Key Factors Driving VC Exit Activity

For the first time, US VC secondary sales exceeded IPO exit value Here's why this matters 👇 ◾️ The numbers are clear (Jun 24' - Jun 25'): - Secondary transactions: $61.1B - IPO exits: $58.8B This isn't a close race anymore. Secondaries have officially overtaken public markets as the primary liquidity mechanism for VC. Here's what's behind this shift. ◾️ Let's walk through each driver, starting with the biggest one: companies staying private longer. The average time to IPO has stretched from 4 years (1999) to 11+ years today. Stripe, OpenAI, and other unicorns have zero rush to go public. Why deal with public market volatility when you can access capital privately? ◾️ Driver #2: The SPV explosion is wild. The data: - 545% jump in secondary SPV count (2 years) - 1,000% growth in total value raised What was once a niche financing tool is now the backbone of venture liquidity infrastructure. ◾️ Driver #3: Tender offers became routine. Companies like Ramp now regularly offer employees liquidity through structured tenders. I think this shift is brilliant – it's simultaneously: - Employee retention tool - Pressure release valve for early stakeholders - Recruitment advantage ◾️ Driver #4: Sector concentration amplifies everything. Hot sectors driving secondary demand: - AI companies (obvious winner) - Cybersecurity (Trump priorities) - National defense (geopolitical focus) When everyone wants exposure to the same 50 companies, secondary markets heat up fast. ◾️ Now, let's talk about what this really means. Here's my contrarian take: this "success" masks a structural problem. When your primary exit strategy becomes "sell to other VCs," you've created a closed loop that doesn't generate real wealth for the broader economy. ◾️ The sustainability question keeps me up at night. The math: - Secondary markets provide liquidity - But they don't create new value like IPOs do - You're shuffling existing equity around Instead of accessing true growth capital from public markets. ◾️ What does this mean for GPs? You need secondary market expertise now. Your LPs will ask about: - Tender offer strategies - Secondary SPV structures - Alternative liquidity plans This isn't optional anymore – it's table stakes for fundraising. ◾️ What does this mean for LPs? I assume you'll see more secondary-focused strategies in GP pitches. But ask the hard question: are you getting exposure to real growth, or just paying higher prices for the same assets in a closed ecosystem? ◾️ Bottom line: we're witnessing a fundamental shift in how VC creates and distributes liquidity. The data supports it. The trend is accelerating. But eventually, this ecosystem needs real exits to public markets. The question is when, not if, this dynamic reverses. What do you think about the state of secondaries market?

The dirty secret of venture capital: Way more companies will get bought than go IPO. Yet most VCs are still pitching founders the same fairy tale. 2024 had 225 IPOs. That's down from 1,035 in 2021 - a staggering 78% decline. Meanwhile, M&A is becoming the dominant exit path. Strategic buyers have significant cash reserves. S&P 500 companies are cash-rich, with tech giants alone sitting on hundreds of billions. Tech giants like Apple and Microsoft are sitting on tens of billions each. The math is challenging for founders: - Average time to exit: 10-12 years - IPO market at historic lows - M&A becoming primary exit route - Less than 20% of VC-backed companies achieve successful exits Most VCs still play the 2021 playbook. Chase unicorn valuations. Pray for IPO. Watch portfolio companies struggle to find exits. The smart money is adapting. They're not just picking winners. They're engineering exits. The new playbook: 1. Build relationships with corp dev before you need them 2. Position every investment as either IPO or strategic acquisition from day one 3. Know which Fortune 500 needs what your portfolio builds 4. Time exits to buyer's strategic planning cycles, not market windows The best funds of the next decade won't be the ones chasing the biggest valuations. They'll be the ones who can turn a good company into a perfect acquisition. Because in this market, exit optionality isn't a nice-to-have. It's the only way to survive.

When Hany and I decided to start ACME Capital, we went on a hike to work through the details. I vividly remember a central debate (the first of many): whether sourcing or exiting companies was more important. Hany was adamant that exiting, at minimum, deserves a position equal to sourcing. He was right; and he loves being right. In today's Venture 4.0 environment, this insight has proven critical to survival. → A defining challenge of Venture 4.0 is the stockpile of unicorns stuck in private purgatory. This "liquidity debt" left by the previous era must be addressed, and how we address it will fundamentally shape this next phase → The capital recycling loop - VCs returning capital to LPs, LPs recommitting to VCs - is breaking down, endangering future innovation financing. This is an ecosystem-wide problem requiring an ecosystem-wide solution → Today's secondary funds are thriving ($162B 2024 volume) and offer a critical but partial path forward, yet this volume is still dwarfed by the sheer scale of the $2.7T unicorn backlog that continues to expand daily → Investment bankers won't solve this; they're transaction-focused and excel at optimizing deals that are ready, not manufacturing exits from scratch → Founders shouldn't be expected to solve it; their singular focus on building exceptional businesses is precisely what creates exit optionality in the first place → A large part of the responsibility falls on us as VCs. Exits are one of the most critical parts of investing - arguably the hardest part - especially in challenging markets → We can not be passive participants in venture’s exit ecosystem → The days of "invest and hope" are behind us. Being a venture capitalist in Venture 4.0 means we cannot simply monitor quarterly board decks and offer support - we must align with the Founders and actively architect and pursue exit solutions for our portfolios → This means getting creative: driving consolidation among portfolios, developing meaningful relationships with strategic acquirers, building connections with PE firms, exploring joint ventures, and dare I say, even revisiting SPACs and other creative paths to liquidity → My dad (“Big AL”) would say we need to get off our keisters. If you don't know how to actively drive exits for your portfolio companies, you're not delivering the full value you promised to your founders and LPs → To thrive in Venture 4.0, VCs need to roll up their sleeves, leverage their networks, and manufacture liquidity - rather than hope and wait for it to appear Pictured: Hany and I on that fateful hike. Hopefully, this post counts as a sufficient 'I told you so' for him ;).

My latest PitchBook analyst note, US VC-Backed M&A Outlook, has gone live. Key takeaways ➡️ Large M&A continues to be rare because of elevated interest rates, uncertain economic growth, increased regulatory scrutiny, and stock market volatility. Public companies have significantly pulled back from large acquisitions, with the number of active public acquirers dropping from a peak of 1,423 in 2021 to 815 in 2024. ➡️ While big-ticket deals remain limited, smaller acquisitions are experiencing relative growth. A confluence of factors—lower startup valuations, need for liquidity, and prolonged funding drought—have created favorable conditions for smaller-scale M&A. These deals are poised to maintain or slightly grow in the coming quarters. ➡️ With the number of private companies rising sharply and public market exit channels severely limited, M&A has become a critical path for exits. The median time since last funding round hit a record 2.4 years in Q1 2025, reflecting mounting pressure for liquidity. Founders and GPs are increasingly turning to M&A as a quicker, more viable liquidity solution compared to IPOs. ➡️ Antitrust concerns continue to be a hurdle, especially for Big Tech, under the Trump administration. Despite this, large deals such as Google’s $32 billion offer for Wiz signal hope that high-profile acquisitions are still possible. ➡️ Sectoral trends show divergence in M&A resilience. Software remains the dominant sector, comprising more than 40% of deal volume since 2015 and peaking at 51.2% in Q1 2025. Areas such as digital health and supply chain tech are more insulated from trade policy risks. ➡️ Buyouts, although traditionally a smaller share of VC exits, now outpace public listings. Interest is growing among PE firms seeking bolt-ons, especially in software, healthcare services, and commercial products. Check out the full note via link in comments. 🔗