Will VCs Need to Turn to M&A Next to Satisfy LPs?
Earlier today, in the peHUB Wire and with Reuters Insider, I spent some time talking mobile M&A strategy for some of the biggest listed names in tech and consumer Internet: Google, Apple, Facebook, Groupon, etc. These are companies that are facing a potential secular shift, in terms of how they interact with the consumer—more of these companies’ customers will be driving revenue toward them not from a desktop, but from a smartphone.
2011 was a record year for VCs, in terms of their mobile exits. However, now, as the IPO pipeline is more jammed with complaints thanks to the likes of Facebook and other Silicon Valley disappointments, 2012—despite getting the year started with a bang—might force more sellers to M&A. That’s one of the conclusions that can be drawn from the Rutberg & Co. report issued Monday.
As the new uncharted Wild West of the Internet opens up—mobile commerce—some companies are poised to take advantage of what could be the new secular shift of digital mediums. Google, which has done about four dozen deals since 2010 began, is the most likely candidate to make buys. For one, it has made about four times as many deals as Apple over that timeframe—but with a new CEO and a disappointing Siri, it remains to be seen whether Tim Cook matches Steve Jobs’ acquisitive pattern. With recent deals like Anobit and Chomp, Cook’s Apple appears to be dialing in the bankers more.
However, with Facebook trying to better position itself for a stronger grip over the mobile market (and, possibly trying to upload itself direct to consumers with a smartphone of its own), the need for top-flight mapping and voice recognition technology—among other things—and targeted advertising, VCs may be eager to welcome this phenomenon.
The Rutberg report notes that VCs historically achieved more exits via the IPO for consumer Internet businesses and devices—not exactly a good harbinger, especially if sky-high multiples for deals begin to shrivel. Still, the report points out, more VCs in businesses like advertising and semiconductors have made more exits from 2001 until this year by selling outright instead of selling into public markets.
Facebook, for example, admitted that as it sees more of its members log in via mobile device compared to desktop computer, they’re unsure of how to best advertise to them. When Mark Zuckerberg was worried about building scale on the photography side of his business, he struck a $1 billion Instagram deal to ensure scale. It is entirely possible he’ll need to do it again and that could mean more mega-exits for VCs, like the one Institutional Venture Partners, Insight Venture Partners and Greycroft Partners enjoyed (among other VCs) when Buddy Media was jettisoned to Salesforce.com earlier this month in a deal worth nearly $700 million.
However, more than anything, the IPO pipeline will be deciding for VCs whether to sell—and, based on some of Silicon Valley’s flops over the last six months, VCs would be better off calling the M&A bankers than their IPO teams.
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