So Google's Buying Your Startup. Now What?

By Douglas MacMillan
     Nov. 24 (Bloomberg BusinessWeek) -- You'd think David Lawee
has it easy. He's the mergers-and-acquisitions chief for Google
(GOOG), a company with $33.4 billion in cash and a willingness to
spend it. The search giant's pay is good and its perks are
legendary, so persuading scrappy startups to sell for
multimillion-dollar sums should be a cinch. But Google's stock is
past its days of heady growth, and hotter rivals like Facebook
are making deals of their own, so Lawee still has to work hard.
Entrepreneurs want to know: Why sell to Google? And why stick
around once the check clears?
     Google has stepped up its dealmaking this year, spending
$1.6 billion on more than 20 companies through September. In an
interview earlier this month, Lawee said he sees "more large
opportunities" for purchases on the order of YouTube and
DoubleClick, Google's two largest deals. Google now is in talks
to acquire social shopping site Groupon in a deal that could be
the search company's most expensive acquisition ever, say two
people with knowledge of the matter.
     As it makes deals, Google is seeking more than just advanced
technology. The company also hopes to add to its ranks seasoned
entrepreneurs who can be molded into star executives. Recently,
some of those would-be stars have blinked out. Omar Hamoui,
founder of mobile-ad startup AdMob, left Google in late October,
just five months after the roughly $700 million purchase of his
company was completed. YouTube founder Chad Hurley and Lars
Rasmussen, whose Where 2 Technologies was acquired in 2004 and
became the basis for Google Maps, both announced their departures
in the past month. (Hamoui, Hurley, and Rasmussen all were
unavailable or declined to comment for this story.) Rasmussen
told the Sydney Morning Herald in November that "it can be very
challenging to be working in a company the size of Google."
     Lawee says such high-profile departures are not indicative
of Google's track record. Two-thirds of the founders of startups
acquired by Google remain with the company, he says. Joshua
Schachter, a serial entrepreneur who sold a company to Yahoo!
(YHOO)in 2005 and then worked at Google until June of this year,
says the search company's retention rate compares favorably with
that of many of its competitors. "Elsewhere, I've seen that
entrepreneurs tend to bail because the things that drive [them]
are at odds with the way companies are run," he says.
     Google also faces a challenge in winning over founders in
the first place. Competitors like Facebook and Apple (AAPL) are
in acquisitive moods as well. The social networking site has made
eight deals so far in 2010. Apple Chief Executive Officer Steve
Jobs said in October that he's reserving his company's $51
billion in cash and investments for "one or more very strategic
opportunities [that] may come along."
     In inking deals, it helps that Google's chief negotiator
doesn't look like a suit. At 44, Lawee is lean and youthful, and
often arrives at meetings with a backpack. He is an entrepreneur
himself and co-founded gaming site Xfire, which Viacom bought in
2006, the year after Lawee joined Google. "He's got this
laid-back style that says, 'I like you, you like me—one way or
another, we're going to work this out,'" says Anthony McCusker,
an attorney at Goodwin Procter who represented AdMob during its
negotiations with Google.
     One of Lawee's pitches to potential acquirees is that
they'll make a bigger impact on the world at Google than they
could as an independent startup. "It's not financial retentions"
that keep entrepreneurs at Google, he says. "They are motivated
to change the world."
     Google gives some of its acquirees elevated roles that go
far beyond overseeing the products they created. Jonathan
Sposato, who has sold two companies to Google—Phatbits, a
publishing tool, in 2005 and Picnik, an easy-to-use photo editor,
in July of this year—became product manager for the photos group
after his latest sale. The new position put him in control of
Picasa, a Google photo site used by more than 1.6 million people.
The entrepreneur says that played a big part in his decision to
sell Picnik to Google. The mission became "make the photo
experience be better than it is today'" rather than a narrow
focus on a single product, he says.
     Google also promises founders room to take risks, says Noam
Lovinsky, who sold video publishing tool Episodic to Google in
April. When Episodic launched as a small startup in 2009,
Lovinsky wanted to focus on building a simple-to-use tool that
let professional video producers upload and track the performance
of clips. Instead, he found himself too focused on paying the
bills. "There were a lot of things we had to wait on doing
because we had to fund our road map," he says. At Google he "can
worry about revenue at the right time to worry about revenue," he
says. Whether that freedom helps persuade Groupon to agree to a
sale is still an open question.
      The bottom line: When Google buys a company, it offers
financial incentives and expanded roles to founders it wants to
shape into star executives.