𝐁𝐮𝐲-𝐚𝐧𝐝-𝐛𝐮𝐢𝐥𝐝 𝐢𝐬 𝐧𝐨𝐰 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐕𝐂 𝐩𝐥𝐚𝐲𝐛𝐨𝐨𝐤 – 𝐰𝐡𝐚𝐭 𝐚𝐫𝐞 𝐭𝐡𝐞 𝐢𝐦𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬?

B&B involves acquiring a company (the "platform") and then making multiple, smaller acquisitions (add-ons) to expand rapidly and increase value. This has now reached venture capital, with some intriguing implications.

First, this is part of the professionalisation of the VC industry.

➡️ As more capital gets deployed in the venture class, VCs are competing more head-to-head (rather than acting as a cosy rarefied group), and they all have to come up with more differentiated strategies. This is very much line with what LPs want: deploying more capital, for more meaningful outcomes. If the process is quicker and somehow less risky than growing organically, even better. Clearly B&B is a way to get to revenue levels which are ever more demanding for an IPO (it used to be $100m, it is probably now closer to $500m – depending on revenue growth of course).

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Second, this means more types of acquirers for VC-backed companies.

➡️ This is especially valuable at a time when other exit opportunities (IPOs; strategic acquirers) have become less common. So, companies now need to think about not only PE but also of larger VC-backed companies. In some sectors, this may be part of natural consolidation, where point solutions providers get together to deliver more value to their common customers.

Third, if B&B has merit for your company, you probably need to onboard a wider range of talents, both at management and Board levels, to do with M&A and post-M&A integration.

➡️ I have long argued that VC company Boards need to strengthen their corporate finance skills, simply because financial investors may get distracted by their next fund raising or firefighting on troublesome portfolio companies.
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The chart below involves only US companies, but it shows the variety of sectors concerned: ecommerce tech, healthcare, IT infrastructure, insurance, investment, payment, etc.

What is really interesting is that VC-backed companies buying other VC-backed companies has now reached Europe. The best example is Bending Spoons which is “trying to build one of the most successful companies of all time”. Bending Spoons has made the headlines regularly over the least 3 years, with 9 acquisitions and a team of 10 M&A specialists. But we’ve also had the more recent example of Shiftmove buying Ocean (from Orange Business): Shiftmove is itself the result of a Battery Ventures-backed merger of Wimcar and Avrios – backed by Lakestar, Notion and Swisscom Ventures.

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If anything, things are accelerating in VC-land, as VCs borrow a leaf of the PE playbook.

📎 Sources:

https://news.crunchbase.com/ma/acquisitive-vc-backed-companies-ai-stripe-infinite/

https://sifted.eu/articles/bending-spoons-ceo-luca-ferrari-interview

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