5 Startups Taking An Acquisition-Based Approach to Growth in 2019Author: iDeals
It’s common to see mega-tech companies buy up smaller startups as part of their growth strategies. Larger corporations that can afford to acquire businesses with a competitive edge will do so to advance their goals or protect their market share.
In 2019, however, some startups flipped the script. They’re taking a move out of the corporate playbook and using acquisitions to fuel their own growth. Let’s take a look at five startups using strategic M&A transactions to fast-track their success.
Compass is a real estate tech company that provides software to real estate agents. Their real estate platform pairs the industry’s top talent with technology to make the search and sell experience intelligent and seamless.
This year, Compass acquired Contactually, an AI-based CRM platform designed specifically for the industry. The Contactually contact management and communications tool makes real estate agents more efficient and effective, saving them time and helping them make money.
“The Contactually team has worked for the past 8 years to build a best-in-class CRM that aggregates relationships and automatically documents every touchpoint,” says Zvi Band, cofounder and CEO of Contactually. “After working extensively with the Compass team, it was apparent that joining forces would accelerate our mission of building the future of the industry.”
A major benefit of the Contactually CRM is how it helps identify potential home sellers much earlier in the selling process, creating awareness at the top of the sales funnel. This will help Compass tap into a completely new target audience and give its agents a leg up on the competition.
“The bigger picture beyond real estate is that, as with many other analog industries, those who are tackling them with tech-first approaches are sweeping up not only existing business, but in many cases helping the whole market to expand,” TechCrunch reporter Ingrid Lunden explains.
Clelia Warburg Peters, president of New York brokerage Warburg Realty, likened Compass to online giant Amazon in a recent New York Times article. “What Compass is trying to do is what Amazon has done in retail, making it unsustainable for the legacy companies to compete with them,” she said. With Compass’ current momentum, the company is on track to do just that.
TheSkimm is an online newsletter that caters largely to millennial women. In April, the media company acquired Purple, a text messaging platform that focuses on encouraging debates and conversations.
The acquisition allowed theSkimm to release a 1:1 texting service to help subscribers make decisions about healthcare, investing, and more. It also helped theSkimm enhance its products and paid membership perks, letting creators charge subscribers directly when they access news and content through text messages.
“Our product strategy is based on finding questions that our audience has throughout their day, throughout their week, throughout their lives that TheSkimm can help answer in a relatable tone — and marrying that with things they’re doing on their phones and in their routines,” says Dheerja Kaur, chief product officer at theSkimm.
Their ultimate goal is one that many media companies share. “theSkimm is investing to become a bigger part of the daily routine for its users,” says Sarah Fisher, media reporter at Axios.
TheSkimm is quickly growing into a multimedia empire. This year, theSkimm also launched a podcast, Skimm This, which releases the top news stories in 10 minutes every day. The company also published a book in 2019 called How to Skimm Your Life.
Epic Games is the video game and software development company behind the wildly popular game Fortnite. It came as a surprise to many when Epic Games bought Houseparty, a video-streaming social platform.
However, Houseparty had previously begun moving into gaming, adding features like integrated games and screen sharing. Earlier this year, Houseparty noted that people were already using the app to chat with friends while playing Fortnite.
The acquisition is indicative of just how much video games and social media are converging. “For Epic Games, the acquisition builds on the strength of Fortnite, which continues to be a massive cultural force,” says Deadline Finance Editor Dade Hayes.
Now, Fortnite serves as a social network for millions of people, especially teenage boys. “While high-speed connectivity has made multiplayer games more accessible to a wider audience ‘Fortnite’ makes gaming even more communal with its voice and chat features that let people have conversations while they play,” explains Robert Williams, writer and editor at Mobile Marketer.
In a tweet, Sima Sistani, cofounder and CEO of Houseparty, predicts that the next decade of social media will be all about involvement and engagement. “If the last decade of social media was about sharing, the next decade will be about participating,” Sistani says.
For Tim Sweeney, founder and CEO of Epic Games, the goal is straightforward. “Houseparty brings people together, creating positive social interactions in real time,” he says. “By teaming up, we can build even more fun, shared experiences than what could be achieved alone.”
In August, food delivery platform DoorDash agreed to acquire delivery competitor Caviar for around $410 million in the form of cash and stock. Caviar has been owned by payments company Square since 2014.
Gokul Rajaram, the Caviar lead at Square, explains the motives behind the deal: “Caviar has built a trusted brand with customers and many of the best restaurants. DoorDash has national scale, complementary restaurant selection, a tremendous logistics platform, and a team that shares our passion and commitment to better serve restaurants, couriers, and customers.”
Tony Xu, CEO of DoorDash, writes that both companies share a similar ethos and commitment to helping merchants grow their restaurant businesses.
In the global delivery market, where there are just a handful of competitors, businesses are racing to scale their operations and gain a decisive advantage. Case in point: Hirsh Chitkara at Business Insider says Uber’s delivery business, Uber Eats, could actually be generating more profit than the company’s core ride-sharing business.
Sara Ashley O’Brien at CNN Business points out how the move builds on the existing partnership between DoorDash and Square for Restaurants. “Square for Restaurants is a software platform designed to help small businesses integrate online delivery orders with in-restaurant operations,” she explains. There are plenty of synergies that result from this deal.
Robinhood, a pioneer in commission-free investing, has become a popular way of purchasing stocks and exchange-traded funds (ETFs). In March, Robinhood’s acquisition of MarketSnacks positioned the company to offer services outside of what a typical fintech startup might provide.
MarketSnacks, now rebranded as RobinhoodSnacks, is a daily newsletter that summarizes important business news into short email snippets. The move allows Robinhood to gain insights into the research and purchase behaviors that go hand-in-hand with stock market trading. It also gives the company more control at the top of the purchase funnel.
According to Robinhood VP of Product Josh Elman, Robinhood Snacks offers “digestible” and easy-to-follow financial news. The bite-sized updates designed to keep investors in the loop will include a three-minute long newsletter and a 15-minute daily podcast.
Jack Kramer and Nick Martell, now managing editors of news at Robinhood, explain how the partnership advances their vision for MarketSnacks. “In 2012, we co-founded MarketSnacks outside our bank jobs to make financial news more accessible and enjoyable for our generation. That aligns perfectly with Robinhood’s mission, and together we can inform millions of people every day.”
Like Epic Games’ acquisition of Houseparty, the move came as a surprise to some. “This purchase may seem odd for the fintech giant valued at more than $5 billion, but it makes sense given Robinhood’s increased push to become a one-stop shop for a young investor’s needs,” Polina Marinova at Fortune writes.
“It’s a strategy we’ve seen before, reflecting through Bloomberg’s business model: Build a reputable hub of US market information and consumers will buy your products,” explains Lierin Ehmke, senior digital marketing analyst at Mintel.
What’s Next for Startup M&As?
Younger startups are starting to make their first acquisitions sooner and sooner. This is especially the case for young “unicorns,” or privately held technology companies that have achieved billion-dollar valuations.
Jason D. Rowley breaks down the numbers for Crunchbase: “Eleven unicorn companies founded in 2007 took an average of roughly 8.33 years before making their first acquisitions. [As of March 15, 2019], 29 unicorns founded in 2012 have made their first startup purchases, averaging just 4.1 years.”
It’s a trend that comes as no surprise, considering the benefits of successful M&As. Many startups recognize that it’s advantageous to make these types of transitions early on, while processes, technology and functions are easier to merge.