The big startup M&A bonanza?
Lina Khan decimated startup M&A but there are reasons to believe the coming years will see a boom in deals
Lina Khan became the head of the FTC in 2021. Since then startup M&A has drastically decreased, despite a steep post-ZIRP decline in startup valuations, which should have made acquisitions more compelling for buyers.
This has compounded the difficulties posed by a sluggish IPO market and the confluence of factors has left startups stuck in stasis, a disaster for founders, startup employees, as well as VCs / their LPs.
No Exit No Party
M&A is a vital exit strategy for startups, it’s the life blood of the VC-startup ecosystem. Exits provide a pathway for founders to realize the value of their years of hard work, for investors to see returns on their capital, and for larger companies to integrate new technologies and talent.
Recent antitrust enforcement under Lina Khan has led to a more aggressive stance on such deals, particularly in the tech sector. Companies like Meta, Microsoft, Alphabet that once acquired startups nonstop have been more cautious, fearing lengthy legal battles or blocked deals.
The Chilling Effect on Investment
Venture capital thrives on the promise of lucrative exits. When the pathway to acquisition narrows, venture capitalists become more hesitant to invest in early-stage companies.
It’s no shock to anyone reading this that venture funding has seen a decline in recent years. Some of this is of course post-ZIRP reset, however regulatory policies have also played a role in shaping investor confidence.
Anticipation Ahead of the Upcoming Election
As we approach the US election on Nov 5th, there is anticipation about potential changes in FTC leadership and a loosening of regulations that currently make exits tricky. Trump has been clear that he’d replace Khan. On the Democrat side too there is significant resentment from some circles. Prominent Dem donor and LinkedIn founder Reid Hoffman has publicly called for Khan’s replacement, accusing her of “waging war” on American business.
Releasing Pent Up Demand
If the aggressive antitrust stance of recent years is softened, we could see a boom in M&A activity that releases the pent-up demand currently stifling the startup ecosystem.
A more accommodating regulatory environment would encourage larger companies to re-engage in acquisitions without the overhanging fear of legal challenges. This could lead to a flurry of M&A deals, providing startups with much-needed exit opportunities. Such a shift would not only benefit founders looking to realize the value of their hard work but also invigorate venture capitalists eager to invest in the next wave of innovative companies. This is a win-win scenario for anyone in the startup ecosystem.
Be Prepared
Now is the time to gear up! Founders, dust off your pitch decks and data rooms. Investors, ready your capital for promising opportunities. We’re not there yet but there are reasons to be hopeful that a bonanza is around the corner.
Onwards and upwards.