Exits and liquidity as a VC (seems like the hardest part)

Exits and liquidity as a VC

(This almost seems like the hardest part)

How the rising popularity of marketplaces (& acquisition) is changing the exit landscape for startups

Marketplaces like acquire.com , Finic (YC W23) , Flippa.com are democratizing access and streamlining the acquisition process

Prediction: We will see a new type of angel investing/ venture play to build to sell on these marketplaces

basics:

Venture Capital is a high-risk, high-reward game. The median VC fund's returns aren't that great. VCs are on an 8-10 year investment horizon. According to Statista, the median time to exit for a venture-backed startup is 5.7 years.

100x return is the goal, 20-30x is acceptable, anything below is forgotten about

Liquidity:

Liquidity is a massive issue for funds and VCs will often encourage companies to sell just to secure the returns.

Besides the holy grail of exits with an IPO, it’s difficult to get an exit for most companies.

Exits for companies -> Liquidity for funds -> Returns back to investors

3 main types of liquidation events for VCs:

1. Going public (IPO)- the holy grail
2. Getting acquired (M&A)
3. Selling shares on a secondary market

The end goal/ exit/ liquidation landscape has drastically changed in just the last 3 years in my opinion

Marketplaces like acquire.com have become a genuine option for VC-backed startups to exit.

They have completely democratized the process by giving access to all types of buyers.

This changes the end goal landscape a fair bit.

Building to sell on acquire will be an increasingly realistic and well-defined goal for startups to strive towards.

Right now there is a lot of uncertainty around the marketplaces in terms of valuations and multiples.

There are also a lot of bad actors on these marketplaces, both buyers and sellers.

but the market is adapting, especially as we see more public success stories.

Future of the ecosystem?

As the ecosystem develops we will see a settling down of valuations, multiples, etc. giving the market more predictability.

Founders/ investors need predictable multiples and outcomes to invest resources into business acquisitions. They need a clear target to work towards and a framework to evaluate deals with.

As a seller: Being put in front of 1,000s of interested buyers in a few days is very powerful

As a founder: Faster, easier liquidity, and more freedom of options. M&A is a powerful tool in a founders toolkit and acquisition opens up many new possibilities.

As a VC: your portfolio companies have more liquidity + opportunities, fewer startups go to 0, capital inflows to the industry may reduce

Many new MBAs, especially those at top schools, are heavily considering search funds + as the media popularises success stories, the space will see a surge in demand

As the popularity of acquisition grows: more buyers on marketplaces, especially different types of buyers + deal flow grows with more listings every day

marketplaces have streamlined the acquisition process, drastically reduced legal costs, helped educate, and made the acquisition model so much more popular and accessible

I have seen multiple VC-backed startups exit on acquire.com . From failed ventures selling for scraps to successful stories like Kiss Metrics.

Definitely, better than going to 0 and not a realistic plan B for most failed startups even just 2 years ago.

most importantly the end outcome for founders, in terms of exits, and how they define success will change as we go further

Marketplaces like Acquire provide many startups with more options and flexibility that just weren't possible before.

This rising popularity of marketplaces is going to be very interesting to watch over the next couple of years.

So yeah, this is some of the stuff I've been thinking about.

I hope that the kinds of startups that people build change to more measured bootstrapped bets.

The crazy VC valuations had skewed the game for a long time.

I think the popular outcomes founders look for will right now will change and accordingly, so will the kind of startups they build

Maybe that's just wishful thinking tho

a random kid like me can look at and talk about million dollar business deals only thanks to acquire.com & Andrew Gazdecki . this democratization of acquisitions is going to change entrepreneurship in many interesting ways.

Thanks for reading :)

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