220 startups – backed by the world’s best investors – that are potential acquihire and EIR candidates
“There’s little I’m certain of, but these things are true: Cycles always prevail eventually. Nothing goes in one direction forever. Trees don’t grow to the sky.” - Howard Marks
The COVID-19 pandemic just slammed the brakes on a 10-year bull market that saw record-breaking funding into private companies. Total U.S. VC investments grew ~5x to $133.4b in 2019, with the number of angel- and seed-stage investment rounds growing 4x to almost 4,800 per year. We even saw big corporations follow suit with an explosion in CVC and incubation efforts.
However, the double whammy of difficult financing markets and reduced customer demand will put a significant strain on many early-stage startup operations, leading to layoffs and a spiking failure rate. As well-capitalized companies adopt new growth strategies, startups and corporations have an opportunity to create a less grim future. While most startups won’t make it to the NYSE, exiting to a larger company—whether an adjacent organization seeking to expand into a new market or the very incumbent the startup set out to disrupt—is still a favorable outcome, especially in a period of disorder.
Given the shifting private market landscape, we asked ourselves: How should acquirers be sourcing candidates?
To answer this question, we developed a framework to screen for acquihires: startups that may be most attractive for the quality of their teams. We used this framework to identify 220 startups that fit the following criteria: backing from high-quality investors and positioned outside of its optimal fundraising window.
Click here to get the full list: Radicle Acquihire Opportunities
At the top of the funnel, we looked for operating startups that have raised less than $5m in funding and hadn’t raised money in over 2 years (per prior work we’d done, the average time between Seed and Series A is 18 months). These criteria returned 29,170 companies.
We then narrowed the set of startups using our Investor Quality score, only looking at companies that fall into the 80th percentile or above. (To help us understand both companies and markets, we scored every investor based on their prior success.) The Investor Quality score is a reasonable indicator of team quality. Top-notch investors don’t back bad or inexperienced teams.
We found that of the 220 companies, 11% fall into healthcare, 11% in AI and ML, 9% in data and analytics, 8% in entertainment and media, and 5% in sales and marketing. Other prominent areas include social media (Women.com), education (Vidcode), and HR and recruiting (Drafted). These companies have raised money from top investors such as Lightspeed, General Catalyst, Y Combinator, and NEA.
The top 3 companies in the set by Investor Quality are:
- CrowdMed ($3.1m, ~3 years since last disclosed round), a healthcare startup harnessing the wisdom of crowds to help solve complicated medical cases more quickly and efficiently. Founder Jared Heyman previously founded Infosurv, an online research firm specializing in prediction markets and market research surveys.
- Lugg ($3.9m, ~4.5 years since last disclosed round), an on-demand moving company founded by Eric Kreutzer and Jordan Brown, two Y Combinator grads.
- Confide ($3.5m, 4 years since last disclosed round), a platform that brings off-the-record conversations online. Confide was founded by John Brod (prev. AOL Ventures), Rich Hong (prev. Yext engineer), and Jeff Grossman (prev. Yext engineer). Howard Lerman (current Yext CEO) serves as the chairman.
Get the full list: Radicle Acquihire Opportunities
These criteria are only the first step to identifying acquihires. There will most definitely be outliers. Sometimes, but very rarely, a startup finds a market and an economical way to self-fund and it’s off to the races (see Zapier, having only raised $1.5m in venture capital and scaling to $50m ARR as of 2018). But this is the exception. Most of the companies we’ve identified will not be able to raise another round and subsequently will have to wind down.
But a failed experiment doesn't mean lost value for all parties involved. Startups with ill-fated individual outcomes have created value at more cohesive group levels in the past, and 2020 should be no different. As market cycles turn, we hope that there's an opportunity for big companies and startups to team up and capitalize on this opportunity.
Any questions about this work? Feel free to to reach out: harry@radicleinsights.com
Source: Data from Crunchbase