The traditional VC playbook has shifted over the last decade.
GPs are sitting on stacks of capital enabling young companies to raise bigger rounds and stay private for longer. These pervasive trends have contributed to a fundamental shift in what it means to be a VC-backed company. Today, more and more young companies find themselves in a position to raise funds even when the balance sheet is strong. Instead of spending raised capital on organic growth, some VC-backed companies are taking pages out of the corporate playbook—deploying a buy-and-build strategy to supplement their own growth.
As with most deal strategies, this type of approach has implications for the risk and return profile of the investment, according to PitchBook’s analyst note Pursuit of Growth Turns Outward
. In the note, analysts examined buy-side investment activity by US VC-backed companies and found that completing one or two acquisitions between rounds corresponded to slightly higher median valuation step-up multiples compared to non-acquisitive startups. However, each integration comes with risks, so deal makers with three or more acquisitions in a year may not see the same multiples.
But, how much say do VCs actually have in a company’s strategic decision making? Not as much as you might think. VCs have minority stake in their companies—and although they often sit on the board of their portfolio companies—they don’t always have much sway in specific strategic decisions like M&A deals. Additionally, with the “founder-friendly” approach gaining popularity, founders are able to exercise a broader reach with respect to deal making.
As the number of M&A deals with participation from startups continues to rise, here’s a look at some of the most notable deals in the first half of 2019.
A snapshot of notable VC M&A deals in 1H 2019
April 23, 2019
New York, New York
theSkimm, an online newsletter catered to millennial women, acquired Purple Politics, a text messaging platform for political news that focuses on encouraging debates and conversations. Deal terms have not been disclosed, but this acquisition is helping theSkimm build its product suite outside of the inbox.
See our theSkimm profile preview
January 23, 2019 – June 12, 2019
Cary, North Carolina
Epic Games, a developer of computer games such as Fortnite, has acquired four companies so far in 2019, including Houseparty, Psyonix, 3Lateral Studio, SkookumScript. From live streaming on mobile devices to creating digital characters, the series of acquisitions will boost Epic Games’ presence in the industry.
See our Epic Games profile preview
March 25, 2019
Menlo Park, California
Robinhood, a platform designed to help people learn how to invest in the stock market, acquired MarketSnacks, a daily financial newsletter for an undisclosed amount. The acquisition will enable Robinhood to deliver digestible financial news and expand Robinhood Crypto to more than 30 states.
See our Robinhood profile preview
March 1, 2019
San Francisco, California
SoFi, which aims to arm its users with the tools to achieve financial independence, acquired Lantern Credit, a platform designed to solve systemic inefficiencies in the consumer credit market.
See our SoFi profile preview
January 1, 2019 – April 17, 2019
San Francisco, California
Airbnb, a marketplace connecting travelers and local hosts, acquired five different companies in the first half of 2019, including Niido, Gaest, HotelTonight, OYO Rooms, and Lyric Hospitality. From property management technology to hospitality platforms, the series of acquisitions will enable Airbnb to broaden its presence in the industry.
See our Airbnb profile preview
Want to learn more about the evolving role of VC in M&A? Download our 2Q 2019 North American M&A report