Pursuit of Growth Turns Outward (PitchBook, 2Q 2019)

TL;DR — PitchBook’s June 2019 analyst note on US VC-backed startups buying companies and investing in other startups, and what one, two or four-plus acquisitions do to the next round.

Published June 18, 2019 and written by Cameron Stanfill and Darren Klees, the note argues that as companies stay private longer, startups are adopting a public-company habit: buying growth from outside. M&A counts by US VC-backed acquirers plateaued after 2015 (720 deals in 2015, 643 in 2018), while their share of all M&A rose. Companies still wait three to four years after first financing to make a first acquisition, but the top-quartile acquirer had raised $72.7M before doing so in 2018, more than double a decade earlier.

The headline finding is on valuation step-ups. Startups that made one or two acquisitions between rounds saw slightly higher average step-ups (about 4.1–4.2x annualised) than non-acquirers (4.0x), while those making three or four-plus fell to about 3.4–3.5x. The note explains the pattern rather than claiming causation: integration risk rises with deal count, and the reasons a startup turns to M&A — stalled growth, a pivot, a crowded market — also push step-ups down. Twitter, Facebook and Dropbox are cited as the top all-time VC-backed acquirers, and Airbnb and The We Company as the most active current ones, with an estimated 60/40 core/non-core split.

A second section covers VC-backed companies investing in other startups’ rounds. Late-stage deals were 68.4% of that deal value in 2018. Slack (51 deals, largely through the externally funded Slack Fund) and Coinbase (10 seed and Series A deals in late 2018, after the crypto price crash) are the two companies with ten or more such deals.

What it is: An 11-page descriptive data note from a commercial data vendor. It is useful for the direction of the trend and PitchBook’s counts; it is not a controlled study, and the step-up comparison does not separate cause from selection.

Where this came from

• Saved from a 2020 note, with the PitchBook file link.
• Published by PitchBook on its own file host. The URL now returns 403 to scripted requests; the Wayback Machine recorded it serving the PDF openly on May 31, 2024.

11 pages. A copy is archived locally against link rot; the header links the original source.

Connections

• Playbooks — filed under Playbooks.
• turnarounds — and under turnarounds.
• PDF Collection — Master