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Leveling the playing field
In 2011, a product developer named Fred Davison read an article about inventor Ken Yankelevitz and his QuadControl video game controller for quadriplegics. At the time, Yankelevitz was on the verge of retirement. Davison wasn’t a gamer, but he said his mother, who had the progressive neurodegenerative disease ALS, inspired him to pick up where Yankelevitz was about to leave off.
Launched in 2014, Davison’s QuadStick represents the latest iteration of the Yankelevitz controller — one that has garnered interest across a broad range of industries.
“The QuadStick’s been the most rewarding thing I’ve ever been involved in,” Davison told TechCrunch. “And I get a lot of feedback as to what it means for [disabled gamers] to be able to be involved in these games.”
Laying the groundwork
Erin Muston-Firsch, an occupational therapist at Craig Hospital in Denver, says adaptive gaming tools like the QuadStick have revolutionized the hospital’s therapy team.
Six years ago, she devised a rehabilitation solution for a college student who came in with a spinal cord injury. She says he liked playing video games, but as a result of his injury could no longer use his hands. So the rehab regimen incorporated Davison’s invention, which enabled the patient to play World of Warcraft and Destiny.
QuadStick
Jackson “Pitbull” Reece is a successful Facebook streamer who uses his mouth to operate the QuadStick, as well as the XAC, (the Xbox Adaptive Controller), a controller designed by Microsoft for use by people with disabilities to make user input for video games more accessible.
Reece lost the use of his legs in a motorcycle accident in 2007 and later, due to an infection, his hands and legs were amputated. He says he remembers able-bodied life as one filled with mostly sports video games. He says being a part of the gaming community is an important part of his mental health.
Fortunately there is an atmosphere of collaboration, not competition, around the creation of hardware for gamers within the assistive technology community.
But while not every major tech company has been proactive about accessibility, after-market devices are available to create customized gaming experiences for disabled gamers.
Enter Microsoft
At its Hackathon in 2015, Microsoft’s Inclusive Lead Bryce Johnson met with disabled veterans’ advocacy group Warfighter Engaged.
“We were at the same time developing our views on inclusive design,” Johnson said. Indeed, eight generations of gaming consoles created barriers for disabled gamers.
“Controllers have been optimized around a primary use case that made assumptions,” Johnson said. Indeed, the buttons and triggers of a traditional controller are for able-bodied people with the endurance to operate them.
Besides Warfighter Engaged, Microsoft worked with AbleGamers (the most recognized charity for gamers with disabilities), Craig Hospital, the Cerebral Palsy Foundation and Special Effect, a U.K.-based charity for disabled young gamers.
Xbox Adaptive Controller
The finished XAC, released in 2018, is intended for a gamer with limited mobility to seamlessly play with other gamers. One of the details gamers commented on was that the XAC looks like a consumer device, not a medical device.
“We knew that we couldn’t design this product for this community,” Johnson told TechCrunch. “We had to design this product with this community. We believe in ‘nothing about us without us.’ Our principles of inclusive design urge us to include communities from the very beginning.”
Taking on the giants
There were others getting involved. Like many inventions, the creation of the Freedom Wing was a bit of serendipity.
At his booth at an assistive technology (AT) conference, ATMakers‘ Bill Binko showcased a doll named “Ella” using the ATMakers Joystick, a power-chair device. Also in attendance was Steven Spohn, who is part of the brain trust behind AbleGamers.
Spohn saw the Joystick and told Binko he wanted a similar device to work with the XAC. The Freedom Wing was ready within six weeks. It was a matter of manipulating the sensors to control a game controller instead of a chair. This device didn’t require months of R&D and testing because it had already been road tested as a power-chair device.
ATMakers Freedom Wing 2
Binko said mom-and-pop companies are leading the way in changing the face of accessible gaming technology. Companies like Microsoft and Logitech have only recently found their footing.
ATMakers, QuadStick and other smaller creators, meanwhile, have been busy disrupting the industry.
“Everybody gets [gaming] and it opens up the ability for people to engage with their community,” Binko said. “Gaming is something that people can wrap their heads around and they can join in.”
