Posted in: Business

Can Large Companies Help Small Companies Find Business Models (An Open M&A Question)

This is more of an open thread than a blurb. I’ve been looking at the dismal data on venture capital exits and the growing swirl of rumors about Twitter getting acquired. One thing I’ve always wondered is whether a situation where a big company buys a small company for a large sum (say north of $500 million) when said small company doesn’t yet have a business model AND said big company believes they can wrap a business model around the traffic actually works in practice. I’ve always been a bit skeptical of those kind of deals for one main reason. When you’re independent you can look at the world through the eyes of your own business and figure out what business model makes the most sense. You don’t have the baggage (or benefit) of an existing world view and business model. Being part of a larger company can often mean figuring out how what the small company wants to do in the context of the larger company’s business model. Conversely, if you are a small company that has a business model that is in fact working, it’s easier to just scale that up by partnering with someone who can add more fuel to a fire that’s already burning. A few large deals I could think of are listed below:

-PayPal – Had a pretty good business on eBay’s platform before eBay bought them. They continue to grow.
-Skype – Had a good business (by volume) as an independent company; continuing to grow rapidly as part of eBay
-YouTube – Didn’t have much of a business model when acquired, but gaining momentum
-BillMeLater – Had a working business model prior to the credit meltdown; no idea how it’s performing now
-MySpace – Having a $900 million ad revenue guarantee never hurts; this was going to be a media / ad business all along

What do you think? Any examples of big companies helping small companies figure out the business model (in a big way) post-acquisition? I’m not counting businesses that already kind of work but lack scale (ad networks that need access to more publishers and advertisers to scale up, functional technology that needs a key distribution deal to work etc). It’s late so I’m looking forward to some help in figuring this one out.