Startups Stack Exchange Archive

Startup whose only foreseeable exit is an acquisition

• posted by: Jeff O’Neill on 2015-06-09
• tagged: exit
• score: 2

I’m interested in creating a startup to develop technology (implemented in software using scientific techniques) that fits into a larger process. But, the item of technology:

• is something that is generally used by a large company, and
• something that a large company would likely prefer to have in house rather than as an external service.

I think I can implement this technology better than current techniques, but it seems that it would be hard to get paying customers, and that the purpose of creating the company would be to prove the product and be acquired without having sales.

As an example, suppose I built the best face recognition service (not what I am doing). Many large companies use face recognition technology (Google, Facebook, etc.), but they wouldn’t likely pay a startup for such a service.

Do I have a feasible path here for a startup?

Answer 5477

• posted by: Ali on 2015-06-09
• score: 5

If you can understand the reasons that the company would want to outsource something that they normally do in-house and convince them to pay you, then you have a valid business.

The reasons that companies prefer to have some services in house over out sourcing can be things like

• Cost - It maybe more cost effective to do it in house for any number of reasons including already having a team of developers on hand
• Security - The service may be tied to a business process that they want to guard closely.
• Intellectual property- The process maybe related to a trade secret that gives them a competitive advantage and they do not want to have it disclosed.

If you have a convincing argument that can trump their objections on these or other points then it may work. If your process is significantly cheaper, or more innovative or more efficient then that would be a good argument.

If you think the argument is not convincing or if manufacturing or development process has too high costs for you to get involved in, then you can patent the process, and you can either license the patent (shared or exclusively) to them or even sell them the patent.

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