Dear Startup Investor,
Buck Jordan here.
Last week, we talked about exactly what characteristics a company must have for the best shot at a successful exit.
More specifically, I jumped into FIGS, a portfolio company of Wavemaker Partners that went public in a smash-hit initial public offering (IPO) on May 27.
FIGS is the first company led by two female cofounders to go public. The IPO was a massive success, valuing the company at close to $6 billion. By all measures, it was an incredible exit and a perfect example of what type of success is possible in the world of early stage investing.
This week, let’s take it a step further by talking about another type of exit: acquisitions.
An acquisition occurs when a company buys out most or all of another company, allowing them to take control of all decision making and business operations. Companies make acquisitions for a variety of reasons, like gaining a greater market share, bringing on new talent and technology, entering a new market, and more.
And above all, an acquisition can be extraordinarily lucrative for a company’s early stage angel and VC investors. I think the best way to demonstrate that value is through a recent example from my own career.
Cardlytics Acquires Bridg for $350 Million
I’m talking about Bridg, a software company focused on customer data for brick-and-mortar stores and consumer-packaged goods (CPG) companies. Bridg was acquired in April by bank-marketing company Cardlytics in a $350 million cash deal with a substantial earnout to follow.
Bridg is an LA-based company founded in 2010. Wavemaker Partners, my venture capital firm, invested in the company back in its 2013 Seed round at a valuation of $15 million.
We were attracted to this company for a few reasons; namely, because it’s extremely unique. You see, it’s much easier to collect customer data for digital based businesses than brick-and-mortar businesses.
Customers at a brick-and-mortar store are often anonymous, and it’s hard to track down exactly who is making what purchase. Bridg taps into a suite of tools that can help retailers engage with their unknown customers and make better operational and marketing decisions for the future.
But why the acquisition? Well, Cardlytics has been heavily focused on building out its tech this year.
Bridg was actually the company’s second major acquisition over a two-month period. Back in March, Cardlytics completed a $275 million cash-and-stock acquisition of cash-back offers platform Dosh. That brings the total value of Cardlytics’ acquisitions to $625 million.
Many times, companies seek out startups with the exact type of tech they need to grow larger and more powerful. It’s easier to acquire a company that’s already built out that kind of tech, rather than spending the time and money building a brand-new product themselves.
Acquisitions and Angel Investors
As an angel investor, it goes without saying that you should always search for the companies with the highest probability of handing you back outsized returns. That’s a given.
And a company doesn’t need to go public to do just that. An acquisition can hand you back an incredible return on your investment, too. Usually, if you’re an investor in a company that’s been acquired, you’ll have the option to exchange your shares for cash or keep an equivalent number of shares in the acquiring company.
Like I’ve always said, the companies that are most likely to hand you those kinds of returns are the ones making waves with technologically-advanced solutions that solve big problems.
While there’s never a surefire guarantee that you’ll make bank, looking for these kinds of companies will definitely put you in a better position to win big… whether that startup goes public one day, stays private, or gets acquired by another company.
That’s all from me for right now, but I’ll be back shortly with more. Don’t forget to leave me a comment below to say hi and tell me what you want to hear in future issues.
We’ll talk soon,
Interested to know how much did your fund make off of this acquisition, how much did your fund invest, and did you take cash or did you take shares.
What confuses all of us investors with startups is how much we actually make from an exit, we don’t know how to do the math. Could you give us some math examples of an acquisition, exit, and an IPO, I know that everything has variables but if you could give us an example of all three and how the math is done with it it would give people like me who have never had an exit acquisition or IPO understand more. I know it would be an estimation but help us to understand how this all works Mathematically on paper.
Hi, Buck. So glad to have you aboard this great team of angel investors. Thank you for explaining this. It’s one of the questions I’ve been wrestling with my own small portfolio. Carole