Barriers of entry
As the technology evolves, so do the obstacles to accessibility. These challenges include lack of support teams, security, licensing and VR.
Binko said managing support teams for these devices with the increase in demand is a new hurdle. More people with the technological skills are needed to join the AT industry to assist with the creation, installation and maintenance of devices.
Security and licensing is out of the hands of small creators like Davison because of financial and other resources needed to work with different hardware companies. For example, Sony’s licensing enforcement technology has become increasingly complex with each new console generation.
With Davison’s background in tech, he understands the restrictions to protect proprietary information. “They spend huge amounts of money developing a product and they want to control every aspect of it,” Davison said. “Just makes it tough for the little guy to work with.”
And while PlayStation led the way in button mapping, according to Davison, the security process is stringent. He doesn’t understand how it benefits the console company to prevent people from using whichever controller they want.
“The cryptography for the PS5 and DualSense controller is uncrackable so far, so adapter devices like the ConsoleTuner Titan Two have to find other weaknesses, like the informal ‘man in the middle’ attack,” Davison said.
The technique allows devices to utilize older-gen PlayStation controllers as a go-between from the QuadStick to the latest-gen console, so disabled gamers can play the PS5. TechCrunch reached out to Sony’s accessibility division, whose representative said there are no immediate plans for an adaptable PlayStation or controller. However, they stated their department works with advocates and gaming devs to consider accessibility from day one.
In contrast, Microsoft’s licensing system is more forgiving, especially with the XAC and the ability to use older-generation controllers with newer systems.
“Compare the PC industry to the Mac,” Davison said. “You can put together a PC system from a dozen different manufacturers, but not for the Mac. One is an open standard and the other is closed.”
A more accessible future
In November, Japanese controller company HORI released an officially licensed accessibility controller for the Nintendo Switch. It’s not available for sale in the United States currently, but there are no region restrictions to purchase one online. This latest development points toward a more accessibility-friendly Nintendo, though the company has yet to fully embrace the technology.
Nintendo’s accessibility department declined a full interview but sent a statement to TechCrunch. “Nintendo endeavors to provide products and services that can be enjoyed by everyone. Our products offer a range of accessibility features, such as button-mapping, motion controls, a zoom feature, grayscale and inverted colors, haptic and audio feedback, and other innovative gameplay options. In addition, Nintendo’s software and hardware developers continue to evaluate different technologies to expand this accessibility in current and future products.”
The push for more accessible hardware for disabled gamers hasn’t been smooth. Many of these devices were created by small business owners with little capital. In a few cases corporations with a determination for inclusivity at the earliest stages of development became involved.
Slowly but surely, however, assistive technology is moving forward in ways that can make the experience much more accessible for gamers with disabilities.
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Review: Wireless headsets from Logitech, Audio-Technica, SteelSeries, HyperX and more
With the amount of time you’re spending at home these days, you deserve a better headset. A wireless one that works with your computer and maybe your console as well, with a mic for calls and great sound for games and movies. Fortunately there are a lot to choose from, and I’ve tested out your best options.
I asked the leading audio and peripheral companies to send over their flagship wireless headset, with prices ranging from about $100 to $250. Beyond this price range returns diminish swiftly, but right now that’s the sweet spot for comfort, sound and usability.
For years I’ve avoided wireless headsets because there were too many compromises, but I’m pleased to say that the latency has been eliminated and battery life in the ones I reviewed is uniformly excellent. (NB: If the wireless version feels too expensive, you can often get wired ones for $50-100 less.)
To test the headphones, I used them all for a variety of everyday tasks, from video calls to movies and music (with only minimal EQing to get a sense of their natural sound) to AAA games and indies. None require an app to work, though some have companion software for LEDs or game profiles. I have a fairly large head and medium-sized ears, for what it’s worth. All the headphones are rather bulky, though the angle I shot them at individually makes them look huge — you can see in the image up top that they’re all roughly the same size.
