PE firms reduce software startup acquisitions / 90% of Series A startups had 50% gross margins / SBA revamps small business assistance program

Plus, Ramp to expand procurement offering with the acquisition of Venue

Inside Startups For January 31, 2024

Thank you to our sponsor

Here’s a look at today’s Startups briefing. 📉 Private equity firms reduced software startup acquisitions in 2023.  💰 90% of seed startups that raised Series A rounds had 50% gross margins, per a Kruze Consulting study.  🆕 SBA revamped the Management and Technical Assistance Program. Thank you. Karan p/karan-chafekar

1 Private equity firms spent $1.6B on private software startup acquisitions in 2023, per Crunchbase. Due to volatile economic conditions, PE firms significantly reduced their software startup acquisitions last year. Additionally, PE firms might be waiting for startup valuations to plunge even further before resuming M&A activity after having overpaid during the boom era.  More: Typically, PE firms increase their acquisitions when economic conditions are stable, interest rates are low, and other exit options are available.  M&A deals for private software companies achieved record highs in 2020 and 2021.  Over the past five years, PE firms spent over $36B to acquire about 81 private software startups.  PE firms have also reduced the acquisition of public software companies.  The most significant PE-led acquisitions over the past four years include Vista Equity Partners' acquisition of CRM software provider Pipedrive at a $1.5B valuation, Thoma Bravo's $2.85B acquisition of a majority stake in IT management software firm Flexera, and Hellman & Friedman's acquisition of security provider Checkmarx at a $1.15B valuation.

2 Startups securing Series A funding in 2023 exhibited four times higher revenue growth than those that shut down, per a survey conducted by Kruze Consulting.  What happened: Investors started emphasizing revenue, capital efficiency, and gross margin metrics as the VC funding landscape changed. Investors now want Series A startups that are not only growing fast but are also capital efficient.  What the numbers say: While revenue growth is essential, investors believe that the gross margin metric is far more critical as several seed startups with impressive revenues have been unable to raise Series A rounds. About 90% of seed-stage startups that raised subsequent Series A rounds had over 50% gross margin. On average, the most successful Series A companies had an 80% gross margin.  Relevance: Startups that closed Series A rounds had an average burn multiple of 3x. On the other hand, startups that failed had a 10x burn multiple.

A message from our sponsor, Buzzboard. SMBs Are Buying - Are You Selling? Are you capturing your share of sales to small, local and mid-sized businesses? With BuzzBoard, you can! Generate highly qualified SMB lead lists. Automatically generate AI-powered outreach messages that work. Launch hyper-personalized sales cadences with just a few clicks. Join the ranks of those selling more to SMBs with additional BuzzBoard capabilities like small business SWOT analyses, competitive benchmark reports and hyper-personalized outreach.  SMBs are buying - are you capturing your share? Start Your Free Trial

3 The Small Business Administration has revamped its 7(j) Management and Technical Assistance Program and rebranded it to the Empower to Grow program. Along with the revamp, SBA has also expanded the program's scope to help more businesses increase their chances of winning federal contracts. The move aims to reverse the decline in small business contractors receiving prime contracts from the government.  More:  The program will provide tailored one-on-one training and guidance to small business owners.  In addition, SBA will also launch a three-month Federal Market Acceleration Program (FedMAP) to provide networking opportunities to small businesses and help them respond to state and local contracting opportunities.  Zoom out: The number of small businesses getting contracts shrunk by 4% from 65.428 in fiscal 2021 to 62,670 in the following year.  Despite the decline in small businesses vying for government contracts, the federal government increased the contracts awarded to small businesses by $8.7B to $169.2B in fiscal 2022.  About 26.5% of the total contracts were awarded to small businesses, slightly higher than the 23% target set by the Biden administration.

