Startup companies continue to be left in the lurch as venture-capital firms retrench, but established technology vendors aren’t complaining. Instead, they’re benefiting from the situation, seizing the opportunity to pick off capital-starved, distressed startups at fire-sale prices.
A post at the Wall Street Journal’s Digits blog recounts how Silicon Graphics International (SGI) — a company that knows distress when it sees it — spent just $2 million to acquire Copan Systems, a vendor of data-storage hardware that had raised more than $107 million in venture capital since it was launched nearly a decade ago.
Mark Barrenchea, president and CEO of SGI, says his company’s acquisition of Copan represented “great value,” and it’s easy to see why. Still, I wonder what SGI got for its money. Copan had exhausted its operating capital, and one of its creditors had placed it in foreclosure and appointed a receiver.
Probably long before that point, most employees with survival skills and marketable talent would have bolted for the exits. They would not have waited around for last rites to be administered.
Given the circumstances, SGI was practically picking at Copan’s carcass. Then again, Copan had a technology-patent portfolio and an installed-base of customers. Even if it was operating more in word than in deed near the end of its venture-funded existence, its patents and customers gave it significant residual value.
SGI will continue to shop for deals among abandoned and forlorn startup companies. Others are doing likewise. It’s an advantageous time to be shopping for shards of value among the ruins.