5 Lessons Learned From Combining Private Companies 

By Don Butler

Given both historic growth in the venture industry and the number of venture-backed companies, it should come as no surprise that peer-to-peer mergers in the startup ecosystem have become increasingly common. With an 18% uptick in the number of VC-backed startup acquisitions by other VC-backed buyers in the first half of 2025 and likely more such deals to come, I wanted to share some of the lessons learned from being on both the buying and selling side of such transactions.

For brevity, I focus on lessons learned with regards to two particular topics for any startup team considering this exit path: the process of identifying the right partners and managing key constituencies.

Defining the ‘industrial logic’ of a merger

When evaluating potential companies to combine with, consider first and foremost the industrial logic behind doing so. Is your market growing fast enough that you feel the need to grab a larger share within your existing market?

If the answer is yes, then this would steer you toward looking more in the direction of potential erstwhile competitors. This can be a difficult choice for many founding teams.

But if your market is indeed a case of being at the right place and at the right time, then combining forces can create meaningful scale, particularly if your company is not the largest vendor in the space.

We’ve seen several instances in which two smaller participants in a market have used this approach in order to have enough scale to take on the market share leader or to go public. We can see this, for instance, in the merger between Forge Global and Sharepost to form Forge, which created enough scale to compete successfully against Nasdaq Private Market as well as to eventually go public.

Choosing between competitors and adjacent market players

On the other hand, if you think your company’s product should be part of a larger suite to serve your customers, it can be an easier path that potentially opens up far more options for partnering across adjacent markets.

One of the exercises that’s been found most interesting has been to meet with customers to review their day-to-day workflow, as this can help identify which products or services are used before or after yours and thus help identify ideal merger candidates.

Let customer workflows guide partner selection

Having been on the board of two companies that followed this approach to identify and ultimately acquire other startups, I found in both instances that customers were taking data from the SaaS offerings of the companies acquired and uploading it into the other offerings as part of their workflow.

In both cases, enterprise customers asked if they could integrate the two offerings to work together via API, and in one case, we had two different customers recommend that we merge, which we eventually did.

Having your customers ask you to merge is a powerful motivator. This also offers the opportunity for two companies to review their customer lists to understand not only how prevalent they are used together but also to identify opportunities for cross-selling in the future.

Additionally, the advent of AI agents is going to drive an emphasis on workflow automation. The customer relationships, data assets and workflow understanding of startups in adjacent areas are going to become prized assets and will drive a significant ramp in peer-to-peer M&A.

Managing stakeholder expectations beyond customers

Hand-in-hand with partner selection is managing the other constituencies beyond customers around the table. A successful merger requires buy-in from the boards, shareholders and key executives of both companies to typically come together.

Here, you have to manage not only the ongoing execution at the business, but also expectations. The obvious factors are expectations around leadership of the combined company going forward, valuation, ownership and governance.

One of the complexities of the exit process is that you are managing these in two different scenarios and comparing both: You are contrasting expectations around what happens in the event of a potential merger versus what happens if you remain on the current path of the business.

Balancing valuation, leadership and governance concerns

While peer M&A can be complicated to manage, the reality is that if the two teams see a better state together than independent, the executives and the shareholders can iterate to find a solution that works.

Where there’s a will, there’s a way, and that often draws on creativity or compromises that were not foreseen at the outset of a process. In particular, if the industrial logic is strong there are solutions that can be easily achieved if the parties are reasonable and there is mutual interest in making it happen.

Don Butler is a managing director at Thomvest Ventures, a $750 million evergreen VC fund founded by Peter Thomson (Thomson Reuters). His investments are focused on financial technology and marketing technology companies that leverage emerging and persistent data sources to better acquire and serve customers.

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Illustration: Dom Guzman