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Some startup "unicorns" are magical, and others are donkeys in party hats.  Illustration by Aleksandar Savic

When Will More Unicorns Merge?

Aug 01, 2016

It's been a big year for giant, crazy tech deals. Except none of the big deals, including SoftBank's $32 billion acquisition of ARM Holdings, Microsoft's $26.2 billion deal for LinkedIn, Verizon's $4.8 billion deal for Yahoo, or even Oracle's $9.3 billion deal for NetSuite or Tesla's $2.8 billion deal for SolarCity, involve any of the tech world's billion-dollar unicorns. (Unilever's acquisition of Dollar Shave Club doesn't count as it was not a unicorn before its acquisition.)

Deals like the ones I mentioned are keeping investment bankers busy. But they have to make venture capital investors nervous. Save some cash for our portfolio companies!

Despite all the high profile mega-mergers, deal volume for tech M&A is down 19% this year, according to PricewaterhouseCoopers. What's worse, only two billion-dollar startups have sold so far, according to CB Insights: Lazada and Jasper.

The merger of Uber China with local rival Didi Chuxing might also be a sign of things to come. If bloated, over-funded, overvalued startups are too expensive to sell and too unprofitable to go public, why not use that expensive stock to merge with one another?

It’s significant that Uber CEO Travis Kalanick, the most competitive, hard-charging, winner-take-all startup CEO around, has conceded a loss. That concession may inspire other startup CEOs hoping to follow in Uber’s footsteps and be more pragmatic about their own businesses.

Competition is one reason for startup mergers. I predict after the inevitable shakeout of meal kit and food delivery startups, we’ll see the biggest ones merge. Regulatory hurdles, like the one Uber faced in China, or the one behind the rumored merger of FanDuel and DraftKings, is another reason to merge.

The retreat of Kalanick's grand ambitions in China signals a turning point for the startup market. The biggest reasons mergers like Uber-Didi haven't happened sooner—pride, ego, and the irrational Silicon Valley belief that you can make the impossible happen by sheer force of will—may no longer be a factor.

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