Tech Startups Attract Non-Tech Company Buyers

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Stepping outside the comfort zone is a mantra that non-tech companies are increasingly adopting, as they search for new ways to expand their operations or beat back the competition.

Just ask corporate titans in the health, retail, financial services and agriculture industries that are stepping up their buyout activity of tech startups and going head-to-head with well-known IT companies like Google, Facebook and Yahoo, TechCrunch says.

Health insurer UnitedHealth Group, for example, acquired health data analytics company Humedica in January. Payments processor First Data snapped up digital loyalty marketing platform company Perka and point-of-sale solutions provider Clover earlier this year. And in September, notes TechCrunch, Ford Motors acquired in-car connectivity startup Livio.

Mining the Data and Customers

Many non-tech companies are finding it advantageous to buy tech companies simply for the data that they can provide, Jon Sakoda, a partner with venture firm New Enterprise Associates, told TechCrunch. Sakoda added that Big Data is the “tipping point” that is pushing non-tech companies to pursue tech startups. Monsanto’s purchase of Climate Corp., for instance, gave the company access to large amounts of weather data processing and collecting technology that could help in optimizing farming globally.

Data mining is not the only thing driving non-tech companies to snap up IT startups. Retailers are eyeing young companies that offer e-commerce technology.

“A lot of physical retailers saw soft foot traffic in their stores in [the third quarter] and they are more nervous about how e-commerce is eating into their sales. Lots of these retailers have no commerce strategy, but startups have the potential to expand consumer reach to a younger demographic,” Aileen Lee, founder of Cowboy Ventures and a partner at Kleiner Perkins, told TechCrunch.

Walmart was the earliest traditional non-tech company to figure this out,” Sakoda told TechCrunch. Walmart bought Kosmix, a Silicon Valley social and mobile media company, in 2011 and chose to set up a separate “Labs group” in Silicon Valley. TechCrunch reports that the retailer is actively acquiring companies and technologies in an effort to compete with Amazon.

Keeping Talent Happy

But as these non-tech corporate giants buy startups, the IT staff may suffer a culture clash. Working at a startup, or even a tech titan like Google or Facebook, is much different than working for some other large corporation in a different space.

Consequently, retaining tech talent after an acquisition can be a challenge and a concern. Companies like Walmart have tried to find a way around the problem by creating separate and distinct lab groups to retain that entrepreneurial feel common at a tech startup. Hunter Walk, co-founder of the VC firm Homebrew, explained, “Just adding small pieces of technology doesn’t commit an organization to a new path.”

Image: Newman Crane