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My new book on startup acquisitions: Magic Box Paradigm
Get a copy of Ezra Roizen's Magic Box Paradigm: A framework for startup acquisitions on Amazon by clicking here.
Magic Box Paradigm
The MBP is written for you, the entrepreneur. The book articulates an end-to-end approach to startup acquisitions. Beyond laying out the key dynamics at play in startup M&A, I also tried to give you a bit of a "feel" for the game. The book is designed to be an easy, and even fun, read. It's not a textbook, but instead more of a guidebook.
I released the MBP last month and so far the reception has been great.
This talk at Vator Splash LA was a quick intro to a few of the concepts in the book.
Startup Growth Resources
The book begins by positing that a startup's strategy is about balancing three central forces:
- Product (what they are developing)
- Distribution (how they get it to customers)
- Monetization (how they make money)
In parallel, startups have three primary ways to access growth resources:
- Raise capital (stay independent)
- Establish commercial partnerships (access partner resources)
- Be acquired (fully combine with a partner)
If we plot the strategy/resource elements above on a chart, we get the following:
As such, startup acquisitions aren't really "exits" but rather "entrances." They are a way to accumulate the resources your startup needs for growth.
The problem with how many folks approach startup M&A is they believe a startup is an object that can be sold like other kinds of objects - say a Popsicle, or a piece of real estate. Startups aren't like other objects, and they are very hard to sell. Generally you can sell stuff when the following things are true:
Unfortunately, as it relates to startups:
- You can't present the same offering to the market - as the startup's technology almost always has a significantly different utility from buyer to buyer
- As such you can't provide the same guidance on price as value/price are dependent on each buyer-seller pairing
- These pricing dynamics make it nearly impossible to effectively run auctions
- It's exceedingly difficult to get startup buyer's incrementally committed to the transaction - if anything the power is shifted towards the buyer in most deals
- Startup acquisitions are extremely complicated and take forever to close
What this means is you can't sell stuff when you can't:
So you need to have a different approach, and that's where the Magic Box Paradigm comes in.
However, before outlining the MBP, let's be clear on our objective: to create value.
Startup Valuation is derived from your utility to a particular buyer and framed by their view of your scarcity.
If your startup can make a buyer a huge stack of money, and only your golden hammer can unlock that value - then you're in great shape valuation-wise. However, if the value an acquirer can extract from your startup is modest, and they perceive there to be many others just like it - then your valuation will suffer. As seen here:
As such, the first principles of the Magic Box Paradigm are as follows:
This leads us to see three practical realities for startup acquisitions:
The book dives in and develops a comprehensive approach for accounting for these dynamics - and in many cases - turning them from constraints into enablers.
As a quick overview the book covers:
- Thought leadership
- Process and approach
- Cultivating Interest
- Deal terms
In particular the sections on deal terms and closing should be very useful to anyone approaching an acquistiions.
And since the book isn't a startup - it can be sold! Get it now, get it here!!!
I hope you enjoy the book!
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Thanks to our amazing top-tier Vator Splash LA 2016 sponsors: KPMG, Javelin Venture Partners, Bread and Butter, Silicon Legal Strategy, Roger Royse Law, Surf Air, Wavemaker, Scrubbed, Stratpoint,AdSemble, Soothe and Bixel Exchange.
Editor's Note: Our annual Post Seed conference is around the corner on Dec. 1 at The Village in San Francisco. Speakers include Chamath Palihapitiya (Founder & CEO, Social Capital LP) and Jeff Lawson (Founder, CEO & Chairman,Twilio) and many more. Join us! REGISTER HERE.
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