Not every startup can reach its full potential — or survive — on its own.
Venture capital puts a lot of emphasis on startups reaching unicorn status or exiting through an IPO, largely because such successes are crucial to making the venture model work. But this makes it easy to overlook the fact that many companies would see more success if they were acquired or combined with other startups.
Kathryn Minshew, the co-founder and CEO of recruitment and job application marketplace The Muse, started thinking about this a year ago when her startup had been around for a decade. After a year of floating the idea of consolidation to other targeted recruitment platforms, her company, which helps users find jobs based on company culture and what they value, made its first acquisition.
The New York-based startup announced this morning it has acquired Fairygodboss, a recruitment platform aimed at women and working mothers. The purchase price was undisclosed, and parties declined to comment on it, but a source familiar with the transactions said it was a mix of cash and stock. Fairygodboss is producing about $10 million in yearly revenue, which infers the purchase price was presumably favorable.
Minshew said this will likely be the first transaction of many for The Muse because the recruitment tech space is in dire need of consolidation.
“There was a massive inflow into HR tech and the future of work over the last several years that has led to a lot of innovation,” Minshew told TechCrunch. “A lot of companies have been founded and have grown, and on one hand, that’s fantastic that there is so much more energy and innovation in the space, but on the flip side, it was creating a situation that was really overwhelming for buyers.”
Specifically, there has been an influx of startups looking to help larger companies recruit from specific demographics, and many of them are venture backed. To name a few: Jopwell focuses on recruiting Black, Latinx and Native American individuals; The Mom Project is centered around working parents; and RippleMatch targets Gen Z job seekers, among others.
Minshew said that one of The Muse’s main customers works with 37 different recruitment platforms and he’s been told there is no more budget — understandably — to add any others. This implies that many of these startups lose out on potential customers because they operate as separate entities.
She said she found that a lot of these platforms were open to potentially working alongside other recruiting companies, but weren’t necessarily interested in working with one of the legacy players in the space like Indeed or Monster.com.
“This [acquisition approach] is more of a constellation style of leadership,” Minshew said. “Different individuals or entities coming together in a more collaborative approach. Centralizing some of the elements that can benefit from centralizing but keeping these separate and unique communities and forums.”
When Minshew set out to seek funding for her roll-up strategy, she found alignment with MBM Capital, a firm that looks to take majority stakes in companies with good products and metrics that maybe aren’t growing at the rate needed to raise from traditional VCs. MBM managing partner Lauren Bonner said that consolidation in HR Tech had been a thesis that she and her partner dug into over last three years.
“This path offers a way for employers to have a one-stop shop to access all of these talent pools and individuals without having to make tradeoffs depending on the corporate marketing or HR dollars,” Bonner said. “At the same time, these brands that have done a really good job of building community can reach some scale. They can finally get exposure to all of the Fortune 500 rather than just a sliver of it.”
The Muse’s announcement comes at a time when consolidation and startups acquiring other startups have been a larger part of the venture conversation in 2022’s frothy market. The past few years of record-breaking startup funding have created an ecosystem with a lot of small startups all looking to tackle the same problem, or as one VC told me earlier this summer, companies that should really just be features.
As many companies are navigating a tougher funding environment this year, which includes investors being choosier about who they want to back, this most likely won’t be the only roll-up strategy we hear of in Q4.