Funding and Start Ups: Why Pour Money into Search?

February 1, 2013

Most Tech Startups Acquired in 2012 Had No VC Funding” contained an interesting factoid. Here’s the key passage in my opinion:

A total of 2,277 private tech companies from around the globe were acquired last year, according to a new report by researcher CB Insights. A “big surprise,” according to the company, is that 76 percent of these firms had not raised venture capital or private equity. This, it said, suggests a lot of tech companies are able to sustain themselves on profits and other sources, such as angel financing.

The information triggered a question which I cannot answer; to wit: Why are search vendors chasing money? If a search vendor has not flipped to profitability after a few years in business, will another infusion of cash jump start the company?

The big dogs in search have been acquired. In two notable cases the founders have departed and may have sufficient resources to fund another company. But for the companies in search which have been around for two, five or in case of one outfit 10 years, more funding may not translate to a big payday.

More data are needed. I will put on our 2013 research agenda the hypothesis that late stage funding does not return a payoff to the investors who take a chance on a search vendor of a certain age. The thought is that more money does not translate to either growth or a buy out. Companies looking to buy promising firms may be looking for smaller deals for targets which do not have help from venture funding sources. Thoughts? Share them in the comments section of the blog, please.

Stephen E Arnold, February 1, 2013

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