With established corporations cutting back on expenses – read personnel – during these recessionary times, a lot of IT people have been meditating on the start-up life.
For many workers in less than secure employment situations, working for a start-up sounds like an appealing option, especially when they hear the success stories – where a start-up gets bought out by a multinational, the workers get stock options and other perks, and everyone lives happily ever after.
But there can be a sour side of the start-up story – one that many in Israel, the 'start-up nation', are familiar with. For every successful start-up integration story – with 'success' being measured in terms of the smooth integration of the start-up staff into a new corporate structure, with the local Israeli branch continuing to develop and thrive – there are often others that are less positive.
As the start-up is drawn into the orbit of its new mothership, corporate directives issued from offices in Berlin, London, or New York often proscribe the start-up's role and require the company (now an R&D unit of the acquirer) to work on specific technologies. Now, developers have to limit their vision to fit the checklist of corporate requirements, which could include specific equipment becoming mandatory, or being supervised by a corporate unit that doesn't always 'get it'. It's often a difficult adjustment for start-up tech workers who are used to thinking within different structures.
Job-paring is also often the order of the day, as some of the workers in the start-up may find that their skills don't fit the new vision and direction. In addition, corporates may decide that certain workers' tasks can be carried out by individuals who have been in the organisation longer (this often happens, for example, to system administrators). And, in some extreme cases, a multinational may have only purchased a start-up just to get hold of its patents or other assets.
The lesson for entrepreneurs who are serious about their technology: be very wary before taking an offer.
Imagine, then, the misgivings Raanan Gewirtzman, formerly CEO of the Israeli start-up BroadLight, had when a company that he was directly competing with – Broadcom – offered to buy his company.
Both companies were hustling for business in the PON (passive optical network) sector. Broadcom was, and still is, one of the bigger suppliers of GPON (gigabit PON) chips, while BroadLight was a top developer of EPON (ethernet PON) chips. Both have their advantages, but EPON has proven to be a popular choice in areas where new fibre optic networks have been built (and where there was no need to accommodate legacy networks, which require GPON technology), particularly in the Far East, and especially in China, where both Broadcom and BroadLight were aggressively pursuing customers.
"It's like the first year of marriage. You have to adjust to a new culture, there are new structures, debates on direction" — Raanan Gewirtzman
While BroadLight was successfully holding its own against Broadcom, and others in the PON space, including Qualcomm/Atheros, Marvell, and Huawei, Gewirtzman realised that the economies of scale were working against the company: as a relatively small Israeli start-up, there was only so much BroadLight could do to survive against some of the world's biggest tech makers.
But to sell out to Broadcom, of all companies?
At a recent meeting in Tel Aviv presenting Broadcom's activities in Israel during 2012, Gewirtzman described his misgivings – including the usual ones about corporate direction, limits on innovation, integrating the creative start-up workforce into a more restricted corporate structure. And there was an additional concern: Broadcom, technically, didn't need BroadLight around at all, as it was already an established power in GPON – as well as EPON, thanks to its 2010 acquisition of California-based Teknovus. With those risks in mind, Gewirtzman said, he had a lot of thinking to do when the offer came in.
But $195m, the amount Broadcom paid for BroadLight last March, is a lot of money – enough to, perhaps, enable him to decide that, risks or no, it was time to make a deal.
More than money
But the money wasn't the only thing that prompted him to say yes, Gewirtzman said. It was the fact that his suitor was Broadcom that made a big difference: "Broadcom is a serial acquirer, and we were aware of its history of acquisitions around the world, and especially in Israel," Gewirtzman said. "This is a company that appreciates engineers, which we all were, and appreciates the contributions of its acquisitions."
In fact, Gewirtzman wasn't the only ex-CEO (now division head) to present at the meeting: the former CEOs of seven of Broadcom's other Israeli acquisitions (the company has bought 10 Israeli start-ups in the past decade) – Siliquent, SC Square, Provigent, Octalica, Dune Networks, Sightic, and Percello – all told the same story. They have been able to continue developing their technology – after all, their technology is the reason they were acquired – and they have also been able to hire significant numbers of workers, because they had access to more technology and opportunities that a multinational like Broadcom can provide.
Of course, no integration process is without its glitches. "It's like the first year of marriage," said Gewirtzman. "You have to adjust to a new culture, there are new structures, debates on direction, etc. But at no time did we feel that Broadcom was just using us to eventually close us down. They respected what we did, and encouraged us to do more of it. Nine months later, I can confidently say that this was a great move for us."
"The BroadLight acquisition was actually unusual because of the competition between our two companies, and it's understandable that there would be fears or misgivings," Broadcom VP Shlomo Markel, an Israeli who has been with the company since 2001, said at the event. "One thing we do very well at Broadcom is acquisitions, though, and we're all very happy things have worked out."
The lesson for start-ups, said Gewirtzmann, is to think twice before selling out – and think three times about who is buying them.