Hot Deals, Hollow Deals

There is a general sentiment around the frothiness of the tech ecosystem around AI. SaaS companies are rushing out with half-baked AI integrations to save their stocks, and Microsoft rummaging through their old box of CDs looking for another product to rebrand to Copilot. But there are companies trying to capitalize on AI, and there are listed companies trying to stay afloat.

Visium Technologies is a “provider of cyber security visualization, big data analytics and automation” or at least that’s how it described itself in its S-1 filings back in 2022. Last February, the company announced a transition into a “pure-play agentic AI company” and then a few weeks ago announced its acquisition of ConnexusAI, which seems to be a chatbot. Visium has reported almost zero revenue since it went public, and I can’t say that acquisition will be their saving grace, but that's all by design. It's a clear acquisition pattern amongst the long-tail of small and microcap tech companies.

Most listed companies in the US are small and microcap. In the universe of listed tech companies I’m currently tracking (a little over 3,000 as of publishing) 25 percent can be classified as distressed—that’s companies constantly disclosing going concern risks and tapping debt and equity markets for capital. This cohort has disclosed over 4,000 M&A narratives over the past decade, almost 10 percent I classified as "hype-related". There's obviously no scientific methodology to classify a deal as clout-chasing or just conventional, so I had to rely on keyword matching and an extensive taxonomy to single out the most unconventional deals (which one might dub “hype deals”).

While these hype deals have remained in the minority amongst distressed companies over the past decade, the data shows they’ve been picking up steam over the last couple of years, primarily supported by deals in AI. And we're not even through the second quarter of the year, so expect their contribution to go further up and to the right.

I think this partially speaks to the frothiness around AI, but it is also testament to a consensus around a new technology that has not been seen for years prior, and certainly not with crypto or the metaverse. This cohort of M&A deals draws a pretty accurate picture of what the latest hype in technology is—a hype map if you will.

The Pivots Keep Coming

These distressed companies keep changing over the course of their lives in hopes of striking gold. Jumping from one trendy sector to the next. Some don’t make it like Beyond Commerce, which started out as a SaaS roll-up, then in 2021-2022 pivoted to electric vehicles, and then delisted. Others keep figuring it out through chasing the next big thing like ARtelligence, which started out in Augmented Reality, then pivoted to crypto and issuing tokens, and has now repainted with a fresh coat of AI paint.

And while one might think this cohort of companies ends up folding faster than those engaging in conventional deals—acquiring companies up their wheelhouse and staying the course—they actually don’t. The failure rate is nearly identical whether the acquisition is a chatbot or a traditional software vendor. These consecutive pivots just buy the companies more time, with a fresh press release and a few more weeks of relevance.

Though these hype deals are largely performative, they show what technology is capturing the mindshare of investors and operators. I don’t think it's calling the top on AI, but maybe the frothiness will soon shift to a new term. I’m calling “Super Intelligence” next.