In my view, the global trend of  “startups acquiring startups” is almost entirely VC-driven, most commonly on the sell-side but also on the acquirer/buy-side. More than 80% of acquired VC-backed startups sold to another startup since the beginning of 2023, equating to 766 companies globally, according to Crunchbase.

Consolidation is a natural consequence of a maturing industry, at all levels. Large regional or global strategic acquirers are more likely to be interested in a chunky target with a wider geographic footprint and with more diversified services, than a one-trick pony, and the same is true for an IPO. A startup may experience multiple consolidations before it gets to its end-game.

Therefore, if you as a technopreneur, are in the game long enough, it is really is a question of whether you are an acquirer, building for the longer term, or a seller, looking to exit earlier and move on.

The reason that I say that this activity is venture-driven is because of the constant pressure that VCs place on their startups to grow at rates which require successive funding rounds. (See our article on VC funding and the foie-gras effect.)

Therefore, it is important that all venture-backed startups look well ahead to their target KPIs/milestones of their next planned raise. If they are clearly not going to get close to these, they need to act early – either to extend their runway, or to think about acquiring or selling – so as not to sleepwalk into running out of cash and closing shop.

In some cases, a startup may be able to achieve its KPIs (revenue growth or target, EBITDA positive or target, geographical diversification, product diversification etc.) through an acquisition, through either cash (assuming there is enough dry powder), a share swap or a combination thereof.

There is usually a double whammy for the successful acquirer, who can acquire at a lower revenue multiple and then enjoy an uptick when that same acquired revenue has a higher multiple applied to it on its next liquidity event (be it a capital raise or sale).

If a startup cannot acquire its way out of trouble, or extend its runway, then they should look at selling, not waiting until it is a critical situation. While a large strategic acquirer will always be first prize, selling to another startup can be a quicker and easier option.

While you will not be able to retire on this transaction, it enables the technopreneur to claim a success, ensure continuity for the business (and hopefully for the staff too), and move on to their next rodeo. Investors love technopreneurs who are not first-timers (see our article It’s team, team and team for investors) and after all, life is long… (see our article Technopreneurs do get better with age).

Startups who are looking to acquire are typically later stage (circa Series B) than those that they are acquiring. In our article When is the best time to sell your company? we quote data which suggests that of startups that are acquired, some 50% are acquired before their Series A, whilst a further 25% are acquired during their Series A stage, with the balance happening later than that.

So if you are a venture-backed startup, you need to, from a very early stage, be thinking about that next round, whether you are going to be in a position to do a successful raise, or have a way to extend your runway – always thinking about your buy or sell options.