Amid a enterprise funding decline and dearth of IPO exercise, startups have discovered a brand new method to occupy their time: shopping for different startups.
The notion of startups buying different VC-backed corporations is nothing new. Meta bought venture-backed Instagram a month earlier than Fb’s Might 2012 IPO; meals supply firm GrubHub merged with Seamless in 2013 once they had been each nonetheless working off enterprise funding. However up till the previous few years, these transactions had been primarily giant and rare. Now, they’re getting smaller and extra frequent.
In 2021, 1,283 transactions involving startups on each side of the desk happened, based on information from Crunchbase. That compares to 689 in 2020 and 599 in 2019. Thus far this yr, 663 startups have been acquired by different VC-backed corporations, with greater than half of 2022 left to go.
Why is that this occurring now, throughout a downturn? The enterprise funding bull market of the final decade has created a barbell of startups. Final yr concurrently noticed a file variety of startups crossing the billion-dollar valuation threshold whereas seed-stage funding broke its personal file. Now that the funding fever has come to a screeching halt, the market is full of late-stage corporations with oodles of money available — and no actual exit alternatives — and a plethora of early-stage startups.
This has created an ideal storm for a rise in startups buying different VC-backed corporations, Kyle Stanford, a senior analyst at PitchBook, stated.
“There are over 7,000 venture-backed corporations and a file variety of seed offers,” Stanford stated. “There might be lots of corporations that may wrestle to boost this yr that might be simple targets for corporations trying to purchase.”
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