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When design software company Figma revealed its plans for a stock market listing this week, it felt like a throwback to an earlier era in the tech financing markets.
Chief executive Dylan Field listed the reasons why an initial public offering would be good for his company, which turned to the stock market after an acquisition by larger rival Adobe was blocked by regulators. It was the kind of paean to going public that is rarely heard these days from tech company founders, most of whom have preferred to stay private.
Listing on the New York Stock Exchange, Field said, was a matter of “good corporate hygiene, brand awareness, liquidity, stronger currency and access to capital markets”, as well as giving Figma’s customers a chance to share in the upside.
Field’s accolade to Wall Street will have warmed the hearts of investment bankers hoping to see a recent uptick in IPOs turn into a steady flow, as well as investors in venture capital firms who have been waiting a long time to cash in on the long venture boom. It comes at a time when “exits” — events where venture investments are realised — are starting to pick up.
Through public listings, acquisitions and buyouts, exits by venture reached $67.7bn in the second quarter of this year. That was a big jump from $38.5bn a year before and the strongest showing since the end of 2021.
This has not come a moment too soon. A dearth of exits has been the venture capital industry’s dirty secret, even as artificial intelligence fuels a new investment boom. Since interest rates started to climb in 2021, putting an end to a brief IPO boom, the value of exits has hit a new nadir.
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It would be extremely premature, however, to read too much into this year’s rebound. For a start, it comes from an extremely low level. After peaking at $917bn in 2021, the value of exits fell to only $151bn in 2024.
According to hedge fund Coatue, exits fell to only 40 per cent of the value of new VC investments last year — a measure of just how little the industry was returning to its backers, relative to how much capital it is putting to work. With this year’s partial recovery, they have rebounded to roughly match new investments. But a healthy venture investing market, bringing steady returns for investors, would require the value of exits to reach twice the level of new investments, according to Coatue.
The amounts being returned to investors are also tiny relative to the huge value tied up in illiquid private businesses. Estimates of the aggregate value of private unicorns — companies worth more than $1bn — range from $3.5tn-$6tn.
The large amounts of capital available in the private market continue to give many tech companies little reason to go public. When OpenAI raised $40bn in March, it didn’t just set a new record for the largest private fundraising: it also exceeded the $29.4bn raised in the biggest stock listing of all time, Saudi Aramco’s 2019 IPO.
After the dearth of exits in the last three years, however, investors are ready to grab at any straws of comfort. The strong performance of a handful of recent IPOs, led by cryptocurrency company Circle, have fed hopes of more new listings — though few notable private tech companies are thought to be ready to go public.
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Another encouraging sign has been the willingness of some companies that raised money at the peak of the 2021 venture boom to bite the bullet and accept that they are worth far less today. When online bank Chime went public last month, it priced its shares at $27 each, a large discount to the $69 a share in its last private round in 2021. As more “down-round IPOs” like this occur, venture investors will hope that the stigma normally associated with admitting to a tumbling valuation will pass.
Meanwhile, some venture capital firms have been trying to co-opt private equity techniques to fuel more deals. As the Financial Times reported this week, several firms have been working on corporate “roll-ups” — buying a number of companies in the same industry, then combining them into a single, larger business and cutting overheads. With less leverage and a friendly venture capital face, the backers hope to persuade tech founders that this represents a solid strategic outcome, rather than the kind of short-term financial engineering associated with private equity.
All of this should bring a steady, if slow, recovery in the real returns to investors. But even as the AI investment boom roars, the venture industry is still heavily reliant on profits that only exist on paper.
richard.waters@ft.com