The Coming Wave of Acquihires

The Seed Surge of 2021 will lead to a raft of acquihires.

In 2021 the total number of US software & AI seeds jumped from 2900 to 4300 - a 49% jump. Seeds fell to about 3000 creating a seed tabletop.

Series As moved in lockstep both on the way up and the way down - creating a squeeze.

These data form part of a longer term trend of a greater number of seeds but a relatively fixed number of Series As.

The result?

An 86% reduction in the seed to Series A conversion rate. Part of this may be seeds are seed-strapping : raising a seed and continuing on profits, catalyzed by the efficiencies of A.

AI is another component : pre-AI and post-AI companies, which are roughly demarcated by the launch of GPT 3.5 in late 2022. Retooling products with AI takes time.

Even with those factors, the amount of “excess” seeds (quantity more than the Series A market can handle), continues to grow, resulting in the decreasing conversion rate.

This dynamic mirrors 2015 when a surfeit of seeds drove a steady increase in the number of acquihires.

Acquihires, acquisitions typically under $20m for talent, may become de rigeur as incumbents seek to bolster their teams with AI talent & update existing products with new capabilities.