The initial public offering market is frozen, but entrepreneurs say they don’t want to go public anyway.
Only 16 percent of entrepreneurs say they want to go public, according to an inaugural survey of innovation by Techstars, a pre-seed investor that has funded 3,400 start-ups.
But more than one-third, or 36 percent, of entrepreneurs want to be purchased by a larger technology company and more than one quarter, or 28 percent, say they plan to stay independent in the long-term, according to the report.
Maëlle Gavet, CEO of Techstars, said the lack of interest in an IPO is a relatively new phenomenon. “It was widely accepted that when you were building a start-up, you may end up being acquired on your way to an IPO, but the idea was that an IPO [would be] the primary goal,” she told II.
Growth equity also is new to the start-up world. Seven percent of entrepreneurs want to be acquired by private equity, according to the survey.
Techstars based the result on a survey of over 1,600 venture capital professionals, with the majority being founders or co-founders of start-up companies. Most respondents are based in North America and the Asia-Pacific region.
The survey was conducted between December 2022 and January 2023, a period when the IPO market remained largely inactive and valuations of private companies were plunging. IPO value dropped sharply from $155.8 billion in 2021 to $8.6 billion in 2022, according to the annual IPO report by Ernst & Young. The exit environment continued to deteriorate this year. Global IPOs raised a total of $21.5 billion in the first quarter, down 61 percent from the same period in 2022, according to EY. The ApeVue 50 Benchmark Index, which tracks the valuations of late-stage private companies, was down 38 percent year-over-year in 2022. The exit environment continues to deteriorate in 2023.
Start-up companies have been rethinking their strategic priorities in response to the worsening exit environment. About one-third of entrepreneurs plan to focus on improving their products and expanding their customer base in the short term, according to the Techstars report. Entrepreneurs are putting off thinking about raising money or being able to turn their companies into profit-makers. Only 19 percent of entrepreneurs said fundraising was a short-term goal.
Founders are focused on growing revenue. “The reason to do that is because in an environment where fundraising is a lot harder, if you show a more sustainable growth rate…it will give you more time until you need to raise [the next round] and make you more attractive to investors,” said Gavet.
“We spend less time at the moment thinking about exit scenarios,” Stephen Phillips, CEO of the the music start-up Splash, told Techstars. “We’re being proactive about managing our capital and costs in an effort to remain independent and as focused on our mission as possible (rather than raising money or contemplating exit scenarios.)”
