Will early stage startups merging increase as market ecosystems continue to rapidly grow?
Something that came to mind recently and has gotten me curious is why you never really hear much about mergers between early stage startups? With the various startup ecosystems multiplying in size with new startups entering the arena, one would think that it would be a valid possibility for companies that are solving for the same thing. In several conversations I’ve had with founders they’ve raised legitimate concerns about what a merger would do.
A lot of the concern comes in around cultural dynamics. At an early stage company that is made of small team, comradery and being in tune with one another is a huge deal. Everyone around the table cares for the other team members and they all live and breathe the dream that the startup is chasing. Even if the other company has a product offering that is very similar or complimentary the idea of risking the unique culture is not something many founders want to do early on.
Process, organization, and financials are also seemingly a huge deal when thinking through a potential merger. A newly merged company will obviously need to realign management teams, redevelop the product roadmap, and overall structure of the new integration. The fear of losing time realigning & disappointing important team members could potentially drive a thriving startup off their road to success and set them back.
Lastly, but surely not least is the impact on potential exit opportunities. Besides the fact that integrating the 2 teams could delay the timeframe for exit, the startups will have now become a “larger” entity and that could lead to making them a less appealing acquisition. In the end of the day the thought that many share is that they’d rather exit for $100M as a small team than $150M with many more eating from the pie.
However, in a time where the number of startups is heavily increasing in all market landscapes and the competition for funding is growing, it may be something that companies think about. Or maybe sticking to their guns and moving along their trajectories solo will be best….it’ll be interesting to see how things evolve over time….
Mohamed T. Khalil