Investing

More Than Half of Startups Looking to Be Acquired

Paul Ausick

Published: March 10, 2016 10:55 am

Last Updated: January 13, 2020 12:07 pm

The long-term exit strategy for 56% of U.S. technology and life sciences startups is to be acquired. Only 17% of startups are looking at an initial public offering (IPO), and 19% prefer to remain private.

The data were included in the U.S. startup outlook for 2016 released Thursday by Silicon Valley Bank. The bank received 929 responses to its seventh annual survey, with 68% coming from tech companies, 15% from health care companies and 17% from firms in other businesses. About 650 responses came from U.S. companies. More than a third (35%) are pre-revenue firms, 50% report up to $25 million in revenue and 15% report revenue of more than $25 million.

Bank CEO Greg Becker said:

Valuations were high, now they are coming back to earth. Growth at any cost is being replaced with a focus on profitability. Companies were priced for perfection, and we may see some stumble or even go out of business. … In 2016, access to capital will get harder. But it’s not supposed to be easy, and there will be opportunities for good companies with good ideas. That’s healthy.

Just five IPOs have gone out so far in 2016, and the outlook for more is dim. In the first quarter of 2015, there were 34 IPOs, according to IPO ETF manager Renaissance Capital.

Here are a few highlights from the Silicon Valley Bank report:

• 42% of startups said that venture capital was their next expected source of funding.
• 82%, split nearly evenly, think there will be more or the same number of acquisitions as in 2015.
• 50% say that access to talent is their number one policy issue.
• 23% report that U.S. regulations are prompting them to move offshore.

Only 64% of respondents say that business conditions will be better in 2016 that they were last year. That is a sharp drop from 77% in 2015 and 82% in 2014.