附近上门

It鈥檚 not just venture capital funding that has declined for startups. M&A dealmaking between VC-backed companies has slowed too.

This year is on pace to be one of the slowest for VC-backed startups buying other similarly backed startups, per 附近上门 .

So far in 2023, startups have consummated just over 200 such transactions, putting this year on pace for the lowest number of deals since 2017 and just below 2018 and 2020 numbers.

鈥淲颈迟丑 some of the late-round funding diminishing, most startups are at a 鈥榬isk-off鈥� stage right now,鈥� said , managing director at , about the M&A market for startups. 鈥淔unding is unsure right now, rates are increasing 鈥� startups have to save so the urgency to buy something is not there.鈥�

M&A slowdown

There certainly was urgency in 2021 鈥� with funding hitting obscene levels and money cheap, startups couldn鈥檛 help themselves from going shopping. More than 500 deals were consummated in 2021. Last year, numbers dipped slightly, but remained robust with 443 deals.

However, this year, as companies continue to conserve cash and cut expenses, making an acquisition seems off the table 鈥� especially when considering the risk.

鈥淭he majority of all acquisitions fail, and that鈥檚 especially true for those involving startups,鈥� said Butler, whose firm鈥檚 portfolio company made an acquisition last month when it bought sales engagement platform . 鈥淚t鈥檚 just so unpredictable.鈥�

That mindset has led to only three M&A deals solely involving startups of $200 million or more this year:

• bought San Francisco-based language models training startup for $1.3 billion in June.
• Scottsdale, Arizona-based proptech firm bought competitor for a $950 million in January after raising a $500 million mix of debt and equity to finance the transaction.
• In June, Mountain View, California-based business intelligence platform acquired for $200 million.

Not easy

Of course, startup-on-startup dealmaking is inherently tricky even in the best of times.

One cash-losing company buying another can be difficult to integrate without burning through a lot of runway. Such deals can also face a lot of investor scrutiny, especially in the current environment which favors positive cash flow.

It also can be hard for a very young company to understand all the complexities of bringing in a new company with a different culture.

鈥淚t鈥檚 not something for the faint of heart,鈥� said , general partner at . Some of his firm鈥檚 portfolio companies, including and , have purchased other startups in the last year-plus.

Patel said startups typically acquire their peers for revenue synergies or purposes of asset or talent acquisition.

鈥淪tartup deals are usually very offensive-minded, such as new market penetration or expanding into new geographies,鈥� Patel said.

However, the current financial investment has started rewarding growth less than cash flow and there are other issues to consider.

“There are always questions about how you structure such a deal,鈥� Patel said. 鈥淚f it鈥檚 stock, both parties have to agree on a valuation, and that can be difficult.

鈥淚t also can be tough from a culture perspective,鈥� he added.

That said, VCs say startups are looking at opportunities and top companies continue to hire more corporate development people to explore those options.

Also, regardless which side of the table you find yourself on, investors say you should be willing to have those talks.

鈥淵ou should always entertain conversations,鈥� Patel said. 鈥淎t the very least, you may get some intelligence about the market.鈥�

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Further reading:

The Big Slowdown: M&A Involving US-based Startups Weakest Since 2013

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