"One VC told me a story about a failed IPO for one of their portfolio companies a few years ago. He told me the legal and accounting bill they got after the IPO was pulled was $3.5mm. Yup, $3.5mm for an offering that was not successful.
The second story has a happier ending. It was about an IPO of a company that happened recently. The company was able to get public. It has revenues of almost $100mm a year and is profitable. The company raised about $75mm in the offering. And it is now trading at a market cap of around $300mm. That is a lower valuation than the company would be able to get in a late stage private financing in my opinion."
I agree with Fred.
These days, almost every potential IPO is dual-tracked, meaning that M&A conversations are also entertained in parallel. The IPO filing usually brings any potential strategic M&A buyers to the table. The current window for IPOs seems to be closed for a while, but it will open again, as it always does, within the next year or two. At the same time, M&A has always been the predominant exit vehicle for all venture-backed companies.
Focusing on M&A as the primary exit strategy achieves three things: It means you have to be capital efficient, you need to be disciplined on valuations, and you need a larger percentage of your portfolio contributing to the returns of the fund. VCs should also look for corporate investors who might later want to acquire the start-up.
