Acquiring previously failed startup IP is hot hot cold

May 7th, 2008 | by Laurent FP |

Today, Techcrunch announces that Xobni acquired failed Web 1.0 startup FireDrop which raised $90m in 2000. Yesterday, Mike Arrington started an interesting discussion on what to do with the failed startup’s IP laying around. Even if most IP of failed startups is officially owned by bankers or in the best case scenario by VC, there is ways to get your hands on previously created pieces of your puzzle. But, there is a trap, there is little that can be done as time passes. It’s so difficult to integrate an old product, an old technology, with no support because of a drastically scaled down or even non-existent team that sometimes it’s more a marketing coup than actually integrating new product/technologies into a current offering.

If someone has to buy such IP, the review process for the technology and the eventual patents have to be transferred as early as possible after the startup fails. As time passes, its technical value decreases drastically, so does its price.

The example is what happened with Manyeta which acquired IP from failed startup Codagen in 2006 with a clear update and integration strategy backed by an ambitious marketing plan. At one time, Codagen was 60 people strong, had raised $12m and was head-to-head with Rational’s initial code generation software offering. Codagen’s original VC owned the patents (4 in all) and the source, Manyeta even hired back Codagen’s lead developer on top of having access to a few key developers. The technology was old (smalltalk core, C++, .Net 1.0, Java 1) and the IDE was targeting developers of a previous generation. Manyeta had to realize, after spending months frantically turning around the source, that they needed to abandoned any hope of releasing an updated version of the product or integrating parts of it into their platform. The resources required were too great for what the company could focus on. Two teams were necessary, one that would maintain the product and bring it on track for an integration with the current platform and the second to continue their hard work at releasing a viable platform. More effort was needed for the first team than the core technologies.

Simply put, the risks with such acquisitions are of losing focus, losing sight of the target, losing precious time to market, and missing the intended goal: releasing pertinent products in sync with its market.

  1. 2 Responses to “Acquiring previously failed startup IP is hot hot cold”

  2. By Marc on May 7, 2008 | Reply

    Salut Laurent, I think you bring up a good point, but one should not look at it only from a technology point of vue. Yes, it is true that the technologies used can become obsolete, but the method and algorithms - not necessarily.

    So, if the acquisition was for the software, then yes, it’s a bad idea. if the acquisition was for the method and algorithms, then, there’s maybe some value in it - especially if they can use to counter some other IP lawsuit for a giant like MS. Food for thought.

  3. By Laurent FP on May 8, 2008 | Reply

    Hi Marc, You’re absolutely right. I like particularly the IP protection part. If you see it as a two sided question:

    (1) Enhancing what you have or what you want to deliver (=software), you need to be very careful and actual value can be limited. As you mention, bits and pieces such as algorithms can be integrated.

    (2) Protecting what you already have in place. In that case, What you may get is an extra layer of security. This part is not really visible in your offering and can help you get the respect for something you intend to do.

    In the first case, moving forward with an acquisition involves a lot of resources where the second one is more a tactical move.

Post a Comment