Survival Strategy for Fledgling Businesses: Exploring the Possibility of Private Equity as an Exit Option

Alternative sources of liquidity are therefore top of mind — there’s a towering pile of private companies in need of an exit, or a bailout. The Exchange explores startups, markets and money. Note that TechCrunch, like many publications, focuses only on private unicorns while Cowboy Ventures is also counting those that have gone public. But the good news is that some untraveled and overgrown exit paths have a chance of opening up this year. Let’s talk private equity, startups, and their possible marriage this year.

After countless times of Lucy successfully pulling the football away from Charlie Brown’s foot at the last possible moment, we have certainly learned our lesson and are now skeptical about the predicted return of the IPO market in 2024. Whether it actually happens or not, we are not placing any bets on it.

As the search for alternative sources of liquidity becomes a top priority, a mountain of private companies are in desperate need of an exit or bailout. Recent research from Cowboy Ventures’ Aileen Lee highlights the rapid accumulation of illiquid wealth in the private market over the last decade and the scarcity of exits for unicorns and other highly valued startups.

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Lee’s research uncovered that the number of unicorns in the U.S. has skyrocketed by 14 times in the past year, with 532 in 2013 compared to just 39 in 2013. However, the rate of unicorns going public has moved in the opposite direction, with only 7% of unicorns today managing to exit, a significant decrease from 66% of the initial cohort. It’s important to note that TechCrunch, like many other publications, only focuses on private unicorns, while Cowboy Ventures counts both private and public ones in their research.

This poses a challenge for startups. The good news is that there is a chance for some previously unexplored and neglected exit routes to open up this year. Yet, the bad news is that these options may not offer the high prices that many startups are seeking. It’s almost like a painful process of price discovery.

The Possibility of a Match Between Private Equity and Startups

Why is it that unfavorable circumstances can sometimes lead to positive outcomes?

“The greatest risk in life is not taking one.” – Mark Zuckerberg

This quote from the founder of Facebook seems relevant as we discuss the potential union between private equity and startups. Amidst the barrage of bad tidings for startups, there is a glimmer of hope in the form of a potential partnership between the two.

The struggles of private companies to find exits on their own have opened up opportunities for private equity firms to step in and provide a viable solution. With their experience and resources, private equity firms can offer struggling startups a lifeline and help them navigate a path towards an exit.

However, this potential marriage may not be a fairytale ending for startups. Private equity firms may offer lower valuations and stricter terms, which may not align with the expectations of many startups. But as desperate times call for desperate measures, some startups may have no choice but to accept these terms if they want to survive.

The Year of Price Discovery

Amidst the uncertain future of IPOs and the struggles of private companies, it seems that 2024 may be a year of price discovery for startups. As they face the reality of potentially lower valuations and difficult terms, they must come to terms with the fact that the market will dictate their worth.

Just like Charlie Brown going in for another attempt to kick the football, startups have to take the risk and see where it takes them. We may not know the outcome, but as Mark Zuckerberg said, the greatest risk is not taking one.

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Kira Kim

Kira Kim is a science journalist with a background in biology and a passion for environmental issues. She is known for her clear and concise writing, as well as her ability to bring complex scientific concepts to life for a general audience.

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