I have been through three technology acquisitions: RiverSoft (acquired by Micromuse for £43 million in 2002, then by IBM in 2005), SMARTS (acquired by EMC for approximately $260 million in 2005), and Voyence (acquired by EMC in 2007). In each case I was on the commercial side — Sales Director at RiverSoft and SMARTS, VP EMEA and APAC at Voyence.
I was not the founder of any of these companies. I was the person responsible for the revenue that made the acquisition attractive, and for the commercial relationships that made the integration credible.
That position is a useful vantage point for what I want to describe here, because it is distinct from the founder’s view and from the acquirer’s view. The founder optimises for valuation. The acquirer optimises for fit. The commercial team sits in the middle: we know what the product actually delivers to customers, what the customer relationships are actually worth, and which parts of the company’s commercial story are real versus optimistic.
Three acquisitions is not enough data to generalise with confidence. But the pattern I saw across all three is specific enough to be worth describing — because the decisions that actually determined each exit were made years before the term sheets arrived.
The decision that determined the RiverSoft exit
RiverSoft made network fault isolation and root cause analysis software. The technology was excellent — genuinely ahead of what the market had seen. The product did something that network operations centres had been trying to do manually for years: automatically identify the root cause of a network fault from thousands of correlated alerts.
The decision that made the acquisition possible was not the technology decision. It was the market positioning decision made approximately three years before the sale: the choice to go deep in carrier-grade networks rather than broad across all enterprise customers.
There was a genuine internal debate at the time. The enterprise market was larger in absolute terms. The carrier market was smaller, more complex to sell into, and demanded more rigorous technical proof of concept. The carrier decision was correct because it created a defensible market position. IBM, when it eventually acquired the company through Micromuse, was not buying the technology alone. It was buying the carrier relationships, the credibility in a specific verticalised market, and the proof points that existed because we had gone deep rather than broad.
If RiverSoft had chased the enterprise market — which was the more obvious short-term revenue path — it would have had broader revenue and shallower relationships. The acquisition story would have been weaker.
The lesson is not “go niche.” The lesson is that market positioning decisions three years before an exit shape what kind of acquirer arrives and at what valuation. Most founding teams are not thinking about this when they make those decisions. They are thinking about next quarter’s revenue. The commercial team’s job — and the board’s job, if the board is functioning as it should — is to think about both simultaneously.
What SMARTS taught me about the value of integration
SMARTS made telecommunications root cause analysis software. The product category was similar to RiverSoft’s; the market was similar; the technical quality was high. What was different was the integration architecture.
SMARTS had invested heavily in making its platform open: it integrated with other network management systems through published APIs, it had a partner ecosystem, and its data model was designed for consumption by downstream systems. When EMC acquired SMARTS for approximately $260 million, a significant part of the valuation was not the SMARTS product in isolation. It was SMARTS as a component of the network management infrastructure that EMC’s customers had already built.
The lesson I took from that transaction: in the enterprise software market, the switching cost is not primarily the cost of replacing your product. It is the cost of unwinding your product from the customer’s surrounding infrastructure. A product that integrates well — that becomes part of a customer’s data architecture, not just one of their tools — creates switching costs that compound over time and make the revenue more durable than the product quality alone would suggest.
For the acquirer, durability is more valuable than quality at the point of due diligence. A product that is very good and might churn when the market moves is worth less than a product that is good enough and deeply integrated into the customer’s systems.
The commercial implication for companies thinking about acquisition readiness: the question to ask is not “how good is our product” but “how embedded is our product in the customer’s operations.” Those are different questions. The first is a technical question. The second is a commercial one, and it is the one that determines the multiple.
Voyence and the governance lesson
Voyence made network configuration management software for military and enterprise networks. The product was technically sophisticated. The government and defence contracts were valuable and long-lived. The EMC acquisition in 2007 was, on paper, an acquisition of a software product company.
In practice, EMC was partly acquiring the configuration management capability and partly acquiring the customer relationships in a segment it wanted to be in. This is common in technology acquisitions but worth naming explicitly because it changes how you think about commercial development prior to sale.
For Voyence, the commercial team’s job in the years before the acquisition was not simply revenue growth. It was relationship architecture — building the right relationships at the right levels in the right organisations, so that when an acquirer was doing due diligence, those relationships were visible, verifiable, and transferable.
A customer relationship that lives in the sales team’s personal network is worth significantly less at acquisition than a customer relationship that lives in a formal contract, documented renewal history, and institutional relationships at the customer that will survive the departure of the sales team.
This is a governance point as much as a commercial one. Board governance of customer relationships — knowing which relationships are institutional and which are personal, and managing the concentration of either — is part of acquisition readiness. Most boards of growing technology companies do not think about customer relationship governance in these terms until a deal is being structured. By that point, the leverage to change it has passed.
The three patterns across all three
Looking back at RiverSoft, SMARTS, and Voyence with the benefit of subsequent experience — and the analytical habit from the root cause analysis methodology that ran through all three companies — three patterns are clear.
Pattern 1: The exit was shaped by decisions made 2-4 years before the term sheet. Market positioning, integration architecture, and customer relationship structure were all largely fixed by the time serious acquisition conversations began. The companies that had made good decisions in those areas received term sheets that reflected the value accurately. Those that had not received offers that reflected the acquirer’s downside assessment, not the company’s upside potential.
Pattern 2: Revenue quality mattered more than revenue quantity. Recurring, contracted, deeply integrated revenue was worth more at exit than equivalent total revenue from shorter-term, more transactional customers. This affected both the multiple and the deal structure. High-quality revenue meant a simpler deal. Variable or transactional revenue meant earn-outs, claw-backs, and extended integration risk for both parties.
Pattern 3: The commercial team’s credibility was a due diligence asset. In each acquisition, the acquirer spent significant time assessing whether the commercial pipeline was real. A commercial team that had built a reputation for accurate forecasting, documented win/loss analysis, and honest assessment of customer health was a material asset at due diligence. The commercial team that had managed to a number without documenting the methodology was a liability.
None of this is counterintuitive in retrospect. All three of these patterns require decisions that run against the short-term commercial incentive, and are therefore difficult to maintain without explicit board-level governance that holds the commercial team to the long-term standard as well as the quarterly one.
What this means for founders now
If you are building a deep tech or AI company that might be an acquisition target in three to five years — and that includes most Series A-C companies in the current market — the commercial decisions you are making now are the due diligence story you are writing for a future acquirer.
The question to ask at every significant commercial decision point is not just “does this help us hit this quarter’s number” but “does this build a commercial profile that is attractive to a strategic acquirer in three years.”
Sometimes the answers point in the same direction. When they diverge — as they frequently do — the board’s job is to hold both questions in view simultaneously, rather than defaulting to the short-term under pressure.
Most boards of growth-stage technology companies are not constituted to do this. They have strong financial representation, often strong technical representation, and usually inadequate commercial strategy representation — someone who has actually been through the commercial side of an acquisition and can translate the due diligence question back into today’s decisions.
That gap is expensive. I know because I have seen it closed well and closed badly, across three transactions that together returned significant value to the companies’ investors and founding teams.
For deep tech and AI founders building toward a funding event or an acquisition, Steven advises on commercial strategy, positioning, and the go-to-market structures that show up well at due diligence. Contact Steven directly to discuss your situation.
