Venture-backed startups, traditionally acquired by big corporations, are increasingly buying each other. In 2024, over one-third of the US venture capital (VC)-backed acquisitions involved another startup as the buyer, as per PitchBook. With Big Tech scaling back on deals and IPO markets sluggish, startups are using M&A as a survival strategy and a growth lever. While promising, this trend raises questions about long-term sustainability and the strategic intent behind these deals.
Startups Embrace New Paths to Growth
The Big tech firms have pulled back on acquisitions due to antitrust concerns and shifting priorities. In 2024, the 25 most valuable US tech companies made just 17 acquisitions of VC-backed startups, spending a mere $3.3 billion—the lowest figure recorded in the past decade, as per PitchBook. With fewer exit opportunities, VC-backed startups are increasingly looking inward, merging with or acquiring other startups to accelerate their growth. It is evident from the fact that 33.7% of completed transactions featured a VC-backed company acquiring another VC-backed company, which is higher than in previous years, as per PitchBook.
Figure 1: VC-Backed Buyers' Share of All VC-Backed Acquisition Activity
Source: PitchBook, data as of December 31, 2024
This shift is fueled by the sheer volume of capital that VC-backed firms have raised over the past decade. Many late-stage startups have amassed war chests large enough to function like mini-private equity (PE) firms, using M&A as a tool to scale. Over the past four years, companies actively involved in startup acquisitions accounted for nearly 29% of all VC funding raised in the US, as per PitchBook. Unlike traditional corporate buyers, these startups operate with fewer regulatory constraints, allowing deals to move faster and with less scrutiny.
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Consolidation Brings Promise and Pitfalls
The implications of this trend are significant. By consolidating, startups reduce competition, streamline operations, and expand their customer base. However, there is also a risk that these transactions are being driven by desperation rather than strategy. Many startups that acquire other firms are not yet profitable themselves. If these deals are not executed well, they would likely lead to bloated, inefficient companies rather than the strong market leaders investors hope for.
Some of the most active acquirers in this space include Databricks, Stripe, and Figma—high-growth startups that have raised billions in private capital and are now using M&A to maintain their momentum. These companies have the financial flexibility to buy smaller competitors or strategically acquire new technologies that complement their existing offerings. For them, acquisitions are not just a means of survival but a pathway to even greater dominance in their respective markets.
Sluggish IPO Markets and Easy Debt-Fuelled Acquisitions by Startups
The rise of startup-to-startup acquisitions also highlights a more profound shift in VC. Many traditional VC firms are now adopting strategies that resemble PE, focusing on long-term value creation rather than quick exits. As companies stay private longer, the pressure to generate returns has led to increased use of M&A as a growth lever. This is a marked departure from the past, where VCs prioritized early-stage investments with a clear path to an IPO or strategic sale.
That said, this trend will not be sustainable for all startups. While well-capitalized firms can afford to acquire smaller peers, not every startup has the balance sheet strength to engage in M&A. Additionally, the lack of a strong public exit market means that even well-executed acquisitions might not yield the returns investors expect in the near term. The real test will be whether these transactions lead to profitable, scalable companies or simply delay the inevitable failures of struggling startups.
Moreover, debt financing has played an increasing role in enabling these acquisitions. According to PitchBook, over $25 billion in loans were issued to VC-backed companies engaging in M&A last year. While debt is a valuable tool for financing growth, it also adds risk, particularly in a rising interest rate environment. If revenue growth doesn’t keep pace with debt obligations, some of these newly combined companies will find themselves in financial distress rather than strengthened market positions.
Read more: M&A Outlook 2025: What Big Banks Are Predicting
Temporary Trend or Permanent Transformation
The biggest question is whether this startup-led acquisition wave is a temporary market reaction or a lasting shift. Given the continued concentration of VC in a handful of highly valued startups, the trend of well-funded private companies acquiring others seems likely to persist. However, if public markets reopen and IPOs regain favor, we will likely see a return to more traditional exit strategies. For now, though, VC-backed startups are proving that they will be both the disruptors and the consolidators of the tech world.
In the long run, this will reshape the VC industry itself. If startups continue to operate more like PE firms, the distinctions between VC, growth equity, and buyout strategies will blur. Investors and founders alike will need to adapt to this new reality, one where the path to success is no longer just about reaching an IPO or getting acquired by Big Tech but also about strategically acquiring others to build something even more significant.
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