Exitround and its effects on behavioral economics

The latest and greatest in the world of acqui-hires is Exitround, a startup who helps other startups get acquired by tech giants. 

My first reaction was skeptical. I’m not bullish on any startups who build their business model around unique market trends. This reminds me a bit of SecondMarket, who started their business in secondary transactions for private companies. As that market declined, it became necessary to pivot and today, SecondMarket is a provider of financial services for private market transaction (including fundraising.)

I’m also not sure if Exitround helps the startup ecosystem. If anything, it would increase the friction between founders and investors by further mis-aligning incentives. In doing so, Exitround would also be meaningfully increasing the noise to signal ratio.

That aside, here are a couple of areas I think Exitround can help:

  • Downside anchor – Exitround essentially reduces founders’ risks by providing a baseline for the downside case scenario. For all those talented folks who are risk adverse, Exitround gives them an extra reason to take the leap.
  • Market efficiency – As a economist by trade, I’m a big fan of market efficiency. Exitround essentially lowers transaction costs and increases liquidity in the market, thus increasing market efficiency as a whole.
  • Resource allocation – One of the tragedies of the Bay Area is the reality that many great minds are helping solve seemingly unimportant (or, very 1%) problems. Acqui-hires allow brilliant young minds, who don’t have the benefits of experience, to help solve a problem they can’t think up themselves. On the other hand, Googlers have confessed that hundreds of very smart people are doing the most mundane tasks. Do tech giants really need to amass more talent?

I think where Exitround will really excel in a down-market, where small, talented startups will not have the revenues or the access to funding to keep afloat. And despite our best current efforts, the economy will remain cyclical and a down-market is in the cards.

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