Is venture liquidity in stagnant waters?

The venture capital market is experiencing a significant bottleneck in the United States, with about a billion dollars of illiquid capital.

⛓️ Illiquidity: the value of mature U.S. startups awaiting exits nearly hits the $1 trillion mark through Q3 2023 according to PitchBook data. The backlog predominantly consists of companies that are in the "venture growth" stage (Series E or later), or companies over 7 years old with at least six VC funding rounds.

- SaaS: $532.4B

- AI/ML: $240.7B

- Fintech: $208.4B

🌵 Challenges: with more than 1,500 unicorns waiting for an IPO (Crunchbase data), the exit bottleneck is a critical issue for venture capitalists, impacting their key performance metrics like distribution to paid-in capital (DPI). LPs' sentiment is influenced by the backlog, affecting their future investment decisions in the venture capital space.

📉 Exits: in 2021, the market saw $157.6B in exits from venture growth-stage SaaS companies alone. The 2023 exit activities are significantly lower, with only $28.2B in IPOs, indicating a drastic slowdown compared to previous years.

In short: the current pace suggests a prolonged delay in exits for mature startups, exacerbating the capital lock-up issue for investors, and runway concerns for many founders. The ongoing stagnation in the IPO market has broader implications for the VC ecosystem and its stakeholders. Structured growth equity strategies could be a solution to the current overhang by providing founders the capital and operational assistance to continue building, giving investors access to a long-term structural opportunity, and making the startup ecosystem stronger.