None of these headphones have active noise cancelling, but many offer decent physical isolation to the point where they offer a “monitor” feature that pipes in sound from the outside world — useful if you’re playing a game but waiting for the oven to preheat or something. Only the first set has a built-in mic, the rest have detachable ones of generally solid quality, certainly good enough for streaming and chatting, though for broadcast a separate one would be better. All these headphones use a USB-A style dongle, though the 7P/7X also has a USB-C connector.
SteelSeries 7P/7X – $149
Image Credits: Devin Coldewey / TechCrunch
The 7P and 7X headsets, designed with the PS5 and Xbox Series X in mind (as well as PC) respectively, are my first and most unreserved recommendation.
The standout feature on these is, to me, a truly surprising sound with an almost disturbingly broad stage and clarity. I almost couldn’t believe what I was hearing when I put on some familiar tracks I use for reference. This isn’t a 7.1 simulation or anything like that — but no doubt the gaming focus led to creating a large soundstage. It worked!
I also found the headphones to be very comfortable, with a “ski goggle” strap instead of a per-band adjustment that lets them sit very lightly as well as “remembering” your setting. The spacious earcups rotate for travel or comfort.
The built-in mic is unobtrusive and stows away nicely, but if you’re picky about placement it was a bit floppy to adjust. Many of the other headsets have nicer mics that completely detach — maybe that’s a plus for you, but I tend to lose them.
My main issues with these are that the controls feel cheap and not particularly well laid out. The bottom of the headset is a jumble of ports and buttons and the volume dials don’t have much travel — it’s 0 to 100 in one full swipe. (Volume control is independent from system volume.)
The dongle is different from the others in that it is itself USB-C, but with a USB-A cable attached. That’s good for compatibility, but the cable is three feet long, making it kind of silly to attach to some laptops and whatnot. You could easily get your own short cord, though.
At $150 I think these are an easy recommendation for just about anyone looking at that price range.
Audio-Technica AT-GWL – $250
Image Credits: Devin Coldewey / TechCrunch
The high price on these is partly because they are the wireless version of a headset that also comes wired, so if you want the solid audio performance and comfy fit, you can save some money by going wired.
The sound of the AT-GWLs is rich and naturally has a focus on the upper-mid vocal range, which makes voices in media really pop. I did find the sound a bit confined, which hitting the “surround” setting actually helped with. I know that this sort of virtualization has generally been frowned on, but it’s been a while since these settings have been over the top and distortive. I found surround better for games but not necessarily for music, but it’s very easy to switch on and off.
The headphones are light and adjusted with traditional, no-nonsense metal bands, with a single pad on the top. I would say they are the lightest-feeling pair I tested, with the SteelSeries and Razer coming in just behind owing to some extra weight and bulk. Despite being compact, the AT-GWLs felt airy but not big. The leather-microfiber combo cups are nice, and I think they’ll break in well to provide better isolation over time.
Where they fall short is in the interface. First, a note to Audio-Technica: Turn down the notification noises! Turning the headset on, the mic on or off or hitting the system-independent volume max produces loud, surprising beeps. Too loud!
Second, the buttons and dials are stiff, small and same-feeling. Lifting a hand quickly to turn down the volume (maybe after a huge beep) you may very easily mistake the power switch for the volume dial. The dial also doubles as a button for surround mode, and next to it is a microscopic button to turn on and off the sound of surroundings. It’s a bit of a jumble — nothing you can’t get used to, but considering how nice other headsets on this list made their controls, it has to be said.
HyperX Cloud II wireless – $100
Image Credits: Devin Coldewey / TechCrunch
HyperX (owned by Kingston) wasn’t exactly known for audio until fairly recently, but its previous Cloud headset got the crucial Wirecutter endorsement, and it’s easy to see why. For less money than any of the other headsets in this roundup, the follow-up to that headset (which I’m wearing right now) has excellent sound and isolation.
I was surprised to find a soundstage nearly as wide as the 7P/7X, but with more of a focus on the punchy lower register instead of on detail and placement. My music felt big and close, and the atmosphere of games likewise, more immediately present.
