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VC Exits

Startups smash annual record for VC-backed exit value with 2019’s IPO onslaught

Venture-backed startups proved their worth, despite a slowdown in activity near year’s end.

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Venture-backed startups proved their worth in 2019 by following through on successful exit strategies, despite a slowdown in activity near the end of the year.

The value of all exits for venture-backed companies, which includes IPOs, buyouts and acquisitions, hit a record $256.4 billion across 882 deals, according to the 4Q 2019 PitchBook-NVCA Venture Monitor. That value was nearly double the $130.2 billion in 2018, which was itself a record at the time.

Initial public offerings accounted for 78% of the total value, or $198.7 billion—more than the previous four years combined. The pre-money valuations of Uber, Lyft and Slack collectively contributed $112.5 billion, garnering huge IPO valuations despite subsequently dismal reception by public investors.

Following those high-profile disappointments, IPO activity declined 26% in 4Q 2019 compared with the pace set in the first three quarters.

“Profitability, or being cash-flow positive, is now almost required,” Previn Waas, US IPO Services Leader at Deloitte, told PitchBook. “Companies are thinking about right-sizing themselves, shedding some unprofitable businesses, getting out of some geographies that are perhaps not proving to be as accretive as they thought it might be, getting out some product lines, in order to right-size in advance of an IPO.”

Taken as a whole, companies that pursued an IPO last year performed well following their debuts. The Renaissance Capital IPO Index, which tracks the performance of newly public companies, gained 41% in 2019 and beat major indexes like the S&P 500.

“The struggles of some companies in the IPO and pre-IPO market have gotten a lot of headlines recently. What’s lost in the shuffle: most real technology IPOs are doing just fine,” wrote Michael Cembalest, chairman of market and investment strategy at J.P. Morgan, in a 2020 Outlook report. Datadog, Zoom and Crowdstrike were among the tech companies to post double-digit stock price growth following their IPOs last year.

In a sign of the unicorn-heavy times, there were 54 exits valued at more than $500 million. Acquisitions, which are by far the most popular exit strategy for VC-backed companies, dropped to the lowest share of total exits in the past decade.

Looking ahead, EY Global IPO Leader Paul Go expects IPO activity to pick up in the first half of this year, noting that many companies will want to go public before US elections in the fall. “As we head into 2020, we anticipate that some of the geopolitical uncertainties and trade tensions that plagued the IPO market in 2019 will fade,” he wrote in a recent report.

Several of the most highly funded companies currently in registration for an IPO—including CHJ Automotive, Megvii and Danke Apartment—are based in China. In the US, the most prominent companies that are testing IPO conditions in the coming months include direct-to-consumer mattress business Casper and healthcare startups One Medical and Beam Therapeutics. DoorDash and Airbnb are also reportedly eyeing public offerings.

“I think 2020 is going to be a solid year. I just don’t think it’s going to reach the heights of last year in terms of capital raised,” Waas said.

Featured image via Drew Angerer/Getty Images News

  • james-thorne.jpg
    Written by James Thorne
    James Thorne is a Seattle-based managing editor overseeing PitchBook’s venture capital coverage and data journalism initiatives. He previously reported for GeekWire, Reuters, CNBC and Source Media. A native of Colorado, James graduated from Boston College and received his master’s degree in business journalism from New York University.
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