It’s the hard truth of startups. Most new companies never make it.
Jacob Mullins has seen this reality play out hundreds of times as a former venture capitalist who previously led marketing efforts for Microsoft’s BizSpark program and served as director of business development at VentureBeat. In those roles, he’s encountered plenty of startups that never reached Instagram-style success, let alone made it past first base.
But Mullins has created a lifeline of sorts for those entrepreneurs stuck between financing rounds or ready to explore their next chapter. ExitRound, as his new company is called, serves as a matchmaker by linking startups nearing the end of their cycle with corporate buyers.
It’s investment banking for the washed-up or the never-made-its.
Better yet, you can kind of think about it like AngelList, the popular matchmaking service for entrepreneurs who are in the midst of seeking angel funding. But, in the case of ExitRound, it’s just at the polar opposite of that cycle.
These are companies that have exhausted their options, possibly after graduating from a technology incubator or running out of seed funding.
The idea clicked for Mullins while he was working as an investment professional at Shasta Ventures. Startups have loads of talent, yet the so-called series A funding gap is causing dozens of companies to hit the wall. (See: Chart: The ‘Series A Crunch’ is alive and well).
On the other end of the spectrum, large technology companies and fast-growing mid-tier companies can’t hire smart technologists fast enough. This has given rise to the so-called “acqui-hire” in which startup companies are acquired largely for their developers and engineers.
We’ve seen this play out on a number of occasions in recent months, including Salesforce.com’s acquisition last month of Gary Flake’s Internet clipping service Clipboard.com and its purchase last summer of TechStars Seattle grad ThinkFuse.
So far about 300 companies have filled out anonymous profiles on ExitRound. No sales have occurred yet, but Mullins is hopeful that corporate development folks at large corporations and other well-funded startups will soon turn to the site in order to pick up “good startup DNA.”
Startup companies listed on ExitRound are done so through an anonymous process, shielding the potential buyers from identifying the targets by name. If a buyer is interested in the attributes of the startup listed, ExitRound sends a notification to the founder with the inquiry.
“They have the option to say yes or no,” said Mullins.
In his conversations with entrepreneurs, Mullins noted that many first-time startuppers have been a bit reluctant to let go of their ideas or concede defeat. But, for those who are on their second or third startup, the concept of ExitRound clicks. ExitRound gets paid on a “per head” basis — meaning that it takes $10,000 for each person it places at the larger organization.
For example, if a two-person startup is acquired for $300,000, and both employees end up at the larger company, ExitRound gets $20,000. Mullins said that compares favorably to the fees of recruiters in the tech industry, some of which can clear upwards of $40,000 per person in Silicon Valley.
“$10,000 per head is round numbers, and it’s easy. And it’s much cheaper than what they are paying (recruiters),” he said. “We are getting a lot of interesting reception.”
Mullins has bigger ideas for ExitRound beyond talent acquisitions, noting that it could also be used for the sale of patents, technology or domain names. The goal is to target deals under $100 million, a territory where large investment bankers rarely tread.
“Once we have the trust of these buyers, there’s a lot of other IP types that go along with it,” he said. “Where I see this going is that we are actually the ‘long tail’ for tech M&A.”
Previously on GeekWire: Bring out your dead: Startup offers $1M to ‘acqui-hire’ alums of TechStars, Y Combinator and 500 Startups
