Enterprise startups have a number of viable exit methods: Some will go public, however most profitable outcomes will probably be by way of acquisition, usually by one of many extremely acquisitive massive opponents like Salesforce, Microsoft, Amazon, Oracle, SAP, Adobe or Cisco.
From rivals to “spin-ins,” Cisco has a very wealthy historical past of shopping for its strategy to world success. It has remained fairly energetic, buying greater than 30 startups during the last 4 years for a complete of 229 over the lifetime of the corporate. The newest was Epsagon earlier this month, with 5 extra in its most up-to-date quarter (This autumn FY2021): Slido, Sedona Systems, Kenna Security, Involvio and Socio. It even introduced three of them in the identical week.
It begins by figuring out targets; Cisco does that by being intimately concerned with a listing of as much as 1,000 startups that might be a match for acquisition.
What’s the key sauce? How it’s going quicker than ever? For startups that encounter an organization like Cisco, what do you must know you probably have talks that go locations with it? We spoke to the corporate CFO, senior vice chairman of company growth, and the overall supervisor and government vice chairman of safety and collaboration to assist us perceive how the entire items match collectively, why they purchase so many firms and what startups can study from their course of.
Cisco, as you’ll count on, has developed a rigorous methodology through the years to establish startups that might match its imaginative and prescient. That entails product, after all, but additionally group and worth, all coming collectively to make a profitable deal. From focusing on to negotiating to closing to incorporating the corporate into the company fold, a startup can count on a well-tested course of.
Even with all this expertise, likelihood is it gained’t work completely each time. However since Cisco started doing M&A nine years into its historical past with the acquisition of LAN switcher Crescendo Communications in 1993 — resulting in its large switching enterprise as we speak — the strategy clearly works nicely sufficient that they maintain doing it.
It begins with money
If you wish to be an acquisitive firm, likelihood is you could have a good amount of money available. That’s definitely the case with Cisco, which at the moment has greater than $24.5 billion in money and equivalents, albeit down from $46 billion in 2017.
CFO Scott Herren says that the corporate’s money place offers it the pliability to make strategic acquisitions when it sees alternatives.
“We generate free money movement internet of our capex in spherical numbers within the $14 billion a 12 months vary, so it’s a good quantity of free money movement. The dividend consumes about $6 billion a 12 months,” Herren stated. “We do share buybacks to offset our fairness grant packages, however that also leaves us with a good amount of money that we generate 12 months on 12 months.”
He sees acquisitions as a strategy to drive top-line firm progress whereas serving to to push the corporate’s general strategic objectives. “As I take into consideration the place our acquisition technique suits into the general firm technique, it’s actually discovering the innovation we want and discovering the businesses that match properly and that marry to our technique,” he stated.
“After which let’s speak concerning the deal … and does it make sense or is there a … vendor worth level that we are able to meet and is it clearly one thing that I believe will proceed to be a core a part of our technique as an organization by way of discovering innovation and driving top-line progress there,” he stated.
The corporate says examples of acquisitions that each drove innovation and top-line progress embrace Duo Security in 2018, ThousandEyes in 2020 and Acacia Communications this 12 months. Every gives some element that helps drive Cisco’s technique — safety, observability and next-generation web infrastructure — whereas contributing to progress. Certainly, one of many large causes for all these acquisitions could be about maintaining growth.
Enjoying the match recreation
Cisco is at its core nonetheless a networking gear firm, nevertheless it has been trying to broaden its markets and diversify exterior its core networking roots for years by shifting into areas like communications and safety. Contemplate that alongside the best way it has spent billions on firms like WebEx, which it bought in 2007 for $3.2 billion, or AppDynamics, which it bought in 2017 for $3.7 billion simply earlier than it was going to IPO. It has additionally made extra modest purchases (by comparability not less than), such as MindMeld for $125 million and numerous offers that have been too small to require them to report the acquisition worth.
Derek Idemoto, SVP for company growth and Cisco investments, has been with the corporate for 100 of these acquisitions and has been concerned in serving to scout firms of curiosity. His group begins the method of figuring out attainable targets and the place they fall inside numerous classes, reminiscent of whether or not it permits them to enter new markets (as WebEx did), prolong their markets (as with Duo Safety), or acqui-hire prime technical expertise and get some cool tech, as they did when they purchased BabbleLabs final 12 months.