A big company wants to buy your start-up, sounds exciting, right? But what does start-up acquisition look like? What influence do big companies have on their acquisitions? What are the advantages and disadvantages?
As part of our EWOR Academy, Jan Stumpf gave a lecture on his experiences with big tech company integration. Jan is the co-founder of Ascending Technologies, a tech start-up focusing on drones. A graduate of the Technical University of Munich and M.I.T., Jan studied electrical engineering and underwater robotics. After founding Ascending Technologies with friends in 2007, tech giant Intel acquired it in 2016.
In his lecture, Jan shared the pros and cons of such start-up acquisitions and what he learned during his employment at Intel.
What Is Ascending Technologies’ Origin Story?
Before they could ever think about big tech company investments, Ascending Technologies began as a hobby among friends. The mid-2000s saw a growing hobby scene of building quadcopters. Commercial drones such as DJI’s products weren’t common back then, so people built their own.
Jan and his co-founders were part of that first drone wave. As he was starting his PhD at the German Aerospace Centre of Robotics Institute, he learned that their team was interested in flying robots. M.I.T. expressed a similar interest. The latter ended up investing in the company and became a research partner as well as an early customer.
Given this natural progression and project-based growth, Jan recalled not needing typical business angels to get the company off the ground. Innovation driven by technology and motivation was the key to their organic success, according to Jan.
What Do Big Companies Look for in a Start-Up?
Ascending Technologies’ natural growth resulted from the hard work of a passionate team. But, what qualities make for the most productive teamwork? How did they convince a tech giant like Intel to invest in them? During his lecture, Jan credited most of their appeal to a great team.
Jan remains in close contact with his co-founders, even now that they’re no longer working on Ascending Technologies together. Early on, the four of them recognized one of their strongest assets: they were all in similar life phases and could dedicate all their time to their start-up. That passion and shared vision fuelled their motivation to bring their company to the top of the food chain.
What Makes a Good Team Dynamic?
The most important quality of a good team dynamic is open and honest communication. Jan believes that honesty prevents mistakes.
The importance of addressing unproductive personal habits and complex friendships that get in the way of work shouldn’t be underestimated. Jan recalled their founding team having a checks and balances system in place. Every member had their responsibilities based on their strengths but they were never alone with an issue. Dedicated support and a joint effort to make the company the best it can be was at the heart of Ascending Technologies.
Jan’s Biggest Lessons from Intel’s Acquisition of His Start-Up
To help young entrepreneurs understand the advantages and disadvantages of start-up acquisition, Jan shared four lessons from his career. He encouraged our students to learn from his experiences and apply them to their entrepreneurial journeys.
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Story 1: Acquisition – Silicon Valley Style
When Intel first expressed interest in acquiring Ascending Technologies, Jan and his co-founders declined. They were successful and didn’t feel the need to integrate into such a big tech company.
That attitude changed in 2016. A deciding factor was Intel’s CEO at the time, Brian Krzanich. “It was really important for him to be involved in the project and have him as a champion,” Jan stressed. Krzanich’s enthusiasm for drones and his efforts to please both parties helped the acquisition process.
Integration took both parties four months. It was a tedious process and involved meetings about deal details and a thorough look into every aspect of the start-up. “Taking one integration step after another would have been a little bit easier,” Jan explained about what he wished would have gone differently.
He recalled Intel’s legal team taking the longest as they trusted the start-up on the technology side but needed to make sure they were clean in legal affairs. If you enter grey areas and don’t prioritise correct open-source licensing, it can be “a complete showstopper.”
In the end, it was their team and technology that convinced Intel, according to Jan. It wasn’t a unique business plan or well-thought-out marketing strategy. Ascending Technologies’ entire team and their ideas had the most value to them.
- Champions are important
- Be clean on legal topics
- Focus on tech & talent
Story 2: The Dark Side of Big Company Acquisitions
Working out the details of a deal isn’t the only thing that causes issues when a big company acquires a smaller one. Jan shared a second story about some of the biggest negative aspects of his experience with start-up acquisition.
