Startups are consolidating in spaces where funding has dwindled

In venture capital, seeing startups with similar businesses close large rounds around the same time.

This year, it’s artificial intelligence. A few years ago, many sectors, including areas such as D2C, home buying, and consumer fintech, were in flux.

But hot sectors often don’t stay that way, especially in areas where the most turnover has occurred near the top of the market. Now, in spaces where investment has declined, we’re seeing heavily invested startups merge with former competitors and others to stay competitive or simply stay afloat.

Sections for the integration of startups

To highlight, we used Crunchbase data to identify startups that have raised large amounts of money in the past few years and have since sold to another private company in the same or similar industry. We then narrowed down the list to sectors where venture capital has fallen sharply.

With that in mind, here are some of the industries and companies that made our list.

E-commerce aggregators

In 2020 and 2021, investors poured billions into e-commerce aggregators. Companies such as Thrasio, Perch, and Razor Group, which had large budgets, used the money to buy smaller brands and increase their sales on Amazon and other retailers.

But when the market took a downward turn in 2022 and many downsized publicly and cut staff, the funding for the space ran out. Then came a wave of consolidation.

Berlin-based aggregator Cellar X was an early mover, buying Austin, Texas-based Elevate Brands a year ago in an all-stock deal at an undisclosed valuation.

Razor Group, another Berlin-based aggregator, has also been acquisitive. The company has acquired four e-commerce startups to date, including Boston-based Perch, a SoftBank portfolio company that raised more than $900 million.

Razor previously acquired Luxembourg-based Factory14 in April 2022, Mexico City-based Valoreo in late 2022, and Berlin-based Stryze Group in 2023.

Platforms for buying and investing in real estate

Real estate investment and buying platforms raised a lot of money when mortgage rates were lower and home sales were faster than today. In recent quarters, venture capitalists have moved away from the space, and we’ve also seen some mergers.

In May, Roofstock and Mynd, two Oakland, California-based online platforms investing heavily in single-family rental property investors, announced plans to merge. Roofstock has previously raised over $360 million and Mynd has raised over $200 million.

A month later, home-buying platform Flyhomes announced that it had acquired ZeroDown Properties, a Sam Altman-backed startup that offers renters a way to build equity and eventually buy the home of their choice.

Fintech and BNPL

A few years ago, fintech was the largest sector in the world for funding startups. Globally, companies in the space saw more funding than any other in 2021, fueled by investor appetite for buy-now, next-generation payments, new platforms, neobanks and others.

Fast forward a few years, and these spaces are no longer hot. While adoption is growing in the US and other markets, we are no longer seeing significant investment. Meanwhile, BNPL’s public companies, such as Affirm and Square, the latter of which owns the Afterpay platform, have rebounded from their lows but remain well below their one-time highs.

Against this background, we are witnessing the next startup merger.

This spring, San Francisco-based Empower, a provider of app-based cash advances and credit cards, acquired Petal, a New York startup focused on extending credit to underserved groups, for an undisclosed sum. Founded in 2016, Petal has previously raised over $250 million in equity capital and $680 million in debt financing.

Last summer, San Francisco-based online banking and loan provider Uplift acquired Silicon Valley-based BNPL provider Uplift, which had previously raised more than $140 million in equity capital and more than $500 million in debt financing.

logistic

Logistics was one of those startup sectors that peaked a little later than other sectors. In the first three quarters of 2022, investors spent more than $7 billion in the space, per Crunchbase reporting at the time. Two of the most prominent fundraisers of the period were Caravan and Flexport.

However, the following year, funding was cut significantly and the companies saw their fortunes change. Seattle-based transportation logistics startup Caravan, once a high-flying unicorn, has announced that it is shutting down operations, citing the “huge transportation downturn.” Flexport acquired Convoy’s assets in late 2023.

Not just a down market phenomenon

It should be noted that mergers between competing, well-funded startups are not specifically a bear market phenomenon. We also saw quite a lot of consolidation when these sectors saw a peak in investor interest.

For example, SellerX also acquired a German competitor, KW-Commerce, in 2021. Roofstock made three acquisitions in 2021 and 2022, including Great Jones, a real estate rental operations platform that previously raised more than $33 million.

But buying in a bear market, of course, has a different flavor. Some investors had closed or were about to do so. For others, a difficult fundraising market made another investment option a non-startup.

In the future, the hope is that the merger will put these companies in a stronger position for growth, with fewer competitors to worry about.

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Image: Dom Guzman