Startup exit options
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Traditional IPOs
The IPO or initial public offering is the oldest, traditional option for “going public.” It involves a company issuing new shares as a way to raise new capital, and sometimes selling existing shares from founders, investors, and other shareholders in the public markets.
What’s now?
Following 2021’s record-setting pace of initial public offerings (IPOs) priced on U.S. exchanges, IPO activity dropped sharply in the first half of 2022. According to FactSet data, 1073 companies IPO’d in 2021, raising $317 billion; in the first half of 2022, the total was just 92 companies, raising just under $9 billion.
SPACs
SPACs (special-purpose acquisition companies, or “blank check” companies)?are companies without commercial operations which are formed strictly to raise capital through an?(IPO) or for the purpose of acquiring or merging with an existing company.
SPACs are a costlier and more dilutive option, but they offer an alternative for companies that have a less clear path to the public markets via traditional means.?
There were?68 SPAC recorded in H1 2022, securing proceeds of US$11.59 billion. Over the same period in 2021, by contrast, 362 SPAC IPOs went ahead, raising US$106.66 billion.
Direct listings
Direct Listings, or DLs, have emerged as an alternative to a traditional IPO. Spotify used this path in 2018, and Slack in 2019, bringing greater attention to the practice. Outwardly, DLs look a lot like traditional IPOs — companies debut on the New York Stock Exchange or Nasdaq, with bell-ringing and other trappings. The key difference in a Direct Listing is that?no shares are sold by the company itself, and therefore no capital is raised.
During the first three months of 2022, Nasdaq welcomed 70 new listings, raising a total of $9.1 billion dollars
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M&A
Unlike traditional IPOs, SPAC IPOs, or DLs, a sale of a company through a merger-and-acquisition is a?true exit?whereby the existing shareholders of a target sell 100% of their ownership to a buyer.?
Worldwide M&A activity totaled US$2.2trn during H1 2022?a decrease of 21 percent compared with year-ago levels.
Secondary sales
in which private company stock is sold by an existing stockholder to another private party, with the proceeds going to the selling stockholder.?While secondary sales have clear direct benefits for employees (who receive interim liquidity) and for companies (which retain valued employees), they are part of a broader innovation trend in how companies are financed and valued.?
Secondary sales and strategic sales are becoming the most preferred exit routes, expanding by 28% and 23% respectively each year, over the last three years, according to Bain and Company.?
Current situation
The Exchange?parsed a dataset?from?Carta, a unicorn whose software helps companies manage their cap table. New data shows?that the value of startups has dramatically changed?since the 2021 highs.