🍏 How does Apple buy startups?


May 5, 2021

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The Hustle

Kids might want to close their ears for this one: The New York Department of Education says there will be no more “snow days” this year.

Why? To make up for lost days, classes will be conducted via Zoom on days that snow makes in-person school inaccessible.

The big idea
Apple logo

Here is Apple’s M&A strategy

Apple is known for its ironclad secrecy, particularly around new iPhone launches.

The same guiding principle informs the company’s mergers and acquisitions (M&A) practices.

As detailed by CNBC, the company is known for small and discreet deals.

Apple closed 100+ deals over the past 6 years…

… a pace of one about every 3 or 4 weeks.

While it did spend $3B on Beats by Dre in 2014 (its largest acquisition ever), Apple hasn’t made big headlines in a while.

This is in contrast to its Big Tech frenemy Microsoft, which just dropped $19.7B on AI firm Nuance, its priciest deal since buying LinkedIn for $26B+ in 2016.

One reason we don’t hear about the deals: Apple has strict NDAs and advises acquired employees to not update their LinkedIn profiles.

What Apple looks for in a deal

The iPhone maker focuses on filling gaps in its tech stack: It acquired tech for fingerprint ID (AuthenTec), iPhone Shortcuts (Workflow), Apple News+ (Texture), voice assistance (Siri), and Apple Music (Beats).

When Apple wants expertise in a sector, it will buy up multiple firms.

Take semiconductors: It bought P.A. Semi in 2008 ($278m), Intrinsity in 2010 ($121m), and Passif Semiconductor in 2013 (undisclosed).

Once a firm is targeted, Apple requests a demo

If there’s interest, the tech giant sends in the deal team (no outside bank is used).

Since the deals are primarily to acquire talent (AKA acquihires) — and not brand or customers — Apple makes an offer based on the number of technical employees (~$3m per engineer). It largely ignores revenue or previous fundraising valuations.

These individuals are then offered “golden handcuffs,” which are plush deals that vest over 3-4 years… hopefully enough money to make up for the fact they can’t update their LinkedIn profiles.

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  • Lifting up Lyft: Ride-hailing firm Lyft is recovering from the pandemic. Sales hit $609m in the first quarter of the year, which — while down 36% YoY — was up 7% from Q4 2020.
  • Tiger on the prowl: Investment giant Tiger Global is looking to raise a $10B growth equity fund. This is mere weeks after raising one of the largest VC funds ever ($6.7B). We wrote more on the firm here.

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Health Tech
pill bottle with cash

Health startups are flush with cash, but still need to prove their merit

You’ve def seen them: digital health startups… they’re everywhere.

Per The Wall Street Journal, $7B of VC money hit the sector in Q1 2021, the highest figure in at least 10 years.

The main customers for these health services are corporate-benefits departments…

… and they are revolting against the flood of choices

Benefits execs are pushing startups for a few changes:

  • Expand offerings: There are a number of individual apps that specialize in one niche (e.g., heart health, sleep tracking, mental health). Corporates want combined offerings, so they don’t have to subscribe to a million options.
  • Pricing: Corporates want to pay by use, instead of purchasing monthly subscriptions that often go unused.
  • Most importantly: They want companies to prove that the product actually delivers better care and lowers costs.

Health companies are taking note

Telemedicine provider Teladoc moved into diabetes monitoring with a $13.9B acquisition of startup Livongo.

That’s one of many deals for Teladoc, while its main competitors — like MDLive, Doctor on Demand, and PlushCare Inc. — are active on the M&A front, per WSJ.

And in a very meta development, here’s another hot investment area: apps that help you manage other health apps (AKA care-navigation apps).

At the current funding pace, you’ll soon see these apps everywhere too.

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Supply-chain blues
manufacturing

Just-in-time auto manufacturing is having a rough time

In 1913, Ford launched the assembly line to great success on one basic premise: Never stop churnin ’em out.

Unfortunately, the past year has highlighted the line’s fatal flaw: If even a single screw is out of stock, everything has to be turned off.

First, a brief history lesson

With just-in-time manufacturing, supplies show up just as needed to save on space and costs.

Just-in-time manufacturing developed over decades:

  • 1920s: Ford mined its own iron which it then used to build cars, but the company later shifted toward outsourcing suppliers
  • 1950s: Toyota executive Taiichi Ohno went to an American supermarket, saw how items were restocked as needed, and tried to replicate the process for cars
  • Present day: Companies from all sorts of industries — auto firms, Apple, McDonald’s, and Target — use just-in-time to save on costs

It’s a great system for when things go as planned.

Problem is, nothing seems to be going as planned

In the last few months, the auto world has taken one helluva beating:

  • The Texas snow debacle closed a refinery that produces 85% of US resins, used to make seat cushions. Toyota paused several plants as a result
  • A March fire at Japanese chip manufacturer Renesas — which supplies of the industry — sliced production capacities

Ford, for example, could see a 50% production hit and miss out on $2.5B in profits.

Companies are working to improve by stockpiling inventory, building vertically integrated supply chains, and, in the case of Tesla, signing exclusive deals for access to raw materials.

If anything, this whole ordeal has been a stark reminder for the auto biz not to put all their eggs in one basket.

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Podcast

How a retired cop makes nearly $1m giving ‘crime walk’ tours in NYC

That’s right — 8k+ people have bought the tour for ~$100 each!

In episode #177, we talk about:

  • How you can pull off a similar tour in your own city
  • Why the chicken rental business is a “blue-collar side hustle” that you should start
  • How to become the “Barstool of Tech” (we think this is a multimillion-dollar opportunity)
🎧 Listen here →
TRENDS

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  3. A like from @elonmusk

Our friend, Packy McCormick recently tweeted this question and while we love the conundrum, we’ve opted for a fourth option: a top 20 business podcast.

If you haven’t heard yet, My First Million achieved that goal last week, thanks to Sam’s antics.

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Memes of the day

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