Every tool, contract, and manufacturer was subjected to the integration process. That approach also meant Intel suggesting changes in some production processes. One of them affected a software Ascending Technologies was using, SolidWorks. Instead of keeping local servers that worked efficiently, Intel insisted on moving them to Israel. Jan recalled usually fast work processes taking hours instead of seconds after the change.
Another issue presented itself when their champion, the CEO, left the company. A big corporation like Intel means the superiors of your superiors change a lot. After Krzanich left, Jan and his team worked with other, finance-driven Intel employees. They pushed them to complete the same projects at a faster pace with a reduced team.
Jan admitted this new pressure wasn’t helpful, and the goals were unachievable. “This was where a product which made money for ten years unfortunately went down after three years with a big company,” he summarised the new workflow.
- Big companies are not patient
- Legal and organisational topics take a lot of effort
- Micromanagement by new bosses can be harmful
Story 3: Big Company Branding
Jan’s third learning opportunity relates to the drone light shows that Ascending Technologies worked on with Intel. The goal of these shows is to create beautiful flying shapes with small drones that carry LED lights.
They knew that doing these shows with hundreds or thousands of drones came with safety concerns. Creating 200 shows with the Rockettes in New York City could cause the drones to malfunction and injure someone. That’s why they designed the small drones to weigh only 52 grams and monitored their functionality.
One of Intel’s light shows with Audi caused an incident that would drastically impact their drone program. One of the drones fell on a journalist’s head during the show, and he wrote an article about his experience. The journalist opened the article by stating the drone didn’t hurt him. It’s light and the impact wasn’t painful. That didn’t matter to Intel’s new CEO at the time, Jan said. The incident marked the end of Intel’s indoor light shows.
What warranted such an intense response to an insignificant incident?
Intel is a large company that cannot risk its image and reputation. Bad press has the potential to cause financial ruin for them. “As a small start-up, you don’t have a brand which can kill millions of dollars with one bad article,” Jan explained the difference. That’s why the CEO would rather kill a project as a precaution than risk a negative article gaining attention.
- Image and brand are valuable for a big company
- One single bad article can cost millions
Story 4: The Bright Side of Big Company Acquisitions
After Jan covered the negative aspects of start-up acquisitions, he ended the lecture on a positive note.
The biggest advantage that Intel delivered was its reach. The drone light shows started as a side project and gained more traction over time. Intel wanted to take them to the next level and invested in Jan and his team to deliver bigger and better shows.
With this vision, Intel created drone light shows for large events such as the Super Bowl or Olympic opening ceremonies. They pushed the limits of how many drones they could coordinate and the shapes they could create. This effort earned them a Grammy Award. Jan showed our students a highlight reel of global projects that Ascending Technologies worked on.
Logistically, these large projects came with their own set of issues. Jan mentioned that shipping a fleet of 2,000 drones costs more than the fleet itself. Even so, these events were invaluable opportunities to present the company’s innovative work on the biggest stages.
- Scaling can be difficult
- Big names open doors
Final Thoughts on Start-Up Acquisitions
After sharing his stories and lessons, Jan reflected on overarching themes and three things he would do differently in hindsight.
Jan believes that underestimating the extra workload that comes with a big company is a crucial mistake. Adjust your expectations and balance your promises. Don’t promise your new superiors results you won’t be able to deliver with the added effort of integration. Previous workflows won’t be the same, and you’ll have additional tasks.
“I would try to stay separate as much as possible,” Jan said of the acquisition process. He suggested regular board meetings, but to keep everyday businesses in your control. Big companies have more negotiating power, but he deemed it important to stand up for yourself and work out deals that benefit both parties. The tedious integration process can do more harm than good, so voice your concerns and suggest solutions.
Jan would also slow down the hiring and growth process. Ascending Technologies had three main locations in Germany, Finland, and the United States in the end. Adding more employees and locations adds more stress for the founders. Jan would rather stick to the initial natural growth than push big company expansion agendas too quickly.
Learn from Jan’s experiences with big companies acquiring start-ups and adapt his lessons to your journey.