The first is looking for a return on investment. If you're going to attract other peoples' money, those "other people" are obviously looking for companies that are going to provide a return. And since a wise investor diversifies their portfolios, they know that a lot of their investments are going to fail, so one way to hedge that is by encouraging all of their investments to grow as much as possible. That way a small number of hyper-performers will make up for the losses.
But we also see vertical growth happen with major corporations as well. Not just startups. And I suspect this has a lot of to do with red tape, over-regulation and bureaucracy. When you need to jump through tons of hoops including getting licensing and permits, setting up tax and payroll accounts... not to mention if you want your company to be publicly traded and the hoops you need to jump through for that ... it can be way cheaper and lower-risk to expand the activities of an existing, already established company than to spin off a new one.