The Cloud II’s controls are simple and effective. The volume dial, tied directly to the system volume, is superb: grippy, with smooth motion and just the right amount of friction, and just-barely-there clicks. There are two good-size buttons, the power one concave and the mic mute (which gives different sounds for muted and active) convex.
It’s unfortunate that they’re not as comfortable, for me anyway, as the others on this list. The cups (though a bit on the warm side) and band are perfectly fine. It’s that there’s little rotation to those cups, meaning there’s no play to accommodate the shape of your head. I don’t know, maybe it’s just my big dome, but they were noticeably tighter at the front of my ear than the back, so I was constantly adjusting or trying to twist them.
I’ll say this: If they add a bit more adjustment to the cups, these would be my default recommendation over the 7P/7X. As exciting as the SteelSeries sound is to me, the Cloud IIs seem more like what people expect, and are $50 cheaper.
Logitech G-733 – $130
The matte texture of the G733s had a weird interaction with my camera — they don’t look speckly IRL. Image Credits: Devin Coldewey / TechCrunch
These are Logitech’s streamer-friendly, color-coordinated, LED-sporting set, but they’re better than the loud design would suggest.
The sound is definitely gaming-forward, with a definite emphasis on the low end and a very central, present sound that was a lot like the Cloud II.
To be honest, I was not expecting the G733s to be very comfortable — their stiff plastic look suggested they’d creak, weigh down my ears and crush my noggin. But in fact they’re really light and quite comfy! There’s a lot of play in the positions of the earcups. The fit is a little odd in that there’s a plainly inferior version of the 7P/7X’s “ski goggle” strap that really only has four settings, while the cups slide up and down about two thirds of an inch. It was just enough to accommodate my (again, apparently very large) head.
The mic boom is rather short, and sadly there is no indicator for when the mic is on or off, which is sometimes a minor inconvenience and sometimes a major pain. You can tell from the sound the mute button makes, though.
The volume dial is nice and smooth, though the “clicks” are really far apart. I like the texture of it and the mic mute button, the power button not so much. But it works.
The colors may not be to everyone’s liking, but I have to hand it to Logitech for going all the way. The headset, mic and even the USB dongle are all the same shade, making it much easier to keep track of them in my growing pile of headphones and widgets.
Logitech Pro-X – $200
Image Credits: Devin Coldewey / TechCrunch
Currently Logitech’s most premium set of gaming headphones, the Pro-X abandon the bright, plasticky look of its other sets and goes for understated and black.
The sound of the Logitech is big and very clear, with almost a reference feel in how balanced the bands are. I felt more presence in the mid-lows of smart bass-playing than the other sets. There is a “surround” feel that makes it feel more like you’re in a room of well-configured speakers than headphones, something that I think emerges from a de-emphasis of the center channel. The media is “out there,” not “in here.” It’s not a bad or a good thing, just distinct from the others.
The controls are about on par with the Cloud II’s: a nice frictiony volume wheel controlling system volume, a nice mic toggle button and a fairly meaty on-off switch you’re unlikely to trip on purpose.
Also like the Cloud IIs, there is no rotation to the earcups, making them less comfortable to me than the ATs and SteelSeries, and Logitech’s cheaper G-733s. A larger head than my own, if that’s possible, would definitely feel clamped. I do think these would wear in well, but all the same a bit of play would help a lot.
The external material, a satinized matte plastic, looks truly lovely but is an absolute fingerprint magnet. Considering you’ll be handling these a lot (and let’s be honest, not necessarily with freshly washed hands), you’re going to need to wipe them down rather more than any of the others I tested.
Razer Blackshark V2 Pro – $180
Image Credits: Devin Coldewey / TechCrunch
The understated Razer Blackshark V2 Pro soon became my go-to for PC gaming when the SteelSeries set was attached to the PS5.
Their sound is definitely gaming-focused, with extra oomph in the lows and mid-lows, but music didn’t sound overly shifted in that direction. The soundstage is full but not startlingly so, and everything sounded detailed without being harsh.
