Since the start of 2021, more than €1bn has been spent on acquisitions by European VC-backed startups — a 10-fold increase on last year.
An increasing number of startups are using these buyouts as a part of their growth strategy, allowing them to buy an existing product or talent team and integrate them into their own platform. But does it always make sense?
In our most recent Sifted Talks, we asked the experts how startups are using acquisitions to expand their offering and dominate their sector. The panel included:
- Camille Fitoussi, VP of business & corporate development at letterbox flower company Bloom & Wild
- Milda Jasaite, M&A director of online marketplace Vinted
- Guy Podjarny, founder and president of technology platform Snyk
- Ben Tickler, director of venture & growth at Silicon Valley Bank (SVB)
1/ We’re experiencing “the rise of the mega-round”
According to Tickler, there weren't only more acquisition rounds this year, but also much more capital available to buy startups.
He said that in Europe there were more than 200 rounds of over €50m each, which Tickler defined as a “mega-round”, showing the sheer volume of money being spent on acquisitions.
The deal volume has been fairly similar, even though the amount of venture capital raised is way outstripped, which shows the rise of the ‘mega-round’ ” — Ben Tickler, SVB
2/ Spend time finding startups that work for you
Podjarny said finding a startup to acquire was relatively easy — you could talk to VCs, accelerators and even ask your customers what other startups they use — but the hard part was assessing their teams and technology to see who would be the best fit.
Although this can be harder remotely, Podjarny said startups should take time to compare the core skills wanted and the gaps they can fill in.
You can’t just fall in love with the first [startup] you see. You have to look at a few candidates so you can properly appreciate the strengths and weaknesses of both options” — Guy Podjarny, Snyk
3/ If cash is king, stock is queen
Tickler said that at SVB he’s seen a massive rise in mixed deals, where stock is being used in acquisitions as well as cash. He said around half of M&As used stocks and cash, instead of just cash.
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He added that this is beneficial for startups looking to buy other companies because they can use their growing stock to make a better offer.
In traditional M&A, traditional non-tech verticals, cash is king, but stock is queen in the land of technology M&A” — Ben Tickler, SVB
4/ Organic growth is still important
When talking to VCs, Fitoussi said Bloom & Wild used M&A as part of its proposals and it was received well by investors. However, she said the startup also had a strong organic growth plan, and doubted that their most recent funding round would have been as successful without both angles.
She said it’s important to look at what your startup can achieve faster and more effectively, with or without an acquisition.
It takes time to enter a new market, it takes time to develop a new product, it takes time to hire and train the right team, so all of these are relevant aspects when reviewing the deal” — Camille Fitoussi, Bloom & Wild
5/ ‘Them and us’ never works
At Vinted, Jasaitė said the integration team sits with its M&A team, as what happens after the acquisition is as important as the purchase itself.
Podjarny said at Snyk the worst thing was creating a “them and us” environment, where the acquired startup still views themselves as separate. Instead, he said, it’s all about balancing the experience of each team.
In the end, integration is how you are going to capture this value that you’re planning to get. It doesn’t matter if it’s growing the user base in a certain market, entering a new market, getting a new capability, you still need a plan on how that’s going to happen in the end” — Milda Jasaite, Vinted
6/ Don’t forget your mission and values
For Fitoussi, acquiring startups with the same mission and values as your company is essential to a successful M&A. She said Bloom & Wild had walked away from many deals because it didn’t think they were doing business in the same way.
Jasaite agreed and added that all-company meetings were essential to get on the same page, as well as preparing internal communication for both teams. At Vinted, she said they also set up a buddy system and spontaneous coffees, where people from different teams could meet each other.
We’ve really looked at businesses that have similar values to us. Now that may sound a bit fluffy, but it’s paramount for the deal's success, as well as the success of integration further down the line” — Camille Fitoussi, Bloom & Wild
You can also watch the full Sifted Talk here: