Silver Linings Playbook: Why Tech Drop Could Mean VC Startup "Snackquisitions'

The equity market decline, especially in tech means that IPOs are difficult if not impossible right now. 

But what it may portend is another spate of Big Tech 'snackquisitions' of venture-backed startups and early stage companies. The strategy is obtaining engineering talent, filling in product and service offering holes and better positioning versus rivals, all at a relatively inexpensive price. JL  

Owen Thomas reports in Protocol, image John Downer Productions, YouTube:

Good luck going public. Global IPO proceeds for the first quarter were down 51%. (But) there is a ton of dry powder. VCs raised $128.3 billion in the U.S. alone in 2021. That could fund startups for years (though) early-stage funds will only get startups so far. And the high prices VCs paid for their stakes may make it hard to raise the money needed for expansion. Enter the corp-dev teams at tech giants. Adding startups en masse is an easy way to bulk up engineering teams without the tiresome recruiting of people one by one. As long as the targets are small enough not to set off antitrust alarms, Big Tech could feast on startups. Don’t call it an “acquihire.” Call it a “snackquisition.”

The last time was at the turn of the century. The Gen Xers who had poured into the fledgling internet industry would soon learn what a bust really looks like. Unemployment in Santa Clara County, the geographic heart of Silicon Valley, stood at 3% in January 2001; by June 2003, it had more than tripled to 9.2%. So many people were moving out of town that moving-truck rental firms had to scramble to figure out how to get the vehicles returned.

This generation's tech workers have only known boom times; now, they are experiencing the glimmers of a bust. Ask people at Robinhood. Or Mural. Or Cameo.

• This is understandably confusing for those whose tech-heavy 401(k)s, crypto wallets and careers have mostly seen an upward trajectory. What is down? What is loss?
• There’s always the fallback plan: Work at Big Tech! Sure, it’s bureaucratic and awkward and a little shame-inducing when your CEO gets hauled before Congress, but it pays well. And then comes the headline about a hiring freeze at Meta, and a chill sets in.

So is this the bubble bursting? Oh, that’s always the wrong question, isn’t it? Because it’s not one bubble anymore, it’s many, that might just add up to a superbubble.

• At an early-2001 pink-slip party, it was easy to stay bubbly. The Nasdaq had crashed in March 2000 but rallied back almost all the way by October of that year. And the ’90s had seen a series of stock crashes and bounce-backs. What really hurt tech was the doldrums that lasted well through 2006.
• There is a ton of dry powder. VCs raised $128.3 billion in the U.S. alone in 2021, according to Pitchbook. That could fund startups for years.
• But good luck going public. EY reported global IPO proceeds for the first quarter were down 51%, with a pronounced slowdown in February and March.
• Late-stage investors are getting hammered, too. SoftBank is expected to report big losses on its Vision Fund investments Thursday, and Tiger Global is down 44% this year.

One prediction: Big Tech could feast on startups. Don’t call it an “acquihire.” Call it a “snackquisition.” Chomp, chomp!

• Those early-stage funds will only get startups so far. And the high prices VCs paid for their stakes may make it hard to raise the money needed for expansion without a lot of pain.
• Enter the eager corp-dev teams at tech giants. For those that haven’t frozen hiring, adding startups en masse is an easy way to bulk up engineering teams without the tiresome work of recruiting people one by one. As long as the targets are small enough not to set off antitrust alarm bells, these should be easy meals.
• For founders, it can be bittersweet, since these deals usually mean killing the product they and their teams spent years working on. But it’s better than having to lay off people you hired.

For some, reinvention will be the answer. Patty Beron, who briefly ran a business throwing pink-slip parties for the newly unemployed, now sells actual pink slips from her Etsy vintage lingerie shop. But she’s thinking about moving to Los Angeles, she recently wrote on LinkedIn. Through boom and bust, California is still a place for dreams.