M&A Startups Venture

4 Charts Show Startup M&A Deal-Making Is Not Moving In The Direction We Expected

Illustration of a hand dropping M&A.

Predictions were rife coming into 2023 that we would see a flood of M&A deals for venture-backed startups as funding and IPOs dried up and cash-strapped companies looked for a way out.

That hasn’t exactly happened.

In fact, startup M&A deal-making continues to dip, Crunchbase data shows.

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That’s true generally — the number of disclosed M&A deals for venture-backed startups globally slipped 31% year over year last quarter to 491 (though that’s up a smidge from Q4 2022).

It’s even true in the case of some of the most heavily funded startup sectors, like cybersecurity and fintech.

Cybersecurity, for example, saw some hefty deals last quarter — including Hewlett Packard Enterprise’s $500 million purchase of Axis Security — but M&A deals for venture-backed startups in Q1 still tumbled 58% from a year ago, to just 13. For all of 2022, there were 82 such deals recorded in Crunchbase, compared to 126 in 2021.

In fintech, M&A deal count dipped from 319 in 2021 to 289 in 2022. M&A deal count in Q1 2023 continued to fall, tumbling 37% year over year to 51. We did see some notable fintech M&A deals last quarter, including Marqeta’s $275 million purchase of Power, but the overall trendline shows deal-making on the decline.

That’s also true when looking across the spectrum of industries at venture-backed startups buying other startups. Deal counts for U.S.-funded startups being bought by their peers dwindled to 82 in Q1 2023, down from 137 a year earlier.

There are a few reasons for the slump in M&A deals. Sale premiums have no doubt fallen along with deflated startup valuations, which makes sellers more reluctant to cash out at lower prices. Would-be buyers also face higher costs of capital as rising interest rates make even bargain buys more expensive.

It also doesn’t help matters that there’s a growing list of big, losing startup acquisitions to point to.

Startup M&A could tick up soon

But that could change as the year wears on and startups become more desperate for alternatives to hard-to-find funding. Not only has total venture spending fallen dramatically this year, deal sizes are trending down too, our analysis of Crunchbase data found.

“I think it’s likely the market at large will see an increase in M&A activity,” Whit Bouck, a partner at Insight Partnersone of the active lead venture investors with the most acquisitive portfolio companies — who works with portfolio companies pursuing strategic acquisitions, told Crunchbase News recently, pointing to the funding slowdown as a primary reason.

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