For a startup, buying another startup may make strategic sense. But it isn’t easy to do.
The list of decisions is long. How much to pay? Is it about acquiring assets, bringing in talent, or both? How should one compensate key people and keep the team motivated? Should you retire the acquiree’s brand or keep it?
The complexities around completing an M&A deal go a long way to explaining why some venture investors consider it their job to help shepherd portfolio companies through the process. It also points to why some firms have much more acquisitive startup companies in their portfolios.
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“There’s a bit of a Goldilocks play that has to happen,” said Whit Bouck, a longtime software executive who joined Insight Partners last year as managing director. She works with portfolio companies as an operating partner, with a particular focus on navigating decision-making around M&A.
It’s not a light workload. Per Crunchbase data, Insight portfolio companies are a pretty acquisitive bunch. Since 2020, they have acquired 1 at least 110 companies in software sectors from cybersecurity to logistics to grammar correction.
Notably, the firm is among more than a dozen active lead investors whose portfolio companies do a lot of M&A. Below, we put together a chart of 14 firms among those with the most acquisitive portfolio companies:
As illustrated above, Tiger Global Management has a particularly acquisition-hungry portfolio. This is partly a function of the fact that it is lead investor in a ginormous number of growth-stage companies. Several are prominent serial acquirers.
Corporate card platform Brex, for instance, has made at least six known acquisitions to date, including its most recent last year: a $90 million purchase of financial planning tools provider Pry Financials. Hopin, the virtual and hybrid event platform provider, also made six acquisitions while raking in over a billion dollars in venture funding in 2020 and 2021.
SoftBank’s portfolio also contains a lot of active dealmakers. This includes the delivery services DoorDash, Gopuff, and Rappi, which have collectively made at least 17 known acquisitions.
Among Insight’s portfolio companies, meanwhile, OpenWeb, a provider of software tools for online publishers, stands out as an active recent buyer. It’s made three acquisitions since last year, including the $100 million January purchase of personalized messaging startup Jeeng.
Of course, carrying out M&A deals isn’t the end goal for growth startups and their backers. The objective is to provide value, often by filling a niche the acquirer couldn’t or chose not to develop in-house.
Given that acquired startups generally get subsumed into the acquiring company, it’s often difficult to vet over the long term whether a purchase was a success.
Failures are easier to pinpoint — although commonly more due to missteps made by the acquiring company. The most obvious case in point for this is FTX, which snapped up nine companies between 2020 and 2022, per Crunchbase data. Now they’re all part of one big bankruptcy.
The sharp retraction in tech and growth company valuations also means a lot of prices paid in 2020 and 2021 now look much too high.
Beyond getting the price wrong, per Bouck, the big reason acquisitions commonly fail is “either because the acquiring company moved too fast or too slow in integrating.”
It’s a bit like getting a recipe right — which requires not just the proper ingredients, but also the correct process and timing. Perhaps it’s no coincidence that Bouck also authors a cooking blog.
Illustration: Dom Guzman
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Includes only portfolio companies founded after 1/1/2013.↩
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