Despite Microsoft's incumbency with GitHub Copilot, the startup Cursor won significant developer mindshare simply by building a superior autocomplete product. Their tool was faster and provided more accurate suggestions, demonstrating that a focused startup's superior execution can beat a tech giant's offering, even with a head start.

Large companies rarely make cold acquisition offers. The typical path is a gradual process starting with a partnership or a small investment. This allows the acquirer to conduct due diligence from the inside, understand the startup's value, and build relationships before escalating to a full buyout.

Unlike standard corporate M&A, an innovation incubator's acquisition criteria are different. Cisco's Outshift ignores a startup's revenue and business metrics, focusing solely on the technology, talent, and cultural fit to accelerate its own strategic objectives.

Counter to the adage that "startups shouldn't buy startups," Cursor successfully uses M&A as a core recruiting strategy. They acquire small, talented teams working on complementary problems, viewing acquisitions as a way to onboard the best people who happen to already be working on their own companies.

The most lucrative exit for a startup is often not an IPO, but an M&A deal within an oligopolistic industry. When 3-4 major players exist, they can be forced into an irrational bidding war driven by the fear of a competitor acquiring the asset, leading to outcomes that are even better than going public.

Widespread adoption of AI coding tools like Cursor dramatically increases code output, shifting the primary development bottleneck from writing to reviewing. This creates a market for collaboration tools like Graphite and drives consolidation as platforms race to own the end-to-end developer loop.

To avoid the "fox watching the henhouse" problem, Graphite will operate as an independent product post-acquisition by coding tool Cursor. This strategy preserves its unbiased position as a code review platform, allowing it to continue integrating with competitors like Anthropic's Claude and other AI coding agents.

For years, CNX turned down acquisition offers from firms that only wanted to "milk the existing customer base of maintenance" and halt development. They ultimately sold to Izzy Software because it presented an exciting vision for growing the product, not just harvesting it.

The public story of an acquisition often focuses on strategic synergy. For Pulse, a key private driver was founder burnout. The co-founders, overwhelmed with operational tasks instead of product work, independently decided on a sale price before even starting fundraising talks, highlighting the human cost of scaling.