The ability to innovate repeatedly has been a major driver of Silicon Valley. VCs invest in startups, and startups use the funds to acquire other startups, allowing them to grow and innovate at a faster pace.
Big Tech corporations also buy startups—to acquire talent and innovation. Eventually, startups exit and return capital to VCs, who then invest in a latest wave of startups. This cycle accelerates the wheel of innovation, expanding its scope with each iteration.
Data from the latest Watch out for the bridge AND Crunch Base report The End of the Startup M&A Era? Tech Startup M&A 2024 Report An evaluation of startup acquisitions by Fortune Global 500 corporations since the turn of the millennium confirms these findings.
- Six of the world’s 10 largest acquirers of startups are Silicon Valley corporations (seven if we include Microsoftwhich is not too far).
- North American corporations acquire startups 4 times more often than European corporations, and the difference with Southeast Asian corporations is even greater, with North American corporations acquiring 7 to 10 times more corporations.
This has been the history of Silicon Valley—until now.
But there is a catch.
Market change
Since 2021, the world has seen a significant decline in startup M&A activity.
While the “VC retreat” is definitely playing a role, it could signal a deeper, more lasting shift in the market, relatively than a temporary slowdown. Governments around the world are tightening their grip on M&A activity, particularly in the tech sector, amid escalating geopolitical tensions and a resurgence of protectionist policies.
Major Acquisitions (as evidenced by the $20 billion value) Adobe–Figma (transaction blocking) are currently subject to increased scrutiny.
On the one hand, political pressure against market concentration and monopolies is growing.
On the other hand, there is a growing need to protect technologies deemed critical to national security. The technology and healthcare sectors, which have traditionally been lively in mergers and acquisitions, are now subject to tighter regulatory scrutiny. As a direct consequence of rising geopolitical tensions, attention is also expanding to dual-use and defense technologies, with increased government oversight of defense industrial assets and policies. This trend was highlighted in a recently published report The future of European competitiveness by Mario Draghi.
If these regulatory trends proceed, they may change the enterprise capital landscape as we know it. That means significant impact on Silicon Valley’s innovation engine and, ultimately, disruption of the entire startup ecosystem.
After all, as the Mind the Bridge saying goes: “there’s no party without an exit.”