Selling out without "selling out"

In June, I heard Panos Desyllas present a conference talk (which I then blogged) on how UK biotech startups got killed after they were acquired. Today, his co-author Marcela Miozzo of Manchester Business School presented the paper here at KGI to a student audience.

To recap, the authors concluded that the acquired firm could be complementary or competing on two dimensions: technology and capabilities. If the firm is complementary on both dimensions, the odds are good it will survive; if they are competing on both dimensions, the odds are the company’s assets will be stripped and everyone “made redundant” (as they say in England).

One question I asked today was: did the entrepreneurs see this coming? Marcela made it sound like they didn’t explicitly look for this, but it sounded like they tended to be surprised.

In particular, she said the scientists were shocked or disappointed to find that their research wouldn’t be continued, and their prospective cure for a particular condition (e.g. Hepatitis) would die with the company. I think this is an area where human health research is different from other technical entrepreneurship — both the central role of scientists, but more particularly the idea of saving lives (or not, if corporate imperatives intervene).

It might be nice to say that the entrepreneurs should know better — that selling their company to certain firms would cause it to be killed — and thus when they exit, they should avoid "selling out." However, as Marcela noted, the entrepreneurs "knew that there were only 4 or 5 companies in the world that could acquire them.”

So in this constrained optimization of exit strategy — in many cases, for startup firms that have to be sold soon before they run out of money — such buy-and-kill outcome may be unavoidable. Perhaps the only bright spot is if the entrepreneurial climate is fertile enough that (in a Schumpeterian sense) the remnants of the former company can be recombined to make a new startup.