Using M&A to grow SaaS revenue

Sammy is the Managing Director and Cofounder of Blossom Street Ventures. Email him directly at sammy@blossomstreetventures.com, especially seed to Series C founders.

Unity Software went public last year and one very interesting graphic in their prospectus is below. It shows their journey to becoming a public company (founded 2004) and one thing that stands out is the number of acquisitions they’ve made along the way. Unity has made no less than 4 important acquisitions since founding, which not only drives product, but as importantly bolts on revenue.

Indeed most of the larger SaaS companies you know have made significant acquisitions to get so big. ZoomInfo which also recently went public has had a number of important acquisitions itself along the way.

There is a downside. While M&A is a fine way to grow, bolting on revenue is not the same thing as growing revenue organically. Organic growth is more sustainable, more valuable, and healthier. Relaying on acquisitions to keep growing means you’ve got to find ever larger companies to acquire. There is a limit to that. You’ve also got to integrate products and cultures, which is the real challenge. If you need to get bigger and shorten your time to exit/IPO, M&A is akin to steroids: so long as you keep doing it, you’ll get bigger. Of course like steroids, there can be significant side effects to M&A.

All that said, almost every large successful software company has executed M&A successfully, because organic growth has its limits. M&A is a valid way to bolt on revenue. Clearly, public markets appreciate it.