Startups on track to acquire more VC-backed companies than ever before in 2022. Here’s why – TechCrunch

middle project With funding waning and IPO activity scarce, startups have found a new way to occupy their time: buying up other startups.

The idea of ​​startups acquiring other VC-backed companies is nothing new. Project-backed Meta bought Instagram a month before Facebook’s initial public offering in May 2012; Food delivery company GrubHub merged with Seamless in 2013 when they were both still working outside of project finance. But until the past few years, these transactions were essentially large and infrequent. Now, they are getting smaller and more frequent.

In 2021, there were 1,283 transactions involving startups on both sides of the scale, according to data from Crunchbase. That compares with 689 in 2020 and 599 in 2019. So far this year, 663 startups have been acquired by other VC-backed companies, with more than half of 2022 remaining.

Why is this happening now, during an economic downturn? The rising market for venture capital funding in the past decade has created a host of start-ups. Last year meanwhile saw a record number of startups cross the $1 billion valuation threshold while seed funding smashed their own record. Now that the funding fever has blatantly stopped, the market is filled with late-stage companies with plenty of cash on hand — and no real exit opportunities — and a slew of early-stage startups.

This created a perfect storm for startups taking over other VC-backed firms, said Kyle Stanford, chief analyst at PitchBook.

“There are more than 7,000 venture-backed companies and a record number of seed deals,” Stanford said. “There will be a lot of companies that will struggle to raise this year that will be easy targets for companies looking to acquire.”