Investors and entrepreneurs can learn a lot from Facebook's attempted acquisition of India-based startup Salorix which did not push through, TechCrunch reported.
First a little backgrounder: Salorix is a social media analytics firm backed with $3.5 million by Inventus Capital Partners and Nexus Venture Partners in a Series A round in 2011. In October 2013, Facebook made an acquisition offer but discussions were halted by December. Negotiations continued for several months but the parties in the deal couldn't come to an agreement on the price tag. In the end, Facebook got Salorix Founder Santanu Bhattacharya to its team, leaving Salorix backers and some staff wondering what the future is for the startup. While the parties involved did not say why the acquisition did not push through, sources said the investors wanted a heftier price tag than what Facebook initially offered, the report said.
The event gives several lessons to entrepreneurs and investors, particularly in India where the startup ecosystem is still in its early stages. One of the people familiar with the Salorix deal told TechCrunch, "First of all, there is a real danger of many Indian startups giving away too much equity (50% and even more) during very early stages of funding."
In the case of Salorix, the startup's founders had handed out more than 50% equity when it closed a bridge funding round after the Series A round in 2013. Since startups like Salorix have a much lesser value compared to those in Silicon Valley, trying to secure funding for succeeding rounds with dwindling equity is challenging, the report said.
A second learning that can be gleaned from the event is for investors to have realistic expectations. The source told TechCrunch, "Secondly, even the investors need to understand what can be a realistic exit in India, especially for a startup that's not any big disruption in the space."
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