Innovation Through Acquisition Led To Snapchat’s Spectacles… and future

Innovation Through Acquisition Led To Snapchat's Spectacles... and future

Lately, Snapchat (or Snap, Inc.) has been a hot topic in the startup and finance community because of their newly launched Spectacles and $25 billion IPO plans. While both headlines are very interesting, I recently saw another Snap-related article that was even more interesting to me.

The article – “How Snapchat secretly bought a struggling startup, then bet the future on it” by Alex Heath of Business Insider – discusses how in early 2014 Snapchat acquired Vergence Labs, a small Los Angeles camera glasses startup.

Vergence Labs had its own version of camera glasses called Epiphany Eyewear. While Epiphany Eyewear shared many similarities with Spectacles, the Vergence team had much bigger plans than just taking video with glasses.

In 2013, Vergence was struggling. While the team was working on the software to power the glasses, trying to overcome manufacturing challenges, and struggling to communicate their message – Google began to promote Google Glass.  The team decided they needed to simplify things and pitch Epiphany Eyewear as a “cooler” and simpler version of Google Glass. This meant postponing other, more aspirational projects like a helmet that could recognize people based on their FaceBook profiles.

One strategy the team decided to pursue to become cooler and simpler was a potential partnership with Snapchat. As luck would have it, one of Vergence’s founders happened to live on the same dorm floor as Snapchat founder Evan Spiegel, during their freshman year at Stanford. Four months after reconnecting, Spiegel acquired Vergence for $11 million in cash and $4 million in stock.

According to the Business Insider piece, “The acquisition of Vergence was a foreshadowing of Snap’s new identity as a ‘camera company.’

A number of former Vergence employees still work at Snap, Inc. on the Spectacles team and Snap Labs, a secretive division working on other hardware and software products.

Business Insider points out that “Snap has looked at various types of wearable cameras in addition to Spectacles, including small clip-on video cameras, and it has had acquisition talks with several camera companies. Snap has hired hardware engineers from companies such as Apple, Nest, and GoPro.”

The BI article is fairly long but full of interesting details. You can check it out HERE.

This story reminds me of microcaps that often acquire businesses and change the direction of their business. What do you think?

Using M&A To Build A New Product.

Using M&A To Build A New Product.

Many view mergers & acquisitions as a strategy intended to expands companies existing footprint/product lines, diversify, or realize costs synergies. M&A is less frequently viewed as  a method to build entirely new products.

Google’s new Pixel smartphone is an excellent example of a company using M&A to develop a new product. In a mid-October blog post, PitchBook.com highlights “8 strategic acquisitions behind Google’s Pixel“.

Starting in February 2015 Google (Alphabet) made at least 8 strategic acquisitions/investments in companies with smartphone-related technology. 

The acquisitions include NimbuzCloud a provider of cloud-based storage for consumer photos and videos, Skillman & Hackett a company that developed virtual reality painting studio and other art applications, Lumedyne Technologies which designs and develops sensors used in consumer electronics, Speaktoit (also known as Api.ai) which developed a platform offering natural language interactions for devices, and more.

While initially, it may have been hard to understand how some of these acquisitions helped Google’s existing business, the acquisitions now make a lot of sense knowing Google was developing its own smart device.

The resources Google acquired in these acquisitions likely cost less than in-house development. These acquisitions were also all made in the last 2 years thus accelerating Google’s development of its own smart device.

If you are developing a new product, have you ever thought of acquisitions that could get you there faster for less capital? Did you make an acquisition? What were the results?

 


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

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