After three years in the IPO desert, VCs look parched.
The asset class recorded just $149 billion in exit value in the US last year, the third year in a row the figure came in below 2018 levels, according to the Q4 2024 PitchBook-NVCA Venture Monitor. While exits have been rising for five quarters, that’s largely a cleanup of smaller startups selling without fanfare.
Still, the market shows clear signs of resilience: US VC dealmaking climbed 29% year-over-year to $209 billion invested, and AI founders remain the darlings of the investment world.
There are very few companies that can spend hundreds of millions of dollars on an acquisition, so VCs need IPOs for their model to work.
The disappearance of the IPO market has sharply slowed the flow of capital back to LPs. More exit value was realized in the final six months of 2021 than in the subsequent three years.
If all US unicorns were sold at their most recent valuations, VC firms could return $2.7 trillion back to LPs. Many of these startups were overvalued, but others have continued to grow as they age in portfolios.
Unfortunately, large exits are happening at a snail’s pace.
There are more than 1,300 VC-backed companies last valued at over $500 million in the US. Just 40 of them exited last year—at that pace, it would take 30 years for the portfolios to be emptied.
The lack of liquidity has naturally slowed investment—LPs need to get money back to redeploy into new VC funds—and startups adapted to the new reality by slowing spending and fundraising.
The median time between rounds has risen sharply across stages, with most companies adding about six months to their fundraising cycle. As a result of this delay, valuations grew across all stages in 2024, but valuation growth rates remained low.
Investors have also taken a more cautious approach.
As they pull back from deals, VCs are putting a larger share of their money to work in existing portfolio companies so they can ensure IPO-bound companies are adequately funded. The share of rounds led by insiders has hit a decade-high of 9.4%.
The good news is that the post-IPO performance of prominent VC-backed companies like Reddit, Astera Labs and Rubrik was phenomenal. Reddit’s stock rose more than 200% in the nine months following its IPO.
PitchBook analysts expect unicorn IPOs to rise this year, with 12 such listings under their base case scenario.
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