Link to original article: How long will the exit drought continue?
The Federal Reserve’s signaling in November that it expects to cut interest rates at least three times in 2024 delivered a welcome adrenaline shot to technology and other publicly listed stocks as 2023 came to a close. But most venture capital managers remain cautiously optimistic about 2024. Although some expect M&A exits to become more viable, most VCs don’t see the IPO market rebounding meaningfully until late 2024 or more likely next year.
Frank Rotman, co-founder, partner and chief investment officer at QED Investors, expects to see “a smattering of IPOs during 2024 while people test the market,” more likely in the latter half of the year. “But the real IPO market will open up in 2025. I think the companies just need more time.”
VCs’ portfolio companies need to be a little bigger, healthier and more mature before they are ready to go public, he told Venture Capital Journal. “We will see IPOs of good companies in the coming year, but not a lot of them until these businesses have refactored themselves and turned themselves into profitable machines that are still growing. You will see this logjam break. The question is when.”
QED invests in fintech companies on virtually every continent and closed its two newest funds last spring for a total of $925 million.
Demand for scaled assets
Nearly one-third (33 percent) of the VCs polled for Kauffman Fellows’ 2024 VC Trends & Predictions Survey said 2024 won’t be a good year for exits. (The survey polled 239 firms, including 205 VCs, representing $263 billion in assets under management.)
Among those surveyed who were more optimistic, 47 percent anticipate an increased focus on M&A, while just over 4 percent foresee greater interest in IPOs and 11 percent expect a balance between the two categories. Among the alternative exit options that 5 percent of those surveyed expect the market to explore are secondary sales, sales to strategic buyers and lateral mergers in which similar companies would combine.
Ivan Nikkhoo, founder and managing partner of Navigate VC, is predicting more M&A deals at all stages. From fast-growth tech start-ups with low burn rates and strong balance sheets buying their competitors, to private equity groups acquiring platforms and doing roll-ups by gobbling up struggling competitors at a discount, the M&A market will improve in the coming quarters, Nikkhoo said.
Navigate invests in the Series A extension rounds of SaaS start-ups that don’t yet have sufficient recurring revenue to meet Series B investors’ requirements.
In the second half of 2023, Dawn Capital was approached multiple times by private equity investors looking to buy its scaled assets, said Henry Mason, a partner at the London-based firm.
