[young域]A Startup Acquired Another Startup

M&A Between Startups Is an Exchange of Deficiencies Beyond the Numbers: Focus on “Narrative” Between People and Technologies

When running a company, one is likely to encounter mergers and acquisitions (M&A) at least once. For those pursuing an acquisition, it can be a decisive moment for the company’s growth; for those being merged, it can be a critical turning point that determines the company’s fate. M&A is often called a game of capital. Behind the scenes, fierce competition unfolds between companies that wield capital, and a fierce information war ensues. From the outside, it is a riveting spectacle.

However, this tends to apply to large corporations, and the way M&A unfolds between recently established startups is quite different. Large corporations can mobilize numerous employees to scrutinize thousands of items during due diligence, but startups often have only a handful of documents to present if investors or shareholders ask for the basis of an M&A. As such, the decision of a startup, already struggling with its own survival, to take on another startup inevitably invites doubts about whether it is a wise choice.

Still, for startups, the possibility of M&A cannot be completely ruled out. That’s because it enables an “exchange of deficiencies” – trading and filling gaps that each side lacks. I, too, have experienced multiple M&A processes. Sometimes I was the acquirer, other times I sat at the negotiation table as the one being acquired. Now, as I lead a startup and see fellow founders and colleagues grappling with their own “deficiencies,” I want to tell them to look at two things: “the narrative and the people.” The narrative is the evidence that confirms whether each party’s deficiencies fit together; the people are the driving force that turns that union into tangible results.

When people try to assess a company’s value, they often turn to financial statements. Numbers are important, but they are merely a record of the past – and that’s a limitation. Financial statements also can’t fully show the company’s direction or goals. My own startup entered the market as a pet food data platform. During its early days, it enjoyed explosive popularity and rapid brand growth.

But there was a missing piece in our business. That’s why we embarked on developing an AI-based nutrition solution for pets. To accurately understand the pet’s condition, we conceived a “home cam” that could continuously collect data from daily life. The challenge was applying AI to this area. That was our missing link. We then encountered a company that had ventured into this field before us and demonstrated its potential. When partnering with them, the main focus was on “the narrative.”

This company consisted solely of developers, and after immense effort, they had succeeded in developing a service to recognize pet behaviors. Sixty percent of fee-paying users accessed the service, resulting in a service retention rate of 60%, which is remarkable in the healthcare platform business. It was also appealing that they were the first company in the field to receive an investment from Naver. Most importantly, the problems they tackled and the direction they were heading in dovetailed naturally with our own narrative. That is why we became one team. The CEO of that company currently serves as the Chief Technology Officer (CTO) at our startup.

Along with the narrative, people are the other crucial element. Throughout negotiations, both sides exchange a range of conditions, from succession of employees to salary and working environment. But in the end, people are the key. As I mentioned, I’ve also been in the position of being acquired. At that time, I was filled with fear: Would everything I had built disappear in vain? Would the positions of my colleagues vanish? I also felt disappointment at seeing all our past time together reduced to a few numbers at the negotiation table.

That experience served as an important standard when I later acquired another startup. I considered what the other party feared and what they wanted to protect. To make an M&A that fills deficiencies for both sides, people must move forward together. That is the best result a negotiation can yield.

M&A can be a daunting, and sometimes unavoidable, choice for startups with short histories, limited experience, and scarce resources. When faced with this difficult decision, I want to emphasize again the importance of “the narrative and the people.” There is much work to do after an M&A as well: you must prove to the market and shareholders the reason for the decision, namely the synergies created. But an M&A that is accomplished based on a solid narrative and strong trust in people can turn a critical turning point for a company’s fate into a new opportunity for growth.

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