The market for startup exits has seen better days. The startup market, for one, has seen better days. In terms of venture capital, entrepreneurs rolled into 2021 hotter than ever after a tumultuous and ultimately aggressive 2020. Last year, record-breaking amounts of venture money were poured into start-up digital firms all over the world, with some startups raising two or even three times in a single 12-month period if they were exceptionally popular.
Last year, it wasn’t only traditional venture companies that were active; corporate venture capital funds (CVC funds) were also pumping money into the market. As The Exchange reported in August, the value of deals involving CVCs was increasing in both money and deal terms, indicating that corporates were not immune to the investor frenzy for startup ownership. We looked into the rate at which corporate venture capital funds were being formed early this year since the trend was so strong.
CVCs indicated at the time that their financial (returns-focused) and strategic (accessing new technology and fostering acquisition candidates) objectives were similar to those before the boom. With the possibility of financial returns on the decline — or at least lessened — due to the public-market selloff, falling startup prices, a dormant IPO market, and antitrust issues potentially limiting the acquisitiveness of some major tech companies, it’s the strategic portion of the CVC remit that has our attention today.
If CVCs aren’t going to have much of a chance of financially rewarding exits, they may shift their focus to strategic goals. And it might lead to a more active M&A market, with corporations scouring the private markets for portfolio firms. Let’s take a closer look at the notion, and then speculate on which active CVCs are likely to be busy with their checkbooks this year.
Why M&A may be in the horizon, to rephrase the question, there are several reasons for startups to seek suitors in the present atmosphere. As you are probably aware, public values have been declining. Of course, for macroeconomic reasons. But partly because there are growing concerns about whether double-digit multiples will endure and if the exits were ever mispriced. As a result of the stock market’s troubles, numerous IT businesses have put their IPO plans on hold, as well as SPAC mergers. In several areas, public exits have nearly come to a standstill, while others have slowed significantly. The development of unicorns has not slowed down.
