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Acquirers won't bail you out.
Instead of M&A and consolidation, big companies will shut down what they've already bought.
Investors, employees, and founders are hoping that bigger companies are going to bail them out and acquire struggling companies who can't raise.
They’re hoping that bigger private and public tech companies will be the funders of last resort for startups who couldn’t cross the chasm.
Big companies, they pray, will acquire or acquihire companies and teams:
Competitors will consolidate and live to fight another day.
Cap tables will get bailed out.
Pref will roll over into new common.
Basically, “we won’t make money, but we won’t get wiped out to zero” is an increasingly common refrain.
But in reality, no one wants to add headcount or increase burn, acquisitions are usually speculative, and equity is expensive - even in small amounts.
So rather than seeing big fish swallowing little ones, we’ll see the opposite.
Previously acquired teams and products will continue be the first and easiest to lay off and shut down. Consolidation will prove to be an easy money phenomenon, not a bear market savior.
There’s really only two things you can/should do to account for this reality:
Don’t try to white knuckle through pain in the hopes of an eventual white knight. Have hard conversations about returning capital, doing a hard pivot, or going all in much earlier.
Don’t underwrite or assume downside protection because “it’s a great team/great tech so someone will buy.”
Assume the boats are already burned.