After watching Lucy Pulling the football from Charlie Brown’s foot at the last possible moment Time and time again, we have learned our lesson and are therefore reluctant to believe that 2024 will be the year the IPO market returns. It may or may not happen, but we’re not betting on it.
Therefore alternative sources of liquidity are at the forefront of our minds – there is a huge pile of private companies that need to exit, or be bailed out. Recent research by Eileen Lee of Cowboy Ventures underscores how quickly illiquid wealth has accumulated in private markets in the past decade, and how rare exits have become for unicorns and other richly valued startups.
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Lee found that the number of unicorns in the United States has increased 14-fold over the past year, to 532 companies in 2013 from just 39 in 2013. However, the rate of unicorns going public has moved in the opposite direction — 7%. Only of today’s unicorns have found an exit, down from 66% of the initial group. Note that TechCrunch, like many publications, only focuses on private unicorns while Cowboy Ventures also counts those that have gone public.
This puts startups in a difficult position. But the good news is that some untapped and overgrown exit paths have a chance to open up this year. The bad news is that these avenues may offer much lower prices than many startups are willing to accept. Call it painful price discovery.
Let’s talk about private equity, startups, and their potential marriage this year.