As public tech companies have slowed their acquisitions of startups, venture-backed upstarts are stepping in to fill the M&A void, according to a new PitchBook analyst note.
In other words, startups are increasingly buying other startups. More than one-third of acquisitions of US startups in 2024 involved another VC-backed company as the buyer. The proportion of those purchases has increased every year since 2018, rising from 20.3% then to 33.7% last year.
Fueling the trend: Late-stage startups staying private longer and having more cash on hand to ink such deals. There were an estimated 956 sales of US venture-backed companies last year, which would make for the fourth highest level on record.
Kyle Stanford, PitchBook’s director of research for US venture, said he expects the trend of startups buying other startups to stay, regardless of whether big tech players dip back into M&A.
Top tech companies have pumped the brakes on buying startups over the past four years due to market conditions and regulatory scrutiny. The segment recorded a scant 17 startup acquisitions in 2024, totaling $3.3 billion. In 2020, the height of the M&A market, there were 43 such deals for a cumulative $19.2 billion.
VC-backed companies, meanwhile, need to keep showing growth to their investors—and strategic acquisitions can help.
“These companies are getting much larger,” said Stanford. “They have more money. They need to continue to grow. I don’t see these VC-backed companies slowing their acquisition rates, unless they start moving public earlier or getting acquired themselves.”
Featured image by Jenna O’Malley/PitchBook News
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