During the last three years, a significant dip has occurred in start-up to start-up procurement deals, reaching a three-year low of just around 650 in 2023. After a spike to over 1,000 deals in 2020, a downward trend has taken root, particularly with a sharp drop in the last two years. This slowdown could be attributed to factors such as more self-reliant start-ups due to technological advances, a slower economy, and wary investors.
Regulatory policy changes, and the rising tendency of companies deciding to develop solutions in-house rather than outsourcing, have been stumbling blocks in startup-to-startup business transactions. Despite this slump, forecasts hint at a potential revival in the coming years, largely based on the start-up ecosystem’s historic capability to recover stronger from similar downslides.
In financial terms, the average disclosed deal size dropped from $40 million to $30 million in 2023, with a continued decline in 2024. But come 2025, the average deal size surged back to $35 million, mainly due to a reviving tech industry. In 2026, the average deal size astonishingly spiked to $50 million, a significant leap from preceding years.
As many start-up transactions are confidential, it is challenging to ascertain the exact profit from these investments. Start-ups only deem a deal productive if it recovers the investment cost, provides some profit, and secures the team’s employment, all hence validating their superior technological innovation and business models.
Contrary to the overall slowdown, a large percentage (over 80%) of startup acquisitions were by other startups. This points towards maturing startups’ interest and financial ability to diversify their operations and reinforce their market position through acquisition. Furthermore, this dynamic also reflects the shifting tactics from conventional corporate takeovers to intra-industry consolidation.
An interesting trend is the reduced participation of principal tech companies in start-up procurement due to potential tax implications and earnings predictability issues. This has forced many startups to seek backing from individual, private investors, bringing a fresh set of challenges, such as the need for meticulous planning, strategic innovation, and robust management.
Our ever-evolving economy sees many startups considering acquisition by another emerging company as the best survival strategy. The upshot of this lies in the possibility of their technology and products being expanded under a new brand. Though taking certain risks, this innovative-route offer startups a shot at staying relevant. This cycle not only provides financial stability but also rekindles the entrepreneurial spirit embedded in start-ups, reinforcing the idea that acquisitions can sometimes bloom into new ventures and opportunities.
