When Big Companies Choke

Big Companies struggle to take risk and manage for the long term.  Many choke. I know that sounds like a sweeping statement.  Admittedly, it is.  But, I’ve seen various situations over and over, and that’s my conclusion.

The latest example happened last week.  An entrepreneur called with an update. A very Large and Known Public Company bought his start-up a few years ago for over $200MM. He and his group were given incentives to stick around, and so, they did.

A few years later, the acquirer decided it no longer wanted to be in that start-up’s core business. So, they tried to spin off the company they acquired. That’s when I met with the entrepreneur. He was raising money to fund a spin-off.

I liked the idea, but his go-forward plan had two challenging facets: 1. He had to keep funding an “old” product line because that’s what Corporate wanted, and 2. The odds of everyone at the Big Company signing off on a spin-off were low. Regarding the latter, I told him that various stakeholders at the Big Company had different incentives, and it’s likely that somebody will kill the deal.

So, I passed on the opportunity.  Fast forward a few quarters. After working very hard to get financing from strategics and VCs, the Big Company pulled the plug.  At the 11th hour, someone at the Big Company’s intellectual property group decided to veto the deal. They didn’t want the patents to leave the company.

So, what happened? The Big Company killed the product and fired the whole team. Now, it owns patents with no team or product. So, they paid a $200MM+ price to squat on some patents.

Sound crazy, I know.  True story, though.

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