2025: New Trends in Startup M&A Driven by Funding Difficulties
Cited Article:
Entering 2025, the startup industry continues to face a challenging environment for IPOs and fundraising, and as a result, M&A (mergers and acquisitions) between startups is attracting attention as it becomes more active.
In the increasingly competitive AI startup market, acquiring existing companies is often faster and more cost-effective than building necessary technology in-house, with 427 startup-to-startup M&A deals reported in the first half of 2025 alone.
1. Market Trends and Background
1-1. Increase in Global M&A Volume
The number of global startup M&A deals in the first half of 2025 was 427, an 18% increase compared to the same period last year.
For comparison, over 1,000 startup acquisitions took place in both 2021 and 2022, indicating a recent re-acceleration.
1-2. Changes in the Fundraising Environment
VCs (venture capitalists) continue to maintain strict selection criteria, and there is a lack of liquidity events that provide returns to LPs (limited partners).
As a result, early-stage startups far from profitability are finding it difficult to raise funds, leading to an increasing number of cases where M&A becomes the "most rational option."
2. Buyer's Market: Leveraging Funding Difficulties and M&A
2-1. Investment Banker's Perspective (Michael Mufson)
Michael Mufson, Managing Partner at investment bank Mufson Howe Hunter, points out that the "fundraising environment has become extremely difficult" and says that integration between early-stage startups is an effective survival strategy.
According to Mufson, mergers allow for the expansion of customer bases, integration of IP (intellectual property), and the acquisition of critical technologies like AI, enabling companies to present a compelling story to investors.
2-2. Advisor's Perspective (Itay Sagie)
Itay Sagie, owner of Sagie Capital Advisors in Israel and a startup advisor, also states that the tightening of venture capital is the biggest factor.
Furthermore, as ARR (annual recurring revenue) multiples have stabilized within a reasonable range, the trend of large startups that raised funds at 40-70x ARR in 2021 using their cash on hand to acquire smaller startups at reasonable price points is accelerating.
Sagie explains that when selecting acquisition targets, he prioritizes either "complementary tech," "traction," or "talent," and that acquisitions of high-growth companies are increasing.
3. Major M&A Cases
3-1. Major Deals in the AI Sector
OpenAIacquired Io, co-founded by Jony Ive, in a stock-for-stock deal valued at approximately $6.5 billion in May, integrating its design capabilities into its own products.
Additionally, OpenAI attempted to acquire the AI-assisted coding tool "Windsurf" for approximately $3 billion, but negotiations fell through; subsequently, Cognition acquired Windsurf's IP, and Google licensed the technology for $2.4 billion.
3-2. Highlights from Other Industries
Crypto payment firmRippleacquired crypto prime broker Hidden Road for $1.25 billion.
Data & AI company Databricks has agreed to acquire serverless Postgres company Neon for approximately $1 billion.
Cybersecurity unicorn Axonius has acquired medical device security firm Cynerio for over $100 million, accelerating its expansion into the healthcare market.
Legal software giant Clio has acquired Spanish legal research firm vLex for $1 billion, strengthening its AI legal platform.
4. The Rise of Asset Acquisitions and Acqui-hires
4-1. Definitions of Asset Acquisitions and Acqui-hires
"Asset acquisition + acqui-hire" refers to a method where large companies acquire the IP or assets of early-stage startups and bring on 1 to 3 founding members.
4-2. Benefits and Background (Lindsey Mignano)
Lindsey S. Mignano, co-founder of SSM Law, explains that "it is lower cost and faster to secure existing technology and teams for a certain period than it is to build new technology from scratch."
She notes that in the AI sector in particular, acquisitions allow companies to immediately obtain proprietary models, inference infrastructure, and datasets, enhancing their competitive edge in vertical markets with complex sales cycles.
5. Future Outlook and Summary
It is expected that M&A between startups will continue to increase beyond 2025 due to the challenging funding environment and the emphasis on speed in acquiring technology. In a buyer's market, the movement to simultaneously acquire the three 'Ts'—technology, target market, and talent—to strengthen competitiveness will further accelerate. Meanwhile, new forms of M&A such as asset acquisitions and acqui-hires are expected to spread, diversifying survival strategies for startups. Based on these trends, investors and executives need to utilize M&A flexibly and strategically.
