Startups merge in sector where funding has fallen

In the venture capital world, it’s common for startups doing similar things to complete large funding rounds around the same time.

This year, it’s generative AI. A few years ago, there were a lot of niche areas with money pouring in, including areas like D2C, home buying, and consumer fintech.

But popular sectors rarely stay that way, especially those where the biggest funding rounds came near the market’s peak. Now, in sectors where investment has dwindled, we’re seeing heavily funded startups merging with former rivals or other companies to stay competitive or simply survive.

Target sectors for startup integration

Specifically, we used data from Crunchbase to identify startups that raised significant amounts of funding over the past few years and were subsequently sold to another private company in the same or similar industry. We then narrowed the list down to sectors where venture funding has plummeted.

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

E-commerce aggregators

Investors have poured billions of dollars into e-commerce aggregators in 2020 and 2021. Big-financed companies like Thrasio, Perch and Razor Group have used the money to buy smaller brands and expand sales on Amazon and other retailers.

But as the market began to trend downward from 2022 onwards, many companies downsized and announced job cuts, and funding for the sector dried up, leading to a wave of consolidation.

Berlin-based aggregator SellerX was a pioneer, acquiring Austin, Texas-based Elevate Brands in an all-stock deal a year ago for an undisclosed valuation.

Another Berlin-based aggregator, Razor Group, has also been active in acquisitive transactions, having acquired four e-commerce brand aggregation startups, including Boston-based Perch, a SoftBank portfolio company that had raised more than $900 million, in March.

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

Property Buying and Investment Platform

Real estate buying and investing platforms raised lots of money when mortgage rates were low and home sales were more brisk than they are now. In recent quarters, venture capitalists have retreated from the space, and consolidation has followed.

In May, Roofstock and Mynd, two Oakland, Calif.-based online platforms that have raised significant amounts of capital for investors in single-family rental properties, announced plans to merge. Roofstock has raised more than $360 million to date, while Mynd has raised more than $200 million.

A month later, home buying and selling platform FlyHomes announced it had acquired assets from ZeroDown, a Sam Altman-backed startup that offers renters a path to building equity and ultimately purchasing the home of their dreams.

Fintech and BNPL

A few years ago, fintech was the world’s largest sector for startup funding. In 2021, companies in the sector globally attracted more investment than any other sector, driven by investor enthusiasm for the likes of buy now, pay later platforms and neobanks.

Fast forward a few years and these categories are no longer as popular, and while adoption is growing in the US and other markets, they no longer see significant venture funding. Meanwhile, publicly listed BNPL companies such as Affirm, which owns the Afterpay platform, and Square have recovered from their lows but are still well below their one-time highs.

This backdrop is driving consolidation among later-stage startups.

This spring, Empower, a San Francisco-based company that offers app-based cash advances and credit cards, acquired Petal, a New York startup focused on expanding lending to underserved groups, for an undisclosed amount. Founded in 2016, Petal has raised more than $250 million in equity investments and $680 million in debt financing.

Last summer, San Francisco-based online banking and loan provider Upgrade acquired Silicon Valley-based BNPL provider Uplift, which has raised more than $140 million in equity funding and $500 million in debt funding to date.

logistics

Logistics is one of those startup sectors that peaked a bit later than others: Investors pumped more than $7 billion into the sector in the first three quarters of 2022, according to a Crunchbase report at the time, with the two most notable fundraisers during that period being Convoy and Flexport.

But the following year, fundraising dropped off significantly and the company’s fortunes changed: Seattle-based trucking logistics startup Convoy, once a booming unicorn, announced it was ceasing operations, citing a “major freight downturn.” Flexport acquired Convoy’s assets in late 2023.

It’s not just a market downturn

Notably, mergers between rival, well-funded startups aren’t necessarily a market downturn phenomenon: We also saw significant consolidation when these sectors were at the peak of investor interest.

SellerX, for example, also acquired German rival KW-Commerce in 2021. Roofstock has made three acquisitions in 2021 and 2022, including Great Jones, a rental property management platform that previously raised more than $33 million.

But acquisitions during a recession naturally look different: Some of the acquisitions had already closed or were on the verge of closing, and for others, tight capital markets made starting a new venture an unfeasible option.

Going forward, the hope is that consolidation will put these companies in a stronger position for growth and give them fewer competitors to worry about.

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Illustration: Dom Guzman