Who is buying VC-backed startups?
Startups Are Entering the M&A Big Leagues
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For years, startup M&A has been dominated by Big Tech and large corporations, but a major shift is happening: VC-backed companies are now leading acquisitions of other VC-backed startups.
In 2024, more than one-third of all acquisitions of US VC-backed startups were completed by another VC-backed company. This trend has steadily risen over the past two decades but has accelerated dramatically since 2019.
With market slowdowns, fewer IPOs, and reduced acquisition activity from traditional buyers, startups are stepping in to consolidate industries, expand capabilities, and position themselves for future growth.
Big Tech is No Longer the Dominant Buyer
Regulatory scrutiny and shifting market dynamics have significantly reduced Big Tech’s involvement in M&A.
The 25 most valuable tech companies made just 17 acquisitions of VC-backed startups in 2024, spending only $3.3 billion—the lowest amount in a decade.
In comparison, between 2018 and 2021, Big Tech acquisitions of VC-backed startups averaged $14 billion annually.
Instead of direct acquisitions, Big Tech firms are focusing more on corporate venture capital (CVC), investing in startups without acquiring them outright.
With fewer strategic buyers in the market, startups are forced to rethink their exit strategies—and many are turning to M&A as a path forward.
Why Are Startups Buying Startups?
As companies stay private longer and raise more VC funding, they are now in a position to use M&A as a key growth strategy. Over the past four years, companies active in VC-backed M&A raised nearly 29% of the total capital invested in the US VC market.
Key Reasons for This Shift:
1. Excess Capital & Growth Pressure – Many late-stage startups have raised significant capital but are struggling to find organic growth opportunities. M&A allows them to expand into new markets, acquire tech, or increase market share quickly.
2. Lower Valuations = Better Deals – With market slowdowns, valuations have dropped, making acquisitions more attractive. Startups that once raised capital at high multiples are now more affordable for potential buyers.
3. Less Regulatory Scrutiny – Unlike Big Tech, which faces antitrust roadblocks, startup-to-startup acquisitions can often proceed with fewer legal complications.
4. Strategic Consolidation – In certain industries, startups are merging to combine strengths, reduce competition, and create category leaders.
What’s Next?
Expect VC-backed buyers to remain active in M&A for the foreseeable future. The private capital market is expanding, and leading VC firms are adopting a PE-style growth strategy, using M&A as a way to strengthen their portfolio companies.
As IPOs remain uncertain, and large tech acquirers continue to slow down, startups will increasingly look to each other for liquidity, growth, and long-term sustainability.
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