For venture capital-backed startups, financial investors are increasingly gaining significance as acquirers, according to a study. From 2021 to 2023, acquisitions by private equity funds already accounted for 24% of all startup exits in Europe, as outlined by the investment bank Clipperton in an analysis. This share was only 8% from 2006 to 2010. The trend is particularly pronounced in France and the Benelux countries but is also evident in the UK, the DACH region, Southern Europe, and the US.

"After years of enthusiasm and rising valuations, the startup scene is heading towards its worst year for exit activities since 2009," note Stéphane Valorge and Antoine Ganancia, Managing Partner and Partner at Clipperton. In the US, the volume of startup exits has already decreased by 90% compared to 2022. "In this new world, founders and investors have no choice but to get creative with exit options to maximize their chances of success." Financial investors have established themselves as a convincing "third way."

In recent years, the IPO, often considered the "golden path" for many startups, has taken a back seat as an exit option. From 2021 to the first half of 2023, only 22 European startups, which had raised more than 5 million euros, chose this path. This represented just over 5% of all exits. In the period from 2006 to 2010, IPOs accounted for 17% of all exits.

According to the authors, this shift has its reasons. "IPOs are a labyrinthine process that requires a perfect storm of public interest, performance metrics, and favorable economic conditions," states the study. This is not the suitable path for every founder or at every point in time, as recent history has shown during periods of high market volatility. Even in acquisitions by strategic buyers, the outcome of deals often depends on investor sentiment, economic conditions, and geopolitical factors.

Financial investors, on the other hand, offer several advantages as startup acquirers. They provide more stability through their long-term investment approach and face fewer regulatory hurdles in the acquisition process compared to strategic buyers. The acquisition by a private equity fund is also smoother, as the existing management structure is often largely retained, which may not always be the case with strategic buyers. This allows startups to better preserve their identity and autonomy.

Private equity investors have traditionally played a subordinate role in the exit landscape, mainly due to their focus on established and profitable companies. While the clear profit orientation has not fundamentally changed – investors often use leverage – the industry has become increasingly open to collaborating with less mature companies, especially in the tech sector.

As an example, the authors cite a 2019 deal in which London-based private equity firm Bridgepoint acquired the US-French software company Kyriba. The cloud treasury and finance-focused company had generated a revenue of only $110 million the previous year but was valued at $1.2 billion at the time of acquisition. Such a move would have been unthinkable not too long ago, believe the authors of the study. In addition to Bridgepoint, US investor PSG and Sweden's Summa Equity have recently stood out as particularly active in acquiring younger companies.

From the authors' perspective, this trend is likely to accelerate in the coming years. "Private equity firms will continue to invest in companies that have not yet reached break-even but clearly demonstrate a path in that direction," concludes the study. The driving force behind this development is the industry's desire to participate in the strong growth potential of young tech companies and diversify its portfolio.