The Razers look heavy but aren’t — it varies day to day but I think they’re definitely competing for “most comfortable” with the A-Ts and SteelSeries. The cups feel spacious and have a nice seal, making for a very isolated listening experience. Adjustment is done with the wires attached to the cups, which is nothing special — I kind of wish this setup would let you adjust the cant as well as the height. The material is like the Logitechs — prone to fingerprints, though a little less so, in my experience.
Their controls are very well designed and laid out, all on one side. The protruding (system-independent) volume knob may seem odd at first but you’ll love it soon. The one big notch or click indicates exactly 50%, which is super useful for quick “calibration,” and turning the knob is smooth yet resistant enough that I never once accidentally changed it. Meanwhile there are conveniently placed and distinguishable buttons for mute and power, and ports for the detachable mic, charge cord and 3.5mm input.
I’m hard pressed to think of any downsides to the Blackshark except that it doesn’t work with consoles.
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The Herman Miller x Logitech gaming chair will set you back $1,500
I’ve learned a lot during this pandemic. About myself, about the world. But perhaps most important of all, I’ve learned the value of a good chair. In normal years I’m rarely home, between work and travel, and as such it’s not something I gave much thought to. So naturally, I spent the first month and half cultivating some serious lower back pain.
The truth of the matter is that we have no idea how much longer we’re going to be dealing with all of this, and as such, I can’t recommend investing in a good chair enough. You can get a pretty solid one for a couple of hundred dollars, if you know where to look. Or there’s always Herman Miller.
The company’s office chairs are pretty universally well-received, and they’ve got a price tag to match. Even with that in mind, however, its venture into the world of gaming chair is still… well, “investment” is certainly one way to put it. The company’s collaboration with gaming peripheral mainstay Logitech is going to set you back a cool $1,500.
Image Credits: Herman Miller
According to the companies, the Embody Gaming Chair was designed with help from 30 physicians, with a focus on good posture (something many gamers can likely use) and the ability to sit in one spot for an extended period of time, because, let’s be real here, gamers are gonna game.
There’s padding with “copper-infused particles” designed to cool off the body, and “pixelated support,” which helps more evenly distribute the sitter’s weight. Herman Miller describes that bit thusly:
Thanks to a dynamic matrix of pixels, Embody’s seat and back surfaces automatically conform to your body’s micro-movements, distributing your weight evenly as you sit. This reduces pressure and encourages movement, both of which are key to maintaining healthy circulation and focus.
The chair itself is made up of 42% recycled materials and is up to 95% recyclable — though hopefully you won’t be thinking about that for a while, given the pricing. There’s also a 12-year warranty that should let you hold onto it for a little bit longer. Which, again, will hopefully be a while at that price.
The Embody is going to be the first of a number of collaborations going forward, including a $1,300 gaming-focused desk and a $300 monitor arm. At the end of the day, your lower back will be more thankful than your bank account.
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Logitech accessory kit makes the Xbox Adaptive Controller even more accessible
Microsoft’s Xbox Adaptive Controller was a breath of fresh air in a gaming world that has largely failed to consider the needs of people with disabilities. Now Logitech has joined the effort to empower this diverse population with an expanded set of XAC-compatible buttons and triggers.
Logitech’s $100 Adaptive Gaming Kit comes with a dozen buttons in a variety of sizes, two large analog levers to control the triggers, and a Velcro-style pad to which they can all be securely attached. It’s hopefully the start of a hardware ecosystem that will be at least a significant fraction of the diversity available to the able population.
The visibility of gamers with disabilities has grown both as the communities have organized and communicated their needs, and as gaming itself has moved towards the mainstream. Turns out there are millions of people who, for one reason or another, can’t use a controller or mouse and keyboard the way others can — and they want to play games too.
Always one of the more reliably considerate companies when it comes to accessibility issues, Microsoft began developing the XAC a couple years back — though admittedly after years of, like the rest of the gaming hardware community, failing to accommodate disabled gamers.
Logitech was an unwitting partner, having provided joysticks for the project without being told what they were for. But when the XAC was unveiled, Logitech was stunned and chagrined.
