Many people, myself included, predicted a wave of startup acquisitions in 2023 as companies rooted in good ideas but built on not-so-good business models ran out of money. That largely didn’t happen, but there are signs it will in 2024.
Funding volume and deal count continues to slow down, according to Q3 data from PitchBook, and macroeconomic conditions have economists and politicians predicting a recession in 2024. Investors have also told me they are spending less time propping up portfolio companies that aren’t doing well and are looking to help them find a soft landing instead.
When I first wrote about the impending wave of startup acquisitions back in June 2022 — yeah, my timeline was off by a bit — I originally thought the acquirers would be the late-stage startups that had plenty of cash in the bank. I pictured solid companies, with solid business models, like Stripe and Plaid, scooping up smaller competitors to justify their otherwise inflated valuations. But the startup acquisitions we have seen thus far have largely been made by public players or private equity firms.
I think that will change next year, and I no longer think it’ll be the good buying the less good or the small. Those companies are probably thinking more about an exit for themselves in the next year, rather than a shopping spree. Companies will be making acquisitions largely to plug the holes in their business models. I think it will be the distressed buying the distressed.