Exits

Early signs of a recovery?

2024 was a year of cautious recovery for the exit market in the face of continued IPO challenges and the evolving role of M&A and secondaries in driving liquidity.

The venture exit market in 2024 showed early signs of a potential recovery, with $149.2 billion in exit value generated across an estimated 1,259 transactions, representing a 24% increase in value and a 10% rise in exit count from 2023. This marked the fifth-highest total exit value and sixth-highest deal count since 2014. Despite these modest improvements, exit value remained well below totals from the pre-pandemic era, reflecting a market that has been cautiously finding its footing.

The IPO market in 2024 remained subdued as many leading private companies, including Stripe, Databricks, Canva, Shein, SpaceX, ByteDance, Revolut, OpenAI, and Fanatics, opted to stay private longer. To address liquidity needs, these companies relied on secondary transactions to provide early investors and employees with liquidity, avoiding valuation resets but in return dampening IPO activity. Despite this muted environment, high-profile public listings by Reddit and ServiceTitan - both achieving multibillion-dollar exits - signaled a testing and gradual reawakening of the IPO market. These IPOs offered critical insights into the evolving dynamics of venture-backed IPOs.

Key IPO highlights

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Reddit debuted at a $6.4 billion valuation, below its last private round, but has since rallied, trading at a market cap exceeding $29 billion by year-end. This rebound highlighted public market enthusiasm and confidence in the platform’s growth potential despite initial recalibrations.

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ServiceTitan also faced valuation challenges, going public at a lower valuation, $6.3 billion, compared to its last private mark due to anti-dilution provisions. However, its strong post-IPO performance, exceeding $10 billion as of year-end, demonstrates sustained confidence in the company's long-term potential.

While IPO activity remains below pre-pandemic levels, these successful public listings hint at continued hope and renewed optimism for 2025 as market conditions stabilize.

M&A continued to play a critical role in the exit landscape but was dominated by small and early-stage acquisitions, defined as occurring before the Series C round. Many deals involved low-growth or struggling start-ups seeking to avoid closure, rather than generating substantial returns for investors.

Several factors constrained M&A activity in 2024, including high interest rates that raised the cost of capital, geopolitical uncertainties, and regulatory hurdles imposed by the FTC’s aggressive antitrust stance. Despite these challenges, the outlook for 2025 is more optimistic. A more stable, and potentially lower, interest rate environment could reduce borrowing costs and narrow the pricing gap between buyers and sellers, while a potentially more business-friendly regulatory environment could ease restrictions on mid-sized and large transactions.

[2025] will be a breakout year for IPOs and M&A in AI, particularly with the changing of the regulatory regime at the FTC and the significant growth rates we’re seeing in lots of these companies. Legacy businesses will seek to acquire both faster growing companies at reduced multiples and also AI talent to help them scale their product lines. I expect M&A to increase by at least 35% [in 2025]. The top 10 most active acquirers in the software world are falling off a cliff in terms of activity, which requires meaningfully the IPO market to roar open with a combination of AI and other software companies.

Tomasz Tunguz, General Partner at Theory Ventures

With IPO and M&A activity constrained, secondary transactions have become an increasingly important tool for liquidity. Selling shares on the secondary market offers venture capitalists and their LPs a means to generate returns in the absence of traditional exits, but they often trade at discounts, which can potentially erode overall returns. Despite these limitations, the rise and use of secondary markets reflects the adaptability of the venture ecosystem in navigating a sustained period of limited liquidity across the industry.

Source: PitchBook