In the rapidly evolving landscape of venture capital and startup ecosystems, peer-to-peer mergers have emerged as a strategic avenue for growth and scalability. With an 18% increase in VC-backed startup acquisitions by other VC-backed companies reported in the first half of 2025, the trend is not merely a passing phase but rather a significant shift in how startups approach their growth trajectories. Don Butler, a managing director at Thomvest Ventures, offers valuable insights drawn from his experiences on both sides of the acquisition table—both as a buyer and a seller. His reflections provide a roadmap for startups considering this complex yet potentially transformative path.
The first critical lesson Butler emphasizes is the importance of defining the ‘industrial logic’ behind a merger. Startups must ask themselves whether their market is growing sufficiently to warrant a combination with another entity. If the answer is affirmative, it may be prudent to consider merging with a competitor. This decision can be daunting for founding teams, as it often involves navigating competitive dynamics and potential cultural clashes. However, if the market conditions are favorable, merging with a competitor can create the necessary scale to challenge market leaders or even position the combined entity for an initial public offering (IPO).
A pertinent example of this strategy in action is the merger between Forge Global and Sharepost, which resulted in the formation of Forge. This merger allowed the newly formed company to gain enough scale to effectively compete against established players like Nasdaq Private Market, ultimately leading to its successful public offering. Such instances illustrate that when two smaller entities combine forces, they can create a formidable competitor capable of capturing significant market share.
However, not all mergers need to involve direct competitors. Butler suggests that startups should also consider partnerships with adjacent market players. If a company’s product can be integrated into a broader suite of offerings, this can open up new avenues for customer engagement and value creation. By collaborating with companies that operate in complementary spaces, startups can enhance their product offerings and better serve their customers’ needs.
One effective method for identifying potential merger partners is to analyze customer workflows. Engaging with customers to understand their day-to-day operations can reveal which products or services are utilized in conjunction with one another. This insight can guide startups toward ideal merger candidates. Butler recounts his experience on the boards of two companies that successfully identified and acquired other startups based on customer feedback. In both cases, enterprise customers expressed a desire for integration between the two offerings, highlighting the potential for a merger. In one instance, customers even recommended that the companies merge, which ultimately led to a successful acquisition.
The significance of customer input cannot be overstated. When customers actively request a merger or express a desire for integration, it serves as a powerful motivator for companies to explore such opportunities. Additionally, as artificial intelligence (AI) and automation continue to reshape business processes, understanding customer relationships and workflows will become increasingly vital. Startups that possess valuable data assets and insights into customer behavior will find themselves in a prime position to engage in peer-to-peer mergers and acquisitions.
While identifying the right partners is crucial, managing stakeholder expectations is equally important. A successful merger requires buy-in from various constituencies, including boards, shareholders, and key executives from both companies. This necessitates careful management of expectations surrounding leadership roles, valuation, ownership structures, and governance. Startups must navigate these complexities while ensuring that all parties are aligned on the vision for the combined entity.
Butler highlights the need to balance expectations regarding what happens in the event of a merger versus the current trajectory of the business. This involves contrasting the potential benefits of merging with the risks associated with remaining independent. The exit process can be intricate, as stakeholders weigh the advantages of a merger against the uncertainties of continuing on their existing paths. However, if both teams recognize that they can achieve a better state together than independently, there is often room for negotiation and compromise.
Creativity plays a pivotal role in the merger process. Mergers are rarely straightforward, and unexpected challenges can arise. However, when the industrial logic supporting the merger is robust, and both parties are genuinely interested in making it work, creative solutions can emerge. This may involve rethinking leadership structures, adjusting valuations, or finding innovative ways to integrate operations. The willingness to explore unconventional approaches can lead to successful outcomes that benefit all stakeholders involved.
As the landscape of mergers and acquisitions continues to evolve, startups must remain agile and responsive to changing market dynamics. The rise of AI and automation is reshaping workflows across industries, creating new opportunities for collaboration and integration. Startups that leverage their customer relationships, data assets, and workflow insights will be well-positioned to capitalize on the growing trend of peer-to-peer M&A activity.
In conclusion, the lessons learned from merging private companies underscore the importance of strategic thinking, customer engagement, and stakeholder management in the acquisition process. Startups must carefully evaluate their market conditions, identify suitable partners, and navigate the complexities of merging with other entities. By doing so, they can unlock new avenues for growth, enhance their competitive positioning, and ultimately drive long-term success in an increasingly competitive landscape. As the venture capital ecosystem continues to evolve, those who embrace the potential of peer-to-peer mergers will likely find themselves at the forefront of innovation and market leadership.