Exits | State of the VC Industry

EXITS

The brief glimmer of hope disappeared The brief glimmer of hope dis-
appeared Many investors were hopeful that stronger performance for tech stocks and a few high-profile venture-backed IPOs would lead to a broader opening of the exit market, but that hope did not turn into a reality in 2023.

EXITS

Exit activity in 2023 was just as subdued as in 2022.

Total exit value, inclusive of public listings, buyouts, and mergers and acquisitions, was down 22% year-over-year, and down a dramatic 92% compared to 2021. The $61 billion of total value realized in 2023 was the lowest figure in the last decade.

The number of exits in 2023 was 50% less than in 2021 and nearly 20% below the 10-year average.

A few tech companies tested the waters and completed their IPOs in September. Arm, a semiconductor design firm, went out first with a hefty valuation of approximately $55 billion. Instacart, the on-demand grocery delivery service, and Klaviyo, an enterprise B2C communication tool, followed soon thereafter touting profitable financials but public valuations well below their private valuations. The challenging post-IPO share performance of these and other newly-minted public companies raised concerns about the market’s strength and disappointed investors who had hoped for an IPO thaw.

In addition to macroeconomic challenges, the anemic exit activity in 2023 was exacerbated by several factors:

the poor showing by the 2019, 2020, and 2021 IPO cohorts, which have continued to underperform the broader market,
a growing backlog of announced, but not yet closed, mergers and acquisitions, and
high-performing private companies like Stripe and SpaceX choosing to stay private for even longer.

The total number of M&A exits fell below 700, a new decade low.

A lackluster and uncertain M&A environment was the overall driver for fewer exits in 2023, with acquisitions falling over 31% year-over-year. Adobe's highly anticipated $20 billion acquisition of venture-backed Figma that was announced in 2022 was called off in 2023 after drawn-out regulatory issues. There continued to be a steady beat of larger transactions taking a long time to work their way through closing processes, due to regulatory hurdles or otherwise, including Databricks' acquisition of MosaicML for $1.3 billion.

Late-stage companies put in the work for profitability.

Many investors are hopeful that exits, particularly IPOs, will rebound in 2024, especially with equity markets ending 2023 on a high note and with some positive economic signals. Many late-stage companies have already done the work to shift their focus to profitability in lieu of growth at all costs, which public markets should view favorably. Industry watchers are looking at companies like Reddit, Databricks, Rubrik, Cerebras, and others as potentially good candidates for public listings when the market is receptive, though for some companies, the market may command lower valuations than companies previously enjoyed.