TLDR:
– Venture firms are struggling with a scarcity of exit opportunities for portfolio companies
– Private-to-private acquisitions are on the rise as a way for startups to navigate the lack of exits
In the venture industry, the scarcity of exits for portfolio companies is posing a challenge for venture firms. With only 15 venture-backed technology companies going public in 2022 and 2023 combined, and big acquisitions being derailed by antitrust investigations, exit opportunities have been limited. In Q2, less than $30 billion in exit value was generated to send back to limited partners. As a result, venture capitalists are getting creative with distributions. Private-to-private deals are becoming more common, where private venture-backed companies acquire other companies privately. This allows them to avoid the challenge of determining their actual worth and can be a solution for industries with high competition.
However, some truly transformational deals are still rare in the market. Deals like Google potentially acquiring cybersecurity company Wiz for $23 billion have investors excited, but such deals are exceptions rather than the norm. Other strategies, such as non-acquisition acquisitions, where public companies hire top talent from startups while striking partnership deals, are also emerging. Additionally, private equity firms like Thoma Bravo and Vista Equity Partners are cautious in their acquisitions, often more wary of overpaying than strategic acquirers.
Furthermore, limited partners are selling their shares in private transactions as a way to provide liquidity and manage portfolios. Sequoia Capital and other firms are facilitating liquidity for long-time limited partners through share sales. While this allows VC firms to deliver distributions to their investors, it also postpones the public markets from independently assessing the value of startups. Despite the challenges and lack of major windfall deals, venture firms continue to adapt and explore new strategies for navigating the evolving landscape of the venture industry.
