With hundreds of unicorns and only about 20 tech IPOs per year, the market has a 30-year backlog. Consolidations between mid-size unicorns, like the potential Fivetran and dbt deal, are a necessary strategy for VCs to create IPO-ready companies and generate much-needed liquidity from their portfolios.
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Contrary to the prevailing wisdom of staying private as long as possible, VC Keith Rabois counsels his portfolio companies to pursue an IPO once they hit ~$50 million in predictable revenue. He believes the benefits of being public outweigh the costs much earlier than most founders think.
The traditional IPO exit is being replaced by a perpetual secondary market for elite private companies. This new paradigm provides liquidity for investors and employees without the high costs and regulatory burdens of going public. This shift fundamentally alters the venture capital lifecycle, enabling longer private holding periods.
A significant shift has occurred: private equity firms are no longer actively pursuing acquisitions of solid SaaS companies that fall short of IPO scale. This disappearance of a reliable exit path forces VCs and founders to find new strategies for liquidity and growth.
The era of scaling through low-ACV, product-led growth is fading. Today's rapid growth stories, especially in the capital-intensive AI space, are driven by massive, founder-led strategic deals for infrastructure and partnerships, reminiscent of the pre-dot-com internet era.
The most lucrative exit for a startup is often not an IPO, but an M&A deal within an oligopolistic industry. When 3-4 major players exist, they can be forced into an irrational bidding war driven by the fear of a competitor acquiring the asset, leading to outcomes that are even better than going public.
Meta's victory over the FTC's antitrust challenge is not just a legal footnote; it signals the end of a highly restrictive regulatory era. This will likely trigger a massive wave of M&A, as large tech companies are now emboldened to acquire stagnant, late-stage private "unicorns" that have been stuck without an exit path.
As top startups delay IPOs indefinitely, institutional portfolios are seeing their venture allocations morph into significant, illiquid growth equity holdings. These "private forever" companies are great businesses but create a portfolio construction problem, tying up capital that would otherwise be recycled into new venture funds.
Aggregate venture capital investment figures are misleading. The market is becoming bimodal: a handful of elite AI companies absorb a disproportionate share of capital, while the vast majority of other startups, including 900+ unicorns, face a tougher fundraising and exit environment.
The trend of companies staying private longer and raising huge late-stage rounds isn't just about VC exuberance. It's a direct consequence of a series of regulations (like Sarbanes-Oxley) that made going public extremely costly and onerous. As a result, the private capital markets evolved to fill the gap, fundamentally changing venture capital.
While merging portfolio companies is strategically sound, it's often blocked by investor incentives (e.g., diluting a 20% stake in a winner down to 8%). The process is vastly simplified when a single firm, like Andreessen Horowitz in the Fivetran/dbt case, is a major investor in both companies, which aligns incentives.