The Build vs Buy Decision for Big Companies: Why it’s Harder than You Think
Summary
In this article, we delve into the difficulty of the build versus buy decision for big companies. We also explore the use of acquisition as a means of letting the free market determine what works and what doesn’t. Additionally, we discuss the current state of the technology market and how it affects both private and public investors. Finally, we examine the role of Kickstarter in the world of venture capital and how it is changing the way investors approach funding for new and disruptive ideas.
Table of Contents
- The Build vs Buy Decision
- The State of the Technology Market
- The Role of Kickstarter in Venture Capital
The Build vs Buy Decision
The build versus buy decision is a common dilemma for big companies. While building internally may seem like the most cost-effective option, it is often much harder than people think. In many cases, it may be more efficient to acquire a company that has already developed the technology or product that the company needs. This approach also allows the free market to determine what works and what doesn’t, rather than relying solely on internal development efforts.
The State of the Technology Market
Many have questioned whether we are in a bubble in the technology market. However, technology stocks are currently trading at a 30-year low relative to industrial stocks, making it hard to make this claim. While more and more transactions are happening in the private market, public market investors like mutual funds and hedge funds are buying stakes in these late-stage companies, causing some to criticize the valuations as a bubble. It has also become much harder for companies to go public due to new regulations, resulting in the public market de-equitizing. This shift has resulted in a small number of companies and investors dominating the market, but it does not necessarily indicate a bubble.
The Role of Kickstarter in Venture Capital
Kickstarter is an interesting platform that can be used for non-profit or for-profit projects, but it is mostly used for creative projects. It is not seen as competition for venture capital, but rather a potential collaboration. The Pebble smartwatch raised over $7 million through a Kickstarter campaign, which is technically a creative project rather than a for-profit venture. However, the success of the campaign signals tangible demand for the product before it even hits the market. This is a significant development in the world of venture capital, as it de-risks investment opportunities by proving demand before investing in a product. While venture capitalists typically invest before demand is proven, Kickstarter allows for disruptive and new ideas to gain funding when they have trouble proving demand. As a result, Kickstarter campaigns can be appealing to investors looking to ramp up production processes and expand a company’s reach. This development also speaks to the intersection of the internet and hardware, creating new opportunities for funding and investment.
Conclusion
In conclusion, the build versus buy decision is a difficult one for big companies, and acquisition can often be a more efficient option. While the technology market has shifted towards more private transactions, it does not necessarily indicate a bubble. Kickstarter is changing the way investors approach funding for new and disruptive ideas, and it is an exciting time for venture capital as new opportunities for funding and investment are emerging.
