The acqui-tail

Here's what I'm seeing (anecdotally): more Internet startups getting started and seed funded, but series A funding not increasing at the same pace (or at all). This led me to conclude there is an increasing risk for these startups to find follow-on financing.

But does that also mean all the startups and angels are largely going to end up with nothing? Not necessarily.

Dave McClure et al. seem to be betting on the rise of the small(ish) acquisitions that deliver fine exits to the entrepreneurs and angels. I'm not saying that is the only way to get liquidity, but it is the one I want to focus on in this post.

For this investment thesis to work, it seems there has to end up being a long tail of Internet startup acquirers. That is, the tech giants (Google, Microsoft, etc.) aren't going to acquire enough companies to make the numbers work. The concept of acquiring Internet startups must extend to M&A departments outside the tech sector.

One argument for why that might happen goes as follows. These large companies are spending more and more on digital stuff and so as it becomes more of what they do day to day, they're going to want to get into it more. One way to do that is acquisitions. And as one company in a given industry becomes good at Internet startup acquisitions, it then becomes a competitive advantage thing.

It would of course be great for Internet startups. The real money in acquisitions is in strategic buyers, but those buyers have to actually think you are strategic :).

Personally, I think it will happen. Maybe people have data that it is already starting to happen, but I haven't seen it yet. I was going to crunch some crunchbase data, but I'm a bit swamped. I might do it soon though if no one points out any existing data trends.


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