Rise of the acqui-financing rounds

Heya,

So today I quickly want to talk about a new phenomenon, which I’m increasingly seeing in the market.
The impetus was provided by this TechCrunch article I came across today:

“Lyric raises $160 million Series B led by Airbnb”

So here we have a Series B stage company, which gets it’s round filled by a very late-stage, pre-IPO company operating in the same vertical. I call this phenomenon an “acqui-financing”.

We all know the acqui-hire, where the early-stage startup gets acquired by a late-stage startup. When this happens, the early-stage startup’s product mostly gets sunset or fully integrated over a short timeframe. But there are also exceptions to this: For example, the newsletter solution through which I’m sending this letter, Tinyletter, was acqui-hired by Mailchimp in 2011, just a year after the Tinyletter company had launched. In this case, the late-stage startup decided not to sunset the product, but to leave Tinyletter around, but limit it to 5k subs (mainly as a lead funnel for the main Mailchimp product I would assume).

So what’s this new acqui-financing phenomenon?
It’s a financing phenomenon, whereby Series D+ startups are leading or joining scale-up rounds.
Here are some salient recent examples:

  • Uber joining the $335 Series C in micro-mobility startup Lime last year;
  • Stripe joining the consumer-facing fintech Rapyd’s $40 Series B earlier this year.

From my perspective, this tells us two things:

Firstly, the rise of this acqui-financing phenomenon clearly shows that some of the Series D+ companies have raised much more money than they can reasonably deploy internally.

Secondly, it could be an indication that founders want to keep operating more or less independently for a while in scale-up mode. I’m not sure whether the unicorns actually take board seats or how the line of command works in practice. But one thing is clear: by taking the unicorn money, the founders are already taking out some major risk and clearing the path for a full-on acquisition further down the line. For the VCs leading these rounds, it also peels off a major risk layer, while also clearly limiting upside.

That’s my 5 cents for today.

Ttyl,
Erasmus

Edit: this letter was sent out on April 17th, a day later Crunchbase News covered the same phenomenon in this post, supplying a really awesome dataset. Check it out.

Note: If you don’t like reading, I do voice recordings of these posts while walking on Sand Hill Road (not really SHR, but some busy street).

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