“The Startup M&A Market Fell 94% Year over Year - But One Segment Thrives”, a post from last week, elicited the same question from many readers.
Just who are the most active acquirers for smaller takeouts?
To answer the question. I reviewed the roughly 560 US software acquisitions under $400m since January 1, 2020.
I’d like to have a hero image atop each blog post.
Readers dwell for a few seconds longer on blog posts with images. Plus, images garner more interest across social media.
I wondered how the current wave of generative AI image makers like Midjourney, Dall-E, & Stable Diffusion would fare creating images for a few of my posts.
Here are the results. The format is blog post, the prompt issued to the algorithm, & some commentary.
Frank Bien at Looker kicked off each year with a theme.
A decade later, I still remember them. These themes focused the company & the board. The management team wove that theme through every board deck during the year. I imagine the internal messaging prioritized it, too.
One year, he dubbed the Year of the Hound. Looker had focused on technical data teams as its ideal customer profile for the early years.
The US startup M&A market in Q4 2022 was one of the quietest in the last 20 years. It rivals the dotcom bust & Global Financial Crisis for its paucity. In percentage terms, last quarter dropped the most since 2000, falling 94% year-over-year.
US venture-backed M&A fell from $34.6b in Q4 2021 to a paltry $2.1b in Q4 2022.
Just how big is the current web3 B2B SaaS total addressable market (TAM)?
In the last six months, 103 web3 companies generated revenue on-chain, the smallest of which recorded a few hundred dollars of sales & the largest, Ethereum, tallied $401m.
44% of these companies produced less than $0.5m. But a nascent mid-market does exist : 41 companies produced between $5-25m.
Constellation Software is a $30b+ publicly-traded software holding company employing more than 25,000.
A former venture capitalist, Mark Leonard started Constellation in 1995 with $15m of outside investment & a goal of buying vertical software companies with a moat & good unit economics.
Vertical software companies pursue a particular market segment like car dealership management or hotel management software.
Sometime in the winter of 2020, I read Dan Luu’s article on latency.
“I’ve had this nagging feeling that the computers I use today feel slower than the computers I used as a kid.”
So he measured different computers using a high-speed camera & he found a modern Macbook had about 3x the latency of an Apple 2e, a computer from 1983.
Dan wrote a subsequent post on terminal latency : the fastest application on your computer is likely the terminal or the command prompt.
In November, Office Hours welcome Fredrik Haga, founder & CEO of Dune. Dune dashboards provide the most incisive views into what’s happening in crypto. Dune counts more than 50k dashboards using 300k+ different queries & executes more than 10m queries a month across those assets. I learned a lot from the session.
The video is here & the podcast here.
I learned that Fredrik and his co-founder Mats spent a cumulative $600k getting the business off the ground in the first 3 years. Fredrik shared his perspective on navigating a fund raising winter & what it means to search for product-market fit without much runway. 18 months after splitting hotel rooms with Mats, the Dune founders had raised close to $100m. It’s an incredibly inspiring founder story that resonates during the current part of the economic cycle.
Every year I make a list of predictions & score last year’s predictions.
Here are my predictions for 2023.
ML propels SaaS into a massive second wave that increases workers’ productivity measurably. Machine learning models predict code, synthesize images, author blog posts reducing composition time by a factor of 2 or 3. Users grow accustomed to this very quickly & ML becomes a requisite feature in most workflow SaaS.
The hangover from web3’s raucous 2022 extends into 2023. Most categories slow down meaningfully, including Defi. More than 100 web3-enabled games launch. Virtual wallets ensconce themselves into web2 applications. Marketing becomes the first broad use case of web3 after Defi, catalyzed by the death of the third-party cookie.
The Fed tames inflation. We exit 2023 with inflation below 2.5% but a Fed Funds rate of 5%. Forward software multiples touch 7.0x forward, up from 5.8x today, on the relatively strong growth rates of most public software.
Private equity acquires 10% of the 70+ publicly traded software companies by the end of the year. With hundreds of billions of dry powder, plenty of healthy cash flows generated by SaaS publics, & the leverage of the inevitable shareholder lawsuit if a board rebuffs the 30% premium of a tender offer, private equity becomes the dominant M&A option in dollar terms for 2023.
The fundraising market thaws, but at materially lower prices than the first half of 2022. The early stage market prices seeds at $10-15m post & Series As at $50-60m post (with about $500k in ARR). The mid-stage market for Bs, Cs, & Ds rebounds but chaos reigns. Some businesses will raise at sensational multiples (as if the market hadn’t changed) ; others will leverage their balance sheets to skip-the-dip & await multiple expansion before raising equity dollars ; yet others will reprice both common & preferred in flat or down rounds. Flat & down rounds surge to 30% of all mid-stage rounds completed in 2023, up from less than 5% in the first half of 2022.
A funny thing happened along the way to Sand Hill Road in the last decade : startups stopped talking about how much runway a Series A would buy them.
In the 2000s, when capital was scarcer, founders & VCs would derive round size by debating the quantum of money required to achieve Series B milestones.
When capital is scarce, it’s rationed.
In the 2010s, US venture capital grew 40x in 10 years. More capital meant the constraints of yester-decade no longer applied. Founders declared a maximum acceptable dilution instead.