“This is something that, shame on us, we didn’t think about,” said Mark Starrett, Logitech G’s senior global product manager. “We’ve been trying to diversify gaming, like getting more girls to play, but we totally did not think about this. But you see the videos Microsoft put out, how excited the kids are — it’s so motivating to see that, it makes you want to continue that work.”
And to their credit, the team got in contact with Microsoft soon after and said they’d like to collaborate on some accessories for the system.
In some ways this wouldn’t be particularly difficult: The XAC uses 3.5mm headphone jacks as its main input, so it can accept signals from a wide range of devices, from its own buttons and sticks to things like blow tubes, so there’s no worries about proprietary connections, for instance. But when it comes to accessible devices and systems like this, there are often other rigorous standards in place that need to be upheld throughout, so it’s necessary to work closely with both the platform provider (Microsoft) and, naturally, the people who will actually be using them.
“This community, you can’t make anything for them without doing it with them,” said Starrett. “When we design a gaming keyboard or mouse, we engage pros, players, all that stuff, right? So with this, it’s absolutely critical to watch them with every piece.”
“The biggest takeaway is that everybody is so different: every challenge, every setup, everyone we talked to,” he continued. “We had a 70, 80 year old guy who plays Destiny and has arthritis — all we really needed to do was put a block on the back of his controller, because he couldn’t pull the trigger. Then we worked with a girl who has a quadstick, she was playing Madden like a pro with something you just puff and blow on. Another guy played everything with his feet. So we spent a lot of time on the site just watching.”
The final set of buttons they arrived at includes three very large ones, four smaller ones (though still big compared with ordinary controller buttons), four “light touch” buttons that can be easily activated by any contact, and two big triggers. Because they knew different gamers would use the sets differently, there’s a set of labels in the box that can be applied however they like.
Then there are two hook and loop (i.e. Velcro) mats to which the buttons can be attached, one rigid and the other flexible, so it can be draped over a leg, the arm of a couch, etc.
Even the packaging the buttons come in is accessible: A single strip of tape pulls out and causes the whole box to unfold, and then everything is in non-sealed reusable bags. The guide is wordless so it can be used in any country, by any player.
It’s nice to see such consideration at work, and no doubt the players who will benefit from these products will be happy to have a variety of options to choose from. I was starting to think I could use a couple of these buttons myself.
Starrett seemed very happy with the results, and also proud that the work had started something new at Logitech.
“The groups we talked to brought a lot of different things to mind for us,” he said. “We’re always updating things, but now we’re updating everything with an eye to accessibility. It’s helped Logitech as a company to learn about this stuff.”
You can pick up Logitech’s Adaptive Gaming kit here for $100.
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What every startup founder should know about exits
The dream of a startup founder can often be summarized by the following well-intentioned, and mostly delusional, quote: “We’ll raise a few rounds and in a few years we’ll IPO on Nasdaq.”
But a more likely scenario looks something like this:
You invest a few years of hard work to build something of value. One day you receive an acquisition offer out of the blue. You’re elated. And you’re not prepared. You drop everything to focus on this opportunity. Exclusive due diligence starts. Your company is a mess (IP, contracts, burn). Days become weeks; weeks become months. You’ve neglected business and fundraising. You’re running out of money. M&A is now your one and only option. The buyer says they found a bunch of cockroaches in the walls and drops the price. Now what?
Sound unlikely?
This is still a favorable situation: You had an offer! Think about how much time you invested in your various funding rounds. The hundreds of names and Google spreadsheet or Streak-powered quasi-CRM process.
Have you spent even a fraction of that on understanding exit paths? If you’d rather not live the situation described above, read along.
The E-word: A strange taboo
Investors live by exits, but many founders keep dreaming of unicornization and avoid the “E-word” until it’s too late. Yet, in 2016, 97 percent of exits were M&As. And most happened before Series B.
Exits matter because that’s when you, your team and your investors get paid. Oddly enough, and to use a chess metaphor, we hear a lot about the “opening game” (lean startup) and the “mid-game” (growth), but very little about this “end game.”
