The End of the Startup M&A Era? – Tech Startup M&A 2024 Report
The ability to continuously produce innovation has been one of Silicon Valley’s key drivers. VCs invest in startups, and startups use the funds to acquire other startups, allowing them to grow and innovate at a faster pace. Eventually, startups exit and return capital to VCs, who then invest in a new wave of startups. This cycle accelerates the wheel of innovation, expanding its scope with each iteration.
Data from our report analyzing startup acquisitions by Fortune Global 500 companies since the beginning of the millennium confirm these findings. Six out of the ten largest startup acquirers in the world are Silicon Valley companies. North American companies acquire startups at four times the rate of European companies, and the gap with ASEAN companies is even wider, with North American firms acquiring 7-10 times more.
“US buyers gorge on startups while Europeans nibble” — that’s how we titled an article on TechCrunch nearly 10 years ago. And it still holds true today. Data confirms that American companies have a significantly larger appetite for startups compared to their European counterparts. On average, a European Fortune 500 company has acquired 1-2 startups over the past five years. In the same period, American companies have acquired 3-4, while Silicon Valley companies have snapped up 12-15 innovative firms.
But there’s a catch. Since 2021, the number of global startup M&As has declined. The VC pullback (also referred to as the VC reset) has played a role, but this may not just be a temporary slowdown. As geopolitical tensions rise, governments are exerting tighter control over businesses. M&As above a certain threshold now face increased scrutiny from regulators. On one hand, there is a growing need to protect technologies with potential national strategic importance (dual-use technology is becoming a significant issue). On the other hand, political pressure is mounting against market concentration and monopolies.
In the US, the Federal Trade Commission (FTC) under the leadership of Lina M. Kahn has increasingly focused on challenging corporate consolidations that may harm competition and consumer welfare. This trend has expanded overseas where both the UK’s Competition and Markets Authority (CMA) and the European Commission (EC) have been particularly active on that front (the aborted $20B Adobe’s acquisition of Figma case is emblematic). If these trends continue, regulators could reshape the VC industry and the startup economy as we know it—and significantly harm Silicon Valley’s innovation engine. Remember: no exit, no party.
