Executive Director at the em data-ga-track="ExternalLink:https://dmz.ryerson.ca/"">>DMZ, a tech incubator for high-potential startups to scale and grow into world-class businesses.
For two years, the pandemic has wreaked havoc around the world, and as we continue to face its ebbs and flows, the startup ecosystem continues to relentlessly demonstrate its ability to not only bounce back, but to bounce back stronger.
Despite the pandemic uncertainty we still face, one thing is a given for the new year: The startup ecosystem is coming in hot and channelling collaboration like never before.
We’ve smashed prior venture capital yearly records in 2021, more than doubling 2020 totals. Toronto, for instance, raised over $1.6 billion through 53 deals in quarter three of 2021, setting new records. While gathering capital for startups continues to be an uphill battle, especially for early-stage startups, I believe we are beginning to turn a pivotal corner.
In addition, over half of all acquisitions were venture-backed companies buying other venture-backed companies. This startup-buying-startup spree represents some of the highest numbers we’ve seen in the past decade. While many in the innovation ecosystem are wary of startup acquisitions, when startups acquire other startups, it not only strengthens our ecosystem but also makes it more self-sufficient.
When a startup gets acquired, capital is injected back into the investors of the acquiree. These investors, who may have been on the fence about investing in startups, to begin with, see firsthand the financial opportunity the startup ecosystem presents.
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And what do all strategic investors do with their earnings? Invest again. Not only does this make the flow of capital more accessible to founders, but startups that acquire other startups are more likely to make it in the long run.
Why is this?
Startups that grow through acquisitions make more money.
While organic growth is still important, startups that acquire other startups are well-positioned to achieve their goals faster. In fact, founders who grow their business through acquisition are twice as likely to experience sales growth above their industry average than those who grow organically.
Think about it. It takes valuable time and resources to streamline operations, expand into new markets, grow sales and finesse products and services. When startup forces are combined, pulling ahead is much more attainable. That’s not all, entrepreneurs who have acquired other businesses are 1.4 times more likely to see an annual sales growth of 5% or more.
With the addition of another company, your startup team becomes supercharged and doubles its capacity overnight, setting you up for long-term success and growth.
Startups are able to fill crucial gaps more easily.
While achieving economies of scale is one of the oldest business models in the books, it acts as a catalyst for startup growth. When a startup acquires another startup, imperative gaps across operations can be filled.
As we all know, locking down top tech talent is one of the biggest challenges for startup founders. Being able to inspire new team members to believe in your startup’s vision and plug in teams who have already been vetted for skills — and know exactly what the startup hustle is all about — is a huge win for companies today.
Plus, startups that have already experienced traction can mean sharing existing customers — another massive pain point for founders. Customers equate to sales, and sales equate to a longer runway for startups to find their footing, scale operations and, ultimately, thrive.
Finally, two startups can leverage the power of sharing intellectual capital. By coming together to share knowledge, solutions and proof of concepts, there are immeasurable benefits for the operational and financial performance of the company.
Competing with tech giants requires us to work together.
While we all want to have our own company name in lights, it’s important to remember that a win for a single startup is a win for the ecosystem at large. Every time a startup that came from a humble beginning goes public on the TSX, Nasdaq or NYSE, a flame is ignited in the belly of an aspiring entrepreneur, making them want to double down that much more. By bridging solutions and collaborating, we extend our potential to create more comprehensive, innovative and profitable products and services.
It's important to stress that I’m not advocating for the kill zone here. Big tech companies that buy up potential threats before they become challengers stifle innovation and kill healthy and meaningful competition in the ecosystem. What I hope to encourage is more startup synergies in 2022 — and for startups to embrace collaboration when it makes sense to do so. When two startups work toward a common goal, without killing their own potential or selling out short of a bigger vision, the ecosystem is strengthened.
We’ve still got quite a way to go.
I believe 2022 will be a golden age for the startup ecosystem as a whole, and we will witness the ripple effects of our previous successes. Be that as it may, to double down on our momentum, we need to keep our eyes peeled for future threats. If the startup ecosystem doesn’t look to evolve constantly, we will risk staying stagnant or, worse, becoming irrelevant.
From the war on talent to the Big Five’s hold on competitors, we still have a ton of work to do. Nevertheless, it’s important to call out our wins and celebrate them. I, for one, am thrilled to see the startup ecosystem uplifting itself and innovators empowering one another to reach further and think bigger.
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Source : https://www.forbes.com/sites/forbestechcouncil/2022/01/14/why-mas-between-startups-will-catalyze-tech-growth-in-2022/1445