While we haven’t done any tuck-in acquisitions, I’ve talked to a number of entrepreneurs who’ve made small acquisitions for their startups with success. Tuck-in acquisitions, by their name, are smaller acquisitions that open up new opportunities or jump start a strategy change. The idea with these types of acquisitions isn’t to bet the farm, but rather to take advantage of an opportunity.
Tuck-in acquisitions make sense for a variety of reasons:
- Key employee talent is desired and the tuck-in acquisition brings it on board (e.g. an acqui-hire)
- Cross-sell/up-sell of an existing customer base with little risk
- Startup wants to introduce a new product without distracting the core engineering team working on the mothership
- Time to market for an opportunity that is moving quickly
- Geographic expansion, especially if an office is desired in a certain city
Tuck-in acquisitions, even if it is acquiring assets, are a good way for startups to grow faster and do it in a way that is more of a known quantity. Time and money are always constraints making tuck-in acquisitions more desirable if the capital or equity is available.
What else? What are some other reasons tuck-in acquisitions make sense for startups?