synergy between EtA and venture is, however, doable and there are many ways to accomplish this (e.g. providing services to venture startups, like ^redacted did with Explora BioLabs). The strategy of “bolting-on” PE businesses to a venture startup, as described by OP, is a bit more complex. Given their fundamentally different nature, a compelling case must be made to investors as to how the cash-flowing businesses will synergize with the venture business.
My favorite example of this is Teamshares, which is essentially a tech company building a common OS for SMEs, layered on top of a more typical PE business of acquiring cash-flowing companies (albeit with an employee ownership twist). I am not privy to the specifics of the latest round, but I imagine that investors valued Teamshares as two distinct businesses - the more conventional cash-flowing PE / holding business (accounting for impact of employee ownership transition) and its venture tech business (i.e. building and selling SaaS products to its portfolio companies). Most of its recent ~$1B valuation is obviously derived from its tech business, and it’s clear to see how its growth is buoyed in large part by its PE arm — buying companies and turning them into customers gives Teamshares an unusually strong, effective GTM and incredible retention rates.
Teamshares' strategy represents a successful example of synergy between EtA and venture, but I would hesitate to label this a “bolt on” strategy since unlike traditional PE bolt-ons, the parent and portfolio companies remain fundamentally distinct businesses and are likely valued as such. It remains to be seen if this will change (e.g. Google’s acquired companies essentially trading at whatever multiple Google trades at) in the long-term / post-IPO / if operating at sufficient scale, but that's beyond the bounds of the original question.
In a nutshell, 1) venture companies can find synergy with cash flow businesses through a variety of ways, but 2) because they’re not PE bolt-ons where the platform and subsequent acquisitions are fundamentally similar businesses, principals must make a compelling case as to how and why the cash flow businesses improve the venture business and 3) the nature and impact of long-term synergy between a venture and PE business is highly dependent on the specific strategy and remains to be seen.
in Carrer de les Medes, 4, 08023 Barcelona, Spain
And really don't know if ETA mindset would apply to an early stage startup. To be frank I don't know exactly what ETA mindset is supposed to be, but I would assume careful with money, being cautious with what you change, staying humble about what you think you know ... If this is more or less correct, that would be useful to transition to a bootstrapped startup founder. I was one and I recognize these attributes (although clearly with a higher appetite for risk and faster execution).
In summary I think that acquiring an ETA mindset prepares you to bootstrap your idea to the moon, if there is anyone trying this these days :D