In the tech business, speed is imperative. And in no other cohort of companies is the “grow big fast” ethos of startup culture better exemplified than what folks in the industry call “unicorns,” the tech-focused companies that hit $1 billion valuations or more while still private.
If acquisitions can be a shortcut to rapid growth, the question begs to be asked, when, exactly, do unicorns start buying startups?
The answer is simple: If a unicorn pursues an M&A strategy, on average the majority of those acquisitions will take place within its first decade of doing business. And unicorns founded in the last decade have pushed that M&A timeline earlier and earlier as they pursue ever-accelerating growth.
When Do Unicorns Start Acquiring? Let’s Look At Everything First.
To answer the question, we took the set of acquisitions made by 137 US-based companies currently on the Crunchbase Unicorn Leaderboard and the leaderboard of unicorns that have since been acquired or went public. We then grouped these acquiring companies by their age and plotted the number of acquisitions these companies made in each year after their initial founding date.
The result of all this number crunching is this chart:
The data indicates that the population of unicorn companies do not implement an M&A strategy until about three years after being founded.
In aggregate, the number of acquisitions made by unicorns within three years of founding is roughly 170 percent higher compared to unicorns in year two of their lifecycle.
Between years three and seven, acquisition activity keeps up a steady pace as these companies are likely building out products and scaling their operations. Eight years after founding and thereafter, the propensity of unicorns to acquire other companies decreases somewhat as these companies likely exit their rapid growth phase and settle into a more moderate growth trajectory.
In other words, in general, unicorns don’t really start spending serious resources on acquisitions until they’ve had at least a few years in the market, which shouldn’t come as a surprise. It’s during this period that they build their market position, define their product objectives, and, importantly, raise the venture financing necessary to pay for acquisitions.
Older Unicorns Grew, And Acquired, Slower
However, “a few years” means different things to different folks. For the youngest unicorns in our cohort analysis (the lightest blue bars in the chart above), “a few years” in the market really means something like 3 or 4, whereas for older unicorns, a more leisurely pace of acquisition activity becomes apparent.
When we remove the acquisitions made by companies started in or after 2007, we see that the build-up to peak acquisition activity was somewhat more steady and long-lived.
In the case of these older unicorns, the majority of the acquisition activity was deferred to later in the company’s lifecycle. Why? There are two related arguments to be made here.
At least in these older cohorts, much of the acquisition activity coincides with companies’ initial public offerings. For younger companies in our analysis, their acquisition activity ramps up fastest prior to receiving the coveted billion-dollar valuation.
In the group of companies founded between 2004 and 2006, Facebook and Twitter make up almost exactly half of the 223 acquisitions made by that cohort.
Facebook, founded in 2004, went public eight years after its founding. Between years 6 and 10 of being in business, Facebook completed over 80% of its acquisitions, and all but two of 66 publicly-known acquisitions by the company were completed since 2010, Facebook’s sixth year.
Twitter, founded in 2006, went public in 2013, 7 years after being founded. Between years 5 and 9 of its existence, the same relative time frame to the one we looked at for Facebook, Twitter completed exactly 80% of its publicly-known acquisitions.
It’s worth noting that since we have less data on the younger companies, and many unicorns are indeed quite young, this dataset will change over time. It’s still unknown whether these youngest unicorns will increase their pace of acquisitions yet again.
In the meantime, though, it’s important to keep in mind that we’re likely at the speed limit here. The time between founding and unicorn status, and the time between founding and implementing an M&A strategy, is already blistering. The new mantra might as well be “grow big fast, faster.”