Tech Startups Are Being Bought By Private Equity Firms


Tech startups are pursuing acquisition by a private equity firm as a popular and lucrative exit strategy.

Private equity was not always a popular exit strategy for tech startups. Instead, startups would focus on going public or being bought out by another company. However, over the past twenty years there has been an increasing number of startups that are either bought by a private equity firm or a company that is backed by a private equity firm. These exit strategies are pursued by the venture capitalists who back tech startups.

In 2019, 91% of acquired startups were either bought by another company or acquired by a private equity firm.

"The vast majority of exits that all of us are thinking about are things that are not the public markets," said Sean Foote, a professor at the Haas School of Business at the University of California, Berkeley.

Additionally, in 2003, buyouts from private equity firms made up only 5% of the total startup exits and that rate has increased to 20% of all exits in 2019.

Private equity acquisitions are less costly for startups. If a startup decides to go public, they face higher regulatory costs. Additionally, private equity firms have been accruing more capital in recent years. Between 2010 and 2020, the amount of capital available to private equity firms increased from $59.2 billion to $301.3 billion.

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Economics, Finance and Investing