Redeye VC

Josh Kopelman

Managing Director of First Round Capital.

espite being coastally challenged (currently living in Philadelphia), Josh has been an active entrepreneur and investor in the Internet industry since its commercialization. In 1992, while he was a student at the Wharton School of the University of Pennsylvania, Josh co-founded Infonautics Corporation – an Internet information company. In 1996, Infonautics went public on the NASDAQ stock exchange.

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The M&A Lotto

Lottery In 2005, Google submitted a 10-K filing with the SEC which revealed that it had acquired nine companies and substantially all of the assets of another six companies. The combined purchase price for these 15 companies was equal to $130.535 million USD
2005 Google Acquisitions - 15

According to Wikipedia, Yahoo made 11 acquisitions in 2005 –and Yahoo’s 10K states that in addition to their investment in Alibaba, the purchase of the remaining outstanding shares of Yahoo! Europe and Yahoo! Korea, and the purchase of Verdisoft...Yahoo “acquired four other companies which were accounted for as business combinations. The total purchase for these four acquisitions was approximately $79 million…[and] the Company also completed immaterial asset acquisitions that did not qualify as business combinations.”
2005 Yahoo Acquisitions - 11

So why is it that every single startup that I see expects to sell to Google and Yahoo?

More people were drafted in the first round of the 2005 NBA draft than were acquired by Google and Yahoo. (Perhaps I should be scouting talent around North Carolina instead of Stanford?)

In fact, you have better odds of winning $5M in the NY Lottery than you do of selling your company to Google (or Yahoo) - in 2005, there were 19 prize claims of $5 Million or more in the NY Lottery. (Honest.  The information wasn’t readily available on their website – so I sent an email to them at questions [at] and they responded within an hour.)

Moral of the story – entrepreneurs should focus on building real, long-term value. An exit opportunity only exists if you build a company that has differentiated technology, a strong team, offers customers real value, demonstrates traction in the marketplace, and/or solves a real need for the acquirer. You can’t build a company to sell it – I’ve never seen it work. If you are playing the odds for a quick flip to Google or Yahoo, buy a lottery ticket.


Andrew Laffoon

Thanks for the data, Josh. This is something that web 2.0 entrepreneurs (like myself) need to hear. So much of the market is returning to the web 1.0 metric of eyeballs instead of building lasting value through revenue and profit. It is good to know that the big boys like Yahoo and Google are thinking intelligently and purchasing value, not hype.


all I can say is....AMEN BROTHER!

you speak a language that sadly too many internet entrepreneurs don't understand. bravo

gl hoffman

Why is it then, that most VC's ask the "what is the exit strategy so often?" Followed by the old, "Why hasn't this been done before?" one.


I like the example and of course agree...but isn't the example a bit misguiding? The odds of buying a lotto ticket aren't the same because the number of people buying lotto tickets is much higher than the number of entrepreneurs starting companies.

26 Acquisitions/100K startups versus 19 winning lotto tickets/millions of tickets purchased.

And I do think VCs have caused the extensive focus on 'exit strategy'...

Josh, I'm also curious about your opinion on how to block out the thinking of exit strategy and just focus on building the company, especially in light of the fact that some of your startups were acquired within a year of being started!


Josh - how many companies do you speak to that want to *beat* google (or ebay or yahoo etc)? I'm one who would like to create something bigger - newer and change things the way they did.

The question is really about opportunity. The Google guys got (somewhat) lucky being persuaded by an investor that going back to their PhD's could wait. Otherwise there would be no google. In life i guess you see an opportunity and people think they have one chance.

I'd like a share of the money you get from selling a company, but imagine creating the next big thing. The question for me is really gos back to the origins of the web. The best innovation came from those not purely focused on the money - i guess " long-term value" is one way of putting it, but they'd just think innovation - something new. If something good is created, people will use it.

There is more of a focus on money now - important of course if you are an investor, but too often clouds the decisions where you can create your own luck by being a little chaotic and dynamic (getting cash too early is probably a bad thing for this reason). In the early days i think you really need to go with your gut feel and try and get some of that luck! (chaotic emergence in my case).

Shanti Braford

There are way too many "flip it quick" startups being created.

Of course, many of them think they will change the world.

Having started several startups on a shoestring and bringing them to profitability, I've seen first hand how hard it can be.

I bet 90% of the Web 2.0 startups you see today are not making money yet and are on a collision course towards more VC funding to stay afloat, or be bought out at a huge discount to their current valuations.


mmm... if the point is that you shouldn't build a company with a focus around selling it to Google / Yahoo, then i agree.

however, if the point is that acquisition is SO unlikely for startups that they shouldn't think about it, then i'd say that's wrong.

the point above about # of participants in your Lotto comparison is on target -- they're aren't millions of people doing startups (yet anyway). there might be single-digit thousands, but if there are 20-50 double-digit million acquisitions happening for every thousand startups created (i'm making up those stats), then those aren't terrible odds, and no where near as bad as Lotto.

i THINK what you mean to say is that entrepreneurs should focus on creating value and serving customer need, but i think it's not correct to tell people that acquisitions by platform companies are a pipe dream -- they're rare, but not unlikely... and they're a HELL of a lot more likely than an IPO, especially these days.

furthermore, i'd say THERE HAS BEEN A FUNDAMENTAL CHANGE in the startup market over the past 2-4 years, due to both funding, costs, exit, and many other issues

for more on this, see my post on allen morgan's blog:

entrepreneurs SHOULD be thinking about exits, because it's crucial to understand how much money they should (or should NOT) be raising to fund their venture.

and while acquisitions shouldn't be assumed as probable, they are certainly much more likely than any other type of exit -- and Google & Yahoo are some of the most likely acquirers for Web 2.0 startups... along with Microsoft, eBay, Yahoo, NewsCorp, Amazon, AOL, Apple, Adobe, SalesForce, Monster, and a host of other public, profitable, motivated technology & media companies that have cash and have a demonstrable history of M&A activity.

- dave mcclure

Eric Jackson

It reminds me a little of when went public in late '98 and had a moonshot 1st day. For the next 18 months, at Columbia Business School and everywhere else, you were an idiot if you were not going to go join a start-up (I-Banking and Mgmt Consulting were displaced from their top spots at the career center -- temporarily). I remember I took a class from Adam Dell (Michael's younger brother) in the Fall 99 whereby he told us to "go out and monetize eyeballs." (Is Adam still a VC?) However, a career timing investment strategy is about as successful as a market timing one. It should be a calling -- not a flip.


I can't help to think people has (a lot) more to do about how they create and run their companies compared to picking numbers...

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I can't help to think people has (a lot) more to do about how they create and run their companies compared to picking numbers...

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