As a result, founders miss opportunities or leave money on the table. This is a shame. Our fund has more than 700 companies in portfolio. We want the best possible exit for each of them. And fortune favors the prepared! Now, how to get 700 exits (and counting)?
To explore the topic, we organized a series of Master Classes tapping corporate buyers, bankers, investors, lawyers and startup CEOs with M&A or IPO experience in San Francisco. It was a group that included the founders of Guitar Hero — bought by Activision; JUMP Bikes — a SOSV portfolio company bought by Uber, Ubiquisys — bought by Cisco and Withings — bought by Nokia. Each one for hundreds of millions.
Their observations can be summarized below.
Maximize optionality
“Founders must be aware of what contributes to an exit. This means understanding partnerships and how they are formed in the business space the entrepreneur is working in,” said one Master Class participant.
As founders, you build your product, your company and… optionality. You need to understand the options open to your company, and take steps to enable them.
The most likely one is an acquisition, but there are others like IPO (including small cap), RTO, SBO, LBO, Equity Crowdfunding and even ICO.
“Exit is not a goal per se, but as a CEO it is something you should think about as early in your cycle as possible, while being business-focused,” said the London-based investor Frederic Rombaut, of Seraphim Capital.
Indeed, most participants said that exits should always be on the chief executive’s agenda, no matter how early in the process. “Exits should be on the CEO agenda. Not front and center, but on the agenda. M&A is a by-product of a great business and targeted BD. IPOs are always an option once you’ve built significant cashflow forecasting.”
It’s important to ask questions like: How many “strategic engagements” with potential buyers have you had this month? Is your message and value clear in their eyes? Have you considered an acquisition track in parallel to a fundraise?
It doesn’t stop there:
- Equity crowdfunding might help close some gaps at seed stage.
- Early IPOs on smaller exchanges can be an option to raise over $10 million — the robotics startup Balyo went public and raised €40 million on Euronext to get rid of a critical “right of first refusal” option held by one of its corporate investors.
- Reverse mergers can work too: the medical exoskeleton company EKSO Bionics went public this way.
One thing is sure: The time to exit is not when you’re running out of money.
Companies are bought, not sold
Unicorn or not, the most likely exit is an acquisition.
As George Patterson, managing director at HSBC in New York said, “Good tech companies are bought, not sold. The question is thus: how to get bought?”
Patterson says it’s important to understand how mergers and acquisitions actually work; how to prepare a startup for an exit; and how to develop a “feel” for the market you’re exiting through and into.
How M&A works
Hearing from corp dev veterans from Cisco, Logitech, Dassault and IBM, a few key ideas emerged:
Motivations vary
It could be from least to most expensive, or as a mix, as listed by Mark Suster, managing partner at Upfront Ventures:
- Talent hire ($1 million/dev as a rule of thumb — location matters)
- Product gap
- Revenue driver
- Strategic threat (avoid or delay disruption)
- Defensive move (can’t afford a competitor to own it)
How corporates find you
Corporates find deals via the development of partnerships, investment (CVC), their business units, corp dev research, media and investor connections.
Asked about the best approach, Todd Neville, manager of Corporate Business Development and Strategy at IBM (who gave the most detailed description of the corp dev process), said, “Do something cool to one of the IBM customers. If they rave about even a POC, we’re interested.”
In other words, business development is corporate development.
Get the house in order
Buyers typically want to know three things:
- Is your IP really yours?
- Is your team capable?
- Will your customers stick around?
For IP, they will check your contracts (staff and contractors), and run some automated code analysis for proprietary code and open source use. They will evaluate potential IP infringement. No point buying you if you end up costing more in lawsuits!
For your team skills: Sitting down with your engineers will tell them plenty enough without understanding the details of this or that algorithm. The last thing a corporate wants is to be accused of stealing!
Lawyers engaged early can help. The later the clean-up, the more costly and painful.
