The Gong Show

Adam Bain (EVP, Production and Technology, Fox Interactive) kindly contacted me this morning via email as a follow up to my blog post yesterday about Brave New Web. In my previous post I briefly touched on a triangle graph that can be used to justify acquisitions, which Adam described. Adam followed up with me with a more detailed description of this triangle graph analysis and the possible implications. Adam’s email was really interesting, and I asked permission to blog it. He approved, so here it is:

We were running out of time at the end, so couldn’t really spend a bunch of time on it, but glad you picked up on on the Framework Triangle for Acquisitions. Basically the points of the triangle are:

• Technology Advantage
• New Audience or New Revenue Streams
• Long Term Strategic Influence (Does it help you for the long term by enabling some larger end goal down the line? Sometimes this may also mean: an acquisition to stop the technology or product from falling into a competitor’s hands)

Once set up in the triangle, you get a framework that companies can be judged. When acq targets hit all three points on the triangle, it’s an easy decision. Usually the tough decisions come when you only have two out of the three points. So here’s what happens when you see just two points:

Tech + Long Term Strategic Value (and therefore lacking Audience) = The company is an Enabler. These are potentially undervalued by the marketplace. Personally I like these types because these are the growth companies/hidden gems.

Audience + Long Term Strategic Value (and therefore lacking Tech) = At best case, a Network Effect. Worst case: it’s an overvalued company whose core product is easy to replicate since it doesn’t have a unique or defensible technology advantage. Feast or famine here.

Tech + Audience (lacking Strat) = At best Case: A Category Expander. Worst case: Non-core. Or…a sign that the acquiring company may be in trouble– because the acquiring company is looking at a business which has unique technology AND audience or revenue (thus traction) BUT it doesn’t currently fit into their world view of long-term strategy.

I hope you enjoy his analysis as much as I did. From my perspective in venture capital, it’s great to get an insight into the thought process of the buy side regarding a potential acquisition.