Google Buys Nest: Good for Them and Good for Us.
Google announced a $3.2 billion dollar buyout of Nest this week. You could make the argument that this was the most expensive acqui-hire in history. [Acqui-hire: The act of buying a company just to get the founders and developers to work for your company.] By acquiring Nest, Google gets Tony Fadell and Matt Rogers — two ex-Apple bigwigs, and key contributors to the iPod along with about 100 other ex Apple employees according to a quick LinkedIn search.
There are plenty of pundits who will opine on the winners and losers in this deal and whether the price that Google paid was too high. I’m not going to do that.
What I will tell you is that this is exactly the sort of deal that is in the sweet spot for the top venture capital funds, a pricey bet on some blue-ocean consumer hardware technology. Fadell and Rogers were Apple luminaries, with oodles of venture contacts and solid credentials. VCs love “Blue Ocean” deals. A hearty round of sincere applause from me to the investors, Google and Nest. Google Ventures, Venrock, Kleiner Perkins, Al Gore’s investment fund Generation Capital, Lightspeed Venture Partners and Shasta Ventures all made a nice return on this deal. Nest had somewhere north of $100 million invested in it. They were rumored to be in the process of closing a new $150 million dollar round at the time of Google’s acquisition. Revenue for its $249 thermostat was reported as somewhere around of $50 million in 2012. Certainly not profitable, and certainly not a poster-child for the “lean startup”.
But take heart, middle-market technology companies. Venture capitalists don’t have any interest in your size companies and your size markets. They make big bets on strikeouts and home runs. We make money, not bets, investing in middle-market companies founded and run by entrepreneurs who have built their businesses on their own sweat equity, customer by customer, quarter by quarter. You don’t have to be the next Nest to make money from all of your hard work, especially when you own your business.