Develop a feel for your “market”
Develop relationships and create champions within corporates. It will help promote your deal when the time comes, and will let you keep your finger on the pulse of corporate strategy to time your moves.
Do you read the earning calls of Cisco or IBM (or others relevant to you)? This is where strategies are presented. Are your keywords coming up there or in their press releases?
Chris Gilbert, former CEO of Ubiquisys (sold to Cisco for more than $300 million) was very deliberate in planning his exit.
“Selling starts on day one and is a leadership-only function — work out who will be your buyer. Only the CEO can do this. Constantly articulate why a company should buy you,” Gilbert said. Bring clear messages into the acquiring company so it can be presented upwards: give them the presentation you would like them to show their boss! When the time is right, force decisions through competition. If you know they have to buy you, your starting position is strong.”
The dark art of price discovery
There are dozens of formulas (from DCF to comparables) to evaluate a deal — which also means none is “correct.” What matters is: How much would you sell for, and how much is the buyer ready to pay?
Gilbert, at Ubiquisys, described how close interactions with his banker helped drive the price up among the bidders assembled.
Just like buyers, we meet bankers and lawyers too rarely at startup events, but there is much to learn with them. They make deals happen, avoid value erosion and optimize price. They often also make introductions before you engage them, to build goodwill and earn your business.
And if you worry about fees, the right banker handsomely pays for itself by finding more bidders and playing “bad cop” for you, avoiding direct confrontation with your future employer. Do you want a slice of the watermelon or the whole grape?
Final twist: Exits are not exits
When asked about what happens after an M&A or IPO, buyers said they generally hoped the founders would stay with them for many years. Often using re-vesting, earn-outs or shares of the acquiring company to incentivize them. Neville, from IBM, mentioned a security company they acquired whose founder is now the head of one of the largest IBM divisions.
In the case of IPOs, supposedly the ultimate “exit,” any block of shares sold by founders would face extreme scrutiny and might cause a price drop.
So who’s exiting during those deals? Investors (and not always).
Eventually, if the average age of a startup at exit is 8-10 years, the active duty period of founders (if not replaced in the meantime) extends even more. Better love the problem you’re solving, and your customers!
Thanks to speakers, participants and supporters of this Master Class series:
London: Frederic Rombaut (Seraphim Capital), Joe Tabberer (FirstBank), Chris Gilbert (Ubiquisys), Jonathan Keeling (Crowdcube), Fred Destin, Tony Fish (AMF Ventures, James Clark (London Stock Exchange), Denise Law (SGCIB).
Paris: Frederic Rombaut (Seraphim Capital), Manuel Gruson (Dassault Systemes), Pierre-Henri Chappaz (Rothschild Global Advisory), Christine Lambert-Goue (All Invest), Olivier Younes (EXPEN), Eric Carreel (Withings), Fabien Bardinet (Balyo), Xavier Lazarus (Elaia Partners), Pierre-Eric Leibovici(Daphni). Jean de La Rochebrochard (Kima Ventures), Jeremy Sartre (SmartAngels), Gwen Regina Tan (Entrepreneur First).
San Francisco: Natasha Ligai (Logitech), Matt Cutler (Cisco),Will Hawthorne, (CODE Advisors), Ryan Rzepecki (JUMP Bikes), Charles Huang (Guitar Hero), Jeff Thomas (Nasdaq), Shahin Farshchi (Lux Capital), Ammar Hanafi (Moment Ventures), Adam J. Epstein (Third Creek Advisors), Nathan Harding (EKSO Bionics), Kate Whitcomb, Anthony Marino and Ethan Haigh (SOSV).
New York: Todd Neville (IBM), George Patterson (HSBC), Ryan Rzepecki (JUMP Bikes), Aaron Kellner (SeedInvest), Jeremy Levine (Bessemer Venture Partners), Taylor Greene (Collaborative Fund), Adam Rothenberg (BoxGroup), Eli Curi (Fenwick & West), Ian Engstrand and Salil Gandhi (Goodwin), Warren Spar(Sparring Partners Capital), Duncan Turner, Vivian Law and Sheng Ge (SOSV).
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