The F-word

Jackie DiMonte
6 min readOct 11, 2020

There are “only two ways to make money in business: One is to bundle; the other is unbundle. “ — Jim Barksdale, CEO, Netscape

Fragmentation & Consolidation

Most startups unbundle existing products and markets. This is fragmentation. When startups undergo M&A it’s generally to bundle products and services. This is consolidation.

VCs make money on this cycle in a very specific way. We invest in fragmentation and exit into consolidation.

Markets go through cycles of fragmentation and consolidation. Whether a market consolidates or fragments is dependent on environmental changes. These may be consumer preference changes, macroeconomic events, or new technology innovation.

We can infer where an industry is in the fragmentation/consolidation cycle by using a fragmentation index. I’ve defined a fragmentation index that compares how many new companies form and existing companies merge each year:

When the index is positive, the market is fragmenting. When it’s negative, the market is consolidating. The larger the absolute value of the index is, the stronger the fragmentation or consolidation trend is.



Jackie DiMonte

Early stage venture investor at @chicagoventures. Formerly @hydeparkvp, #IoT at @silverspringnet, and #tech at @Accenture