Road to Next

Exit environment: Flowing but liquidity focused

Exit values point to stronger dealmaking on the horizon but will likely be a slow ramp-up. The ratio of expansion-stage investments to exits remains elevated, suggesting that some IPO bottlenecks and investor liquidity concerns persist. If inflation continues to cool in H2, it may ease some concerns around growth prospects, potentially buoying a recovery.

Q3 2024

The unique junction of factors over the last 18 months has heightened the private markets’ focus on the liquidity squeeze and how to recover stronger dealmaking.

Markets pricing in interest rate cuts before year's end point to economic cooling, and public market rallies in H1 were a good sign for companies ready for listing.

Most companies feel the need for alternative liquidity options. More inside and down rounds are closing as expansion-stage companies seek efficient financing.

Software-as-a-service (SaaS) and life sciences drove most of expansion-stage exit value in H1, and artificial intelligence (AI) keeps its hold on several industries.

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Heather Gates, Audit & Assurance Private Growth leader

There is a stronger sentiment that 2024 marks the ’bottoming out’ stage of venture dealmaking. It is still early in the recovery stage, but things are looking better.

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Sector

Regional

Spotlight

Health tech, AI & oncology see escalated exit values

We’re seeing significant exit activity in both tech and life sciences. Software platforms with AI integrations still dominate expansion-stage dealmaking and exits—reaching 67 so far this year, valued at $13.7 billion. Despite expectations of a future pullback, high valuations in the AI space persist. Additionally, health tech saw exit values triple to $8 billion, driven by medical devices, lab solutions, and biotech IPOs. Oncology also had significant growth with total exit value doubling, swayed by a major $1.5 billion acquisition. Expansion-stage IPOs included drug discovery, software, and semiconductor companies, benefitting from AI’s rapid integration across industries.

Coastal hubs still reign but exit activity is expanding beyond

The Bay Area and New York City still lead expansion-stage exit activity, but their share of total exit value has waned. Denver and Dallas-Fort Worth represent two of the top 10 regions for exit count so far in 2024. And eight more noncoastal regions rank in the top 20, showing several midsize markets attracting top talent. To date, exits over $1 billion closed outside traditional tech hubs. And recent fundraising for VC and PE funds is concentrated across the most experienced and entrenched firms. Coupled with demand for new capital, expansion-stage companies, and their talent may need to seek funding from existing California and New York epicenters ahead.

Expansion-stage companies rely on inside and down rounds

The exit outlook is looking up, yet many expansion-stage companies are relying more on existing investors over seeking new ones. Inside rounds—deals where existing investors fund at least half of the capital—have surged, exceeding $35 billion in H1. This suggests a preference for quick capital infusion in a challenging fundraising environment and highlights more cautious investment strategies. With down rounds accounting for over 20 percent of early 2024 VC expansion-stage deals, companies are adjusting to lower valuations and a tougher market. They’re also exploring alternatives such as debt financing while navigating liquidity challenges and recalibrating expectations to secure capital.

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