The Lack of IPOs and Exits is Big Problem for VCs and VC-Funded Founders

The chart below explains why there’s a big problem for companies that raised a lot of VC funding in the last three years–and for the VCs that funded them.

It clearly shows that there are almost no successful exits to pay off the huge investments made in the last three years.

If you raised $20 million or $100 million from VC investors when it was “cheap and easy” money two years ago, the greater fools you thought you could sell your company to (or raise from) aren’t there anymore.

It’s just one slide from the recent Bessemer State of the Cloud 2023 report released this month.

There’s nothing very surprising in the report:

  •  Tech IPOs stopped in early 2022 and haven’t re-started
  •  M&A is way down, except for private equity takeouts
  •  Generative AI is a game-changing new platform that will help the little guys
  •  VCs raised even more money in 2022 than they did in previous years
  •  Investors now require drastically higher growth, lower burn, and great metrics

We knew this already. But it is interesting to see this story told so clearly.

Even the solid IPOs of Instacart and Klaviyo this week, the first software IPOs in 18 months, didn’t value these stellar companies higher than their last funding rounds. Ouch.

The funded companies themselves may be growing just fine. But companies with big funding have a ticking clock to pay back their investors with very little hope that stock markets will recover.

You’d think VCs would raise funds and invest in startups when stocks are cheap and valuations are down. But they don’t.

VCs invest more when stocks are up. This is a problem for VCs, their investors, and the companies they invested in.

This won’t be pretty for most funded software companies that don’t have the impressive metrics and growth rates that Instacart and Klaviyo have.

So tech layoffs are continuing, hiring has slowed to a trickle, VC funding rounds for B2B SaaS are way down, and the hope of big exits with crazy-high valuations has faded.

We heard about their big funding rounds on the way up. We don’t hear about their struggles and down rounds that are not so fun.

I don’t think we’ll see a tech financial bubble again for another ten years, maybe longer.

The greater fools won’t be around to save most of these over-funded software companies. These founders will have to get real about their valuations, growth, and profitability and take a big funding haircut to stay in the game.

But SaaS founders who didn’t raise big piles of funding at high valuations don’t have these problems.

Most of these software companies are growing steadily, hiring efficiently, and building valuable software companies without the ups and downs of their peers with big funding.

Be careful what you ask for. Reality always seems to win in the long run.


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