Investments and Acquisitions

GEOINT 2016 panels discuss M&A, venture capital

By Melanie D.G. Kaplan and Warren Ferster  •  May 18, 2016

Outsiders tend to view the acquisition of a startup as the moment of arrival and validation that all entrepreneurs crave, but the reality is more complicated.

If buyer and startup do not share a common vision or goal, they might not be the best fit, according to participants in a panel on mergers and acquisitions hosted by USGIF’s Young Professionals Working Group Monday at GEOINT 2016.

“You never know [ahead of time] if it’s the right decision,” said Shay Har-Noy, co-founder of Tomnod, which was acquired in 2013 by DigitalGlobe. Har-Noy is now vice president and general manager, platform, at DigitalGlobe.

Being absorbed into a larger company with a different culture can be risky, Har-Noy said. But if it appears that being acquired allows you to continue “doing what you love and building something where nothing stood before it’s probably a good step,” he continued.

For John Fenwick, one of the founders of Skybox Imaging, now called Terra Bella, the decision to be acquired by Google was a logical next step. “When we pitched Skybox, our tagline was ‘we want to catalog the Earth in the same way that Google catalogs the internet,’” he said. “And here we were with the opportunity to go do just that.”

Before being acquired, Skybox had raised about $100 million in venture capital—a number Fenwick said represents a threshold beyond which investors typically look for a return before getting in deeper. Google reportedly paid $500 million for the budding company.

Omar Balkissoon, chief executive and co-founder of OGSystems, participated in the panel from a buyer’s perspective. In 2015, OGSystems purchased Urban Robotics, a provider of airborne ISR data applications and hardware. In weighing a potential acquisition, OGSystems starts with small steps, first partnering with a company in some activity to see if cultures mesh before entertaining a closer relationship.

Har-Noy characterized this early stage of corporate courtship as “flirting.”

The wide-ranging discussion touched on a number of topics, including GEOINT industry trends, where all agreed data analytics is where the action is.

“In our mind it’s not about the data—we’ve got more data than we know what to do with,” Balkissoon said. “It’s how to make smart decisions and smart analytics out of all of that data. So those are the companies that we’re looking at [acquiring].”

The VC Perspective
A Tuesday panel discussion on the GEOINT 2016 Government Pavilion Stage focused more specifically on venture capital investment.

In an ideal, world, said Brooke Coburn, managing director of The Carlyle Group, “We’d show up, buy [a business practice], sell it five years later and triple our money. At one point that was possible.”

These days, he said, it’s a different story. “I hope we get back to a global economy growing at faster rates than it is today, but it’s not obvious what the catalyst will be.”

The panel, titled The Intersection of GEOINT and the Capital Markets, explored current trends and challenges such as those faced when a company aims to succeed in both the commercial and federal arenas.

“We make a living buying companies that tried to do both and failed,” Coburn said.

In some cases, a product could easily be successful for one set of customers but a failure with the other. Coburn said Carlyle’s strategy is to meet one set of needs very well. He said management—especially one aware of its blind spots—is the most important thing Carlyle studies when considering an investment.

From an acquisition perspective, Leidos’ Matt Vaughan said the company looks to acquire companies that have overinvested in the back office.

“I’ve seen it work really well when companies put a great accounting system in,” said Vaughan, adding Leidos reviews about a dozen deals a week. “So when we get into a deal we can understand what we’re buying.”

Despite interest rates near zero, BlackArch Partners’ Peter Bilden said things are looking up for venture capital investment, partly because there’s now what he calls, “firm footing” in the Defense Department budget—growing at a rate of 1 to 3 percent as opposed to recent uncertainty.

“At this point in 2016, we’re already matching the highest year we’ve had in a decade,” Bilden said.