The Startup Velocity Question - Joining Forces Through M&A

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Let’s look further at the issue of solid companies that have achieved $10M, $20M, $50M in revenue, close to breakeven, but not necessarily growing at an exponential pace.

One commonly used strategy is to combine two companies in a related space to achieve growth and rationalize expenses.

Building a sales force is very expensive. For a $10M, $20M, $50M company to keep investing in growing a sales force is often not very profitable. However, if two or three companies come together and sell their products through a joint sales force, the profitability equation can be much more attractive.

In these cases, product lines need to be rationalized.

Positioning needs to be rationalized.

What is the umbrella positioning that can capture the strengths of the combined entities?

Often, two entities may have competed against each other for the same customer.

Now, they are together.

How should they partner?

What segment should they go after?

What is the defensible bottom up TAM for that segment?

And finally, what is the exit strategy that drives the combined entity to a logical conclusion, offering returns to all investors?

Is a strategic exit possible? Does the combined entity have something unique to trigger a strategic acquisition by a larger player?

Or, is a financial exit the more likely outcome?

Can the Positioning and the TAM support adequate growth (doesn’t have to be exponential, but has to be respectable) to lure a PE acquirer?

What about profitability? PE acquirers seek profitability. Can you achieve attractive profitability within a reasonable timeframe to attract Private Equity buyers?

These are the challenges to work through in combining venture funded startups facing the velocity question.

In our work with 1Mby1M, we have legitimized Bootstrapped Entrepreneurship, raising its profile and importance in the startup world. Nonetheless, many startups have sought financing and many VCs have funded them. As of December 2023, 54,000 venture-funded startups exist in the United States alone. Globally, the number is likely to be higher.

The vast majority of these funded ventures are not gaining velocity.

In this series, we are discussing the nuances of the velocity question.

If your startup is facing Positioning challenges and you need help, you can explore Velocity Consulting with me.

You can read the entire series, The Startup Velocity Question, here.

Photo by iSAW Company on Unsplash