It’s not your typical buying spree, but given the overall decline in mergers and acquisitions, more startups are trying to the U.S. for other VC-backed firms
In fact, startups buying other startups are on track to take the biggest slice of the M&A pie in years when it involves overall VC-backed startup deals in the U.S. That’s a notable development in the current environment, where enterprise capitalists and their limited partners are hungry for liquidity amid a frozen IPO pipeline and a quiet M&A market.
According to Crunchbase, in the first two-thirds of the yr, there have been 252 deals in which startups bought other startups in the U.S. dataThat number represents 39% of all M&A deals for U.S.-based startups—the highest percentage in at least a decade.
This percentage is especially striking when you concentrate on that between 2015 and 2020, startups buying other startups in the states never accounted for greater than 29% of all M&A deals for U.S.-based startups. Last yr, that number was 35%.
This yr’s transactions are also faster than those in 2023, when only 296 were concluded.
The biggest offers
Of course, representing the bulk of M&A activity in a yr of depressed deals won’t make most investment bankers turn their heads. But it’s necessary to notice that, barring the aberration of 2021 and then 2022, startups are on track to purchase more startups in the U.S. than in any other yr over the past decade.
While there have been no billion-dollar deals this yr between startups buying U.S.-based startups, resembling Data blocks“A $1.3 billion acquisition OpenAI competitor MosaicML There have been a few notable ones in 2023. The three largest acquisitions by dollar value thus far are:
- In June, an AI-based market evaluation platform AlfaSense raised $650 million in funding at a $4 billion valuation and also announced it had acquired an expert research startup Work for $930 million.
- Just last month the unicorn Let’s check ourselves digital pharmacy startup acquired The real pill for $525 million. That was reported LetsGetChecked plans to lift roughly $150 million through the issuance of convertible notes to fund the transaction.
- In March, the cloud cybersecurity company Wizard I purchased a startup that deals with cloud threat prevention Jewel Safety for $350 million in money. Just two months later, Wiz closed the largest cybersecurity funding round of the yr, raising $1 billion at a valuation of $12 billion.
Greater purchasing power
These deals also likely illustrate some trends about why more startups are buying startups in the domestic market.
First—and probably most obviously—is the size of many of the VC-backed firms. All three acquirers are unicorns—valued at $1 billion or more—and Wiz is valued at a whopping $12 billion.
Companies can achieve such high valuations more easily than ever because enterprise capital has flooded into the market—it’s now a significant asset class—and it’s allowing startups to remain private longer and get greater. As these firms grow, they’re simply beginning to act more like we expect large public firms to, including their desire for inorganic growth in innovation, talent, and even revenue. In fact, the LetsGetChecked deal apparently was done mostly through shares — a move typical of public firms.
Another common thread across the three deals above — which pertains to the first — is the ability for these firms to lift capital when needed to shut deals. Both AlphaSense and LetsGetChecked raised (or reportedly raised) money in connection with the closing of their deals. Wiz raised a massive round just a few months after acquiring Gem.
Of course, there are other reasons. Many startups have seen their valuations fall in recent quarters as the enterprise capital market has cooled, which has likely made it easier to persuade some VC-backed firms in the U.S. to sell.
However, the trend of mature, venture-backed firms commanding high valuations and trying to grow, and those in a position to raise large sums of money when needed, is unlikely to alter anytime soon.
With this in mind, we will expect to see more startups looking at their competitors in the future when it comes to creating deals.