Private Equity: A Last Resort For Struggling Startups


Private equity could be the last resort for startups struggling to exit, as the IPO market’s return remains uncertain. With a towering pile of private companies in need of an exit or a bailout, alternative sources of liquidity are becoming increasingly important. Recent research from Cowboy Ventures’ Aileen Lee highlights the rapid accumulation of illiquid wealth in the private markets over the last decade, and the scarcity of exits for unicorns and other richly valued startups.

Key Takeaway

Private equity is becoming an increasingly important option for startups facing challenges in exiting the market, as traditional routes such as IPOs remain uncertain and elusive.

The Current Landscape

According to Lee’s findings, the number of unicorns in the U.S. has grown significantly, increasing 14 times over the past year to reach 532 in 2013 from just 39 in 2013. However, the rate at which unicorns went public has decreased, with only 7% of unicorns today finding an exit, down from 66% of the initial cohort. This presents a challenging situation for startups, as the traditional exit routes are becoming increasingly elusive.

Exploring New Exit Paths

Despite the difficulties, there is hope that untraveled and overgrown exit paths may open up this year. However, the potential downside is that these avenues may offer prices far lower than what many startups are willing to accept, leading to what can be described as painful price discovery.

The Role of Private Equity

Amidst this landscape, private equity is emerging as a potential solution for struggling startups. The uncertain IPO market and the scarcity of traditional exits are driving startups to consider alternative options, including partnerships with private equity firms. While this may not be the ideal scenario for startups, it could provide a much-needed lifeline for those in need of liquidity.

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