The 2024 Exit Landscape & What it Means for Entrepreneurs

To jump ahead to our deck that breaks down the data and takeaways for founders, click here.

Trillions in Dry Power, Yet Still a Logjam

I was invited to participate in a panel at the Texas Forum in Austin recently to talk about the current IPO and M&A Landscape, and share my experience as a former operator. The highly-engaged audience included allocators (people who work at large institutions and back VC and PE firms, as well as other asset classes), venture investors and entrepreneurs. Each looking at our data and the current logjam from their nuanced perspectives but seeing the same thing: a lack of liquidity and an exit market that is both sleepy and unpredictable.

For the allocator, this means no capital cycling to invest in new funds or to re-balance / re-allocate amongst existing funds and asset classes. For venture investors, it means fewer exits that allow carried interest to flow through their firms, and for those fundraising, a slower pace to close on new capital to back more companies or pursue new thesis areas. Not to mention that with higher interest rates, the hurdle rate for fund performance just increased substantially, making the importance of fund-returning portfolio outcomes more essential.?

For startup Founders & CEOs, where we decided to focus this report, this environment brings a significant set of challenges that contribute to a longer time horizon or changing dynamics of an exit.

The GWC 2024 Exit Landscape report is pithy and focused, but let us not bury the lead: Entrepreneurs: good financial performance is not enough to create a great outcome for your startup or growth-stage company.?

Why? There are hundreds of high-performing companies, some unicorns and innovative technical products that are in the long-line of businesses seeking an exit — some growing 100% YoY, some profitable, some with products that would expand margins for massive players, yet they sit on the sidelines … waiting.

Stop Waiting for a Recovery, Innovate Now

Last week, my fellow panelists included a partner at a well-known private equity firm and an entrepreneur who had a 10-figure exit to Thoma Bravo. The question was asked, what will break up this logjam?

Most believe that when companies become more realistic about their valuations, private equity acquisitions, roll-ups and reinventions will spur the market. This is pretty complex as most private equity calculus requires companies with positive EBITDA and leverage.n an environment where interest rates remain high, the prospects are humbling.

Our Advice to Founders & CEO’s:

• Manage your company in an exit-ready fashion ensuring that all of your governance practices and corporate “hygiene” are in place.
• Strategize to keep your best talent happy and productive.
• Align your personal expectations and that of your investors on what a great outcome looks like and the horizon.
• Ensure that not only are you growing and continuing to managing burn, but that the unit economics and growth levers are efficient to expand the pool of possible suitors.

Ok, that is what you expected us to conclude, right? Stay ready so you don’t have to get ready.?

However, we would add that this moment coincides with one of the greatest technical revolutions in a generation — GenerativeAI.

Great performers should be innovating rapidly in ways that not only make your back office more effective, but also enable adding new sources of revenue to your P&L, the generation of more products that accelerate growth, and retaining your best customers.?

After the panel, a few growth-stage CEO’s approached me and asked about two things that I will just drop here for you to discuss with your investors if you feel so inclined. One asked about setting up a carve-out option for their leadership team if a high-multiple exit is not immediately in the cards; and the other, who has barely made minimum wage for the past four years building their dream company, asked if it’s too early to talk with investors about a pay increase and secondary options.

Selling a company or being bought is often perceived as a mythical and exciting process – from ringing the NASDAQ bell or riding off into the sunset in a McLauren (or other luxury vehicle of your imagination.)?

Outside of an IPO or being bought by a big tech company, there are alternative exit paths — three that are rarely explored: ESPP where your employees buy your business over time, an MBO or management buyout where your leaders / partners buy your company, a merger with another similarly sized company. Again, healthy growth, strong fundamentals, a loyal and talented employee base are just a few of the necessities for these less-conventional paths, but they are the bedrock to the more glamourized bell-ringing and life-changing outcomes.

Shift to the Early Stage

In reality, most transactions don’t happen with glitz, and in the current environment, exits will likely require great planning and maneuvering. The good news is that liquidity for exits is everywhere – even if not in the places you may have traditionally expected. As an early-stage (Seed and Series A) investor, we are on the front line of building great companies, we have a lot of collective experience with exits and have married that with some compelling data for your reference. And, if you’re an entrepreneur running an early-stage company, you may not be directly feeling the effects, but they are upon you! So, take the advice of being innovative, efficient and open: talk to prospective buyers to understand their roadmaps, map out your cap table if you need 2-3 more years and possibly one more round to reach the outcome, and know that only the best (and most connected, technically advanced and agile) players in your cohort will win and move accordingly.

Thank you to my team who helped us look at stacks of data as we began to put the pieces together of the 2024 Exit Landscape. Check out the full report here .