4 Spend management platform Ramp is looking to expand its procurement offerings with the acquisition of Venue. Founded in 2022, Venue helps organizations review, approve, and manage vendors. Financial details of the transaction were not disclosed.  More: Venue had raised $1.2M in total funding to date from Sequoia Capital, Exponent Founders Capital, and Basecase Capital.  One of the Venue's founders, TK Kong, will serve as Ramp's head of procurement after the transaction is completed.  The acquisition comes months after Ramp entered the procurement space to provide holistic solutions to complex enterprises.  Ramp believes that the back-end procurement process is "ripe for practical automation and AI implementations."  Ramp's CEO and co-founder Eric Glyman said, "Our plans are to grow this segment and serve more businesses with simple software that transforms a clunky, slow, and painful process into an efficient and organized one." Zoom out: Ramp acquired several startups over the past few years, buying "negotiation-as-a-service" company Buyer and AI-powered customer support tool Cohere.io.

5 British quantum computing startup ORCA Computing acquired Austin, Texas-based 5G connectivity-focused firm GXC's integrated photonics division and photonics-related assets, including intellectual property and existing technology. The acquisition will help ORCA further advance its full-stack photonic quantum computing solutions. Financial details of the acquisition were not disclosed.  More: The firm will be able to reduce the investment and research required to develop traditional integrated photonics material with the acquisition.  Additionally, the acquisition will help ORCA bring new hybrid photonic materials to the market and enhance the performance of its current PT Series products.  GXC's integrated photonics team will merge with ORCA's existing team in the U.K.  Zoom out: ORCA Computing spun out from the University of Oxford in 2019 and was selected by the U.K. government to lead the construction of a quantum data center with a grant of £11.6M ($14.7M). The firm last raised a $15M Series A round led by Octopus Ventures in June 2022.

6 Aurora Solar, a startup developing software solutions for the solar industry, laid off 20% of its workforce. A source informed TechCrunch that the company missed its growth targets for the last year, prompting it to conduct the layoffs. It had already laid off 20 employees last November.  More: An Aurora Solar spokesperson said, "Like many other companies in the solar industry, we've felt the effects of larger macroeconomic challenges, including higher interest rates and the impact of NEM 3.0 in California." Aurora Solar claims it has over 7,000 customers and 90% of the top 100 solar installers use its software.  The startup has raised $523M in total funding to date, including a $200M Series D round in February 2022 and a $250M Series C round in May 2021.

7 Quick Hits: Are you creating the unique user journeys your customers demand? You can by Mastering Personalization with AI.* Hotel tech startup Mews acquired cloud-based hotel management software company Frontdesk Anywhere for an undisclosed sum. This is Mews' eighth acquisition to date and its third in the past 12 months.  Chinese automotive startup Newrizon started exporting its first electric light commercial vehicle to the Middle East. Newrizon's iC1 vehicle can swap its battery, which minimizes recharging downtime.  Business insurance firm Vouch launched AI Insurance to cover the financial losses incurred by AI startups facing lawsuits related to LLM hallucinations, algorithmic bias, regulatory investigations, and IP infringement.  Kleiner Perkins led a $65M Series B funding into coding assistant startup Codeium. Greenoaks and General Catalyst participated in the round, which valued the firm at $500M.  James Allen takes the stress out of Valentine's Day and ring shopping for the special woman in your life. Browse and customize online to get her the perfect gift, now at 25% off.* *This is sponsored content.

Upcoming Events MAR 7 Portfolio Diversification - Learn from knowledgable experts on the latest trends in alternative investment assets like private equity, crypto, real estate, and the art market. Virtual Register Here * This is a sponsored event

Karan Chafekar Analyst Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot.  This newsletter was edited by Vibha Chapparike

Discover more on inside.com/startups Thanks for reading today's issue of Inside Startups. Explore Explore

An AI-powered sales platform for selling to small and local businesses.

Share Email Share on X Open in Browser Open in Browser Open in Browser

Did someone forward this email to you? Get your free subscription here. Interested in sponsoring this newsletter? Connect with our sales team here. You received this email because you are subscribed to Inside Startups. Manage your subscription or unsubscribe here. 767 Bryant St. #203, San Francisco, CA 94107 Copyright © 2024 Inside.com