Exits: M&A, IPO & Secondary
How VC-backed companies return capital to investors
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M&A (Mergers & Acquisitions)
The most common exit path — roughly 90% of VC exits are acquisitions. A larger company buys the startup for its technology, team, customers, or market position. Acquisition prices range from 'acqui-hires' (essentially buying the team for $1-5M) to mega-deals ($1B+). The math: if a VC invested $5M for 20% ownership and the company sells for $100M, the VC receives $20M — a 4x return.
IPO (Initial Public Offering)
An IPO is when a company lists its shares on a public stock exchange. It's the most lucrative exit path but also the rarest — fewer than 1% of VC-backed companies go public. IPOs require the company to meet exchange listing requirements, file with the SEC, and undergo extensive audits. Post-IPO, investors face a lock-up period (typically 180 days) before they can sell shares.
Secondary Sales
Secondary sales allow shareholders to sell their stake to another private buyer before a company exits. This has become increasingly common as companies stay private longer. Founders sell to get partial liquidity, early employees sell to diversify, and early-stage investors sell to lock in returns. Secondary marketplaces like Forge and EquityZen facilitate these transactions.
Return Math
VC returns are measured in multiples (MOIC — Multiple on Invested Capital) and IRR (Internal Rate of Return). A 3x return in 3 years is very different from a 3x return in 10 years. Top-quartile VC funds target 3x net returns to LPs (after fees and carry). DPI (Distributions to Paid-In) measures actual cash returned to LPs, while TVPI (Total Value to Paid-In) includes unrealized gains — paper markups that haven't been cashed out yet.