Startups are coming together in spaces where funding has fallen

It is common in the venture capital industry for startups with similar businesses to close large funding rounds at around the same time.

This year it’s generative AI. A few years ago there were a lot of niches where funding flowed, including areas like D2C, homebuying, and consumer fintech.

But hot sectors often don’t stay hot, especially in areas where the largest rounds occurred near the top of the market. Now, in areas where investment has shrunk, we’re seeing heavily funded startups merging with former rivals and others to stay competitive or simply stay afloat.

Startup Consolidation Sectors

To highlight this, we used Crunchbase data to identify startups that raised large sums in the past few years and have since sold to another private company in the same or a similar industry. We then narrowed the list to sectors where venture capital funding has declined sharply.

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

E-commerce aggregators

Investors poured billions into e-commerce aggregators in 2020 and 2021. Heavily funded companies like Thrasio, Perch and Razor Group used the money to buy up smaller brands and boost sales on Amazon and other retailers.

But funding in the space dried up as the market began to decline from 2022 onwards, with many publicly downsizing and staffing. Then came a wave of consolidation.

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

Razor Group, another Berlin-based aggregator, has also been acquisitive. The company has bought four e-commerce startups to date, including its March acquisition of Boston-based Perch, a SoftBank portfolio company, which raised more than $900 million.

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

Platforms for buying and investing in real estate

Real estate buying and investing platforms raised a lot of money when mortgage rates were lower and home sales were faster than they are now. Venture capitalists have been moving away from this space in recent quarters, and we’ve seen some consolidation.

In May, Roofstock and Mynd, two heavily funded Oakland, California-based online marketplaces for investors in single-family rental properties, announced plans to merge. Roofstock had previously raised more than $360 million, while Mynd had attracted more than $200 million.

A month later, home buying and selling platform Flyhomes announced that it had acquired the assets of ZeroDown, a Sam Altman-backed startup that offered renters the opportunity to build equity and ultimately purchase the home of their choice.

Fintech and BNPL

A few years ago, fintech was the world’s largest sector for startup funding. Globally, fintech firms raked in more investment than any other in 2021, fueled by investor enthusiasm for buy-now-pay-later platforms, neobanks, and more.

Fast forward a few years, and these spaces are no longer red-hot. While adoption is growing in the US and other markets, we’re no longer seeing much venture capital funding. Meanwhile, public BNPL companies like Affirm and Square, the latter of which owns Afterpay, are up from their lows but still well below their one-time highs.

Against this background, we are observing a certain consolidation among startups at a later stage of development.

This spring, San Francisco-based Empower, a provider of app-based cash advances and credit cards, acquired Petal, a New York startup focused on providing loans to underserved groups, for an undisclosed amount. Petal, founded in 2016, had previously raised more than $250 million in equity and $680 million in debt financing.

Last summer, San Francisco-based Upgrade, a provider of online banking and lending services, acquired Uplift, a Silicon Valley-based BNPL provider, which had previously raised more than $140 million in equity and more than $500 million in debt financing.

Logistics

Logistics was one of those startup sectors that peaked a bit later than others. In the first three quarters of 2022, investors poured more than $7 billion into the space, according to a Crunchbase report from that time. The two most prominent fundraisers during that time were Convoy and Flexport.

But over the next year, funding fell off significantly, and companies saw a change in fortunes. Seattle-based trucking logistics startup Convoy, once a high-flying unicorn, announced it was closing down, citing a “massive recession in freight transportation.” Flexport acquired Convoy’s assets in late 2023.

Not just a downward trend

It’s important to note that mergers between competing, well-funded startups aren’t strictly a bearish phenomenon. When these sectors saw peak levels of investor interest, we also saw a lot of consolidation.

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

But acquisitions in a down market, of course, have a different flavor. Some of the companies they acquired had closed or were on the verge of closing. For others, a difficult fundraising market made the option of another round of venture unpalatable.

Going forward, the hope is that consolidation will strengthen the position of these companies and ensure they have fewer competitors to worry about.

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Illustration: House of Guzman