I caught up with a founder thinking through the next steps for his start-up. It grew rapidly during the pandemic and raised venture capital but hasn’t been able to sustain that growth rate. A decent percentage of its customer base was venture-backed companies, so the recent tech layoffs have caused customers to churn.

The founder could stay the course and raise more venture capital. The challenge with that strategy is that the market likely isn’t growing as quickly and competition has increased because the problem is obvious to other companies and founders. This company’s solution is much better from a technical standpoint than competing offerings, but it will need to invest heavily in sales and marketing to attract more customers. That will be a costly effort given the slowing growth rate of the space and influx of competitors.

The other option is to position the company to be acquired by a larger company looking to enter this market. Big companies are trying to play catch-up in this market. They’re evaluating whether they should spend one to two years building a solution from scratch or buy a proven solution. The larger companies are also likely thinking they’ll be able to grow the solution quickly once their existing sales and marketing muscle is applied to this product.

This founder is at a crossroads. I suspect he’ll go the acquisition path and be ready to start another company in two to four years. He isn’t alone. I think 2023 will be bring more acquisitions of small players by larger players looking for quick growth or trying to fill the gaps in their existing solutions.