It's the survival of the Fittest, Fastest and Most Fundable; M&A Drives Startup Valuation

It is officially the era of startups. Almost every person looks to become an entrepreneur today, and innovators in the e-commerce sector are specially excited about their growth prospects. The startup culture is frantic and chaotic and everyone is seeking to make it to the top. But with innumerable startups being founded, what pushes any company to the top of the ladder?

Rajan Anandan, Managing Director, Google India who has invested in more than 50 startups, had recently said that in today’s market it is about survival of the fittest, fastest and most fundable, and it does seem to be true. Mergers and Acquisitions (M&As) are growing week-on-week. Almost every day we hear of industry giants buying shares, stakes, or extending funds to fast-growing startups. 2014 was a record year for M&A, and I don’t see any slowing down for the rest of 2015, said Rick Lacher, Managing Director, of the Dallas office of investment bank, Houlihan Lokey.

Appropriate business valuations of startups are integral to the success of young companies. Until a startup is able to raise money from professional investors, any startup value will be seen as very low. Therefore, it is the market that determines a startup’s business valuation. For this, having big brands as investors automatically ensures that a startup is headed on the successful route.

Even in the payments industry, mergers and acquisitions are on the rise; 2015 has already seen some of the biggest mergers. Industry giants are investing in M&A instead of building own payments technology to get into the game. Earlier this year, Samsung acquired LoopPay, a two-year-old mobile payments platform to be able to better compete with Apply Pay. LoopPay unlike Apple Pay, which relies on the much-criticized NFC technology, is compatible with the most existing POS terminals. This could prove to be one of the feature advantages for Samsung over Apple Pay. In another big merger, Paypal, one of the biggest e-payment players of the industry acquired the Boston-based startup, Paydiant. Paydiant had entered the market in 2010 as a cloud-based payments platform.

One of the early electronic payments players, Realex Payments was also recently acquired by the Atlanta-headquartered, Global Payments in a 115 million Euros deal. Funded by Business Expansion Scheme, Realex Payments was established in 2000 in Dublin. 2014 too saw a great deal of big M&A taking place, with two of the most significant being Vantiv’s acquisition of Mercury Payments Systems, and GlobalCollect’s acquisition by Ingenico for about $1.65 billion and $1.12 billion respectively.

M&A not only increases the business valuation of startups, but they also help young companies survive in the chaotic startup market and emerge as brands. Receiving funds from industry giants that have emerged as trusted brands in the market definitely seals the deal better. M&A is clearly becoming a preferred mode for external innovation for large players, but it is also an important driver for startups today and like Rajan Anandan puts it truly is, the survival of fittest, fastest and most fundable.