INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
Exit opportunities Broadly, venture capitalists continue to see a limited number of M&A exits, while hoping that IPO activity could increase in 2025. Although a widespread rebound in IPOs may take time, there is cautious optimism – amid significant market concerns – that a re-opening could offer a promising pathway for sizeable exits. Even if the number of prospective unicorn IPOs in 2025 may be limited, the VC market is expect - ed to feel much-needed relief, because these start-ups hold so much value. According to mar - ket observers, 2025 may see IPO activity from companies such as CoreWeave, Stripe (both US), Klarna, Revolut (both Europe), Shein and Contemporary Amperex Technology (both Asia). For other VC-backed start-ups, the possibility of mid-market or distressed buyouts may be a more feasible and realistic exit option. As many VC-backed companies find growth to consti - tute a currency in depreciation and start-ups are grappling with a path to profitability, bespoke deal terms and features borrowed from private equity (such as contingent consideration com - ponents or purchase price withholding mechan - ics) may be the sole viable option for many exits to occur. Amongst competitors, share-for-share transactions, often coupled with a cash compo - nent, may serve as viable M&A alternative, albeit not perceived by VC backers as an ultimate exit. As a fading bull-market exit option which is unlikely to be available to growth companies in the near term, special purpose acquisition com - panies (SPACs) are facing challenges such as disappointing performances, structural issues, and dwindling investor confidence. A substan - tial portion of the 600-plus SPACs that went public in 2021 are approaching or have already passed their business combination expiration
dates, resulting in liquidation without complet - ing a de-SPAC transaction. Since the beginning of 2021, only 467 de-SPAC transactions have
been completed. Evergreen funds
With the obvious challenges created by a lag - ging market for liquidity events, distributions to LPs and corresponding reinvestments, some have suggested that the at least 200 evergreen funds operating with an indefinite investment horizon in the VC space globally may be part of the industry’s response to a shifting investment landscape. The evergreen fund space is expected by some to grow as the industry tries to mitigate the cyclicality of private markets – albeit subject to regional divergences. The increased flexibility on the part of investment managers may, how - ever, come at the price of significant opportu - nity costs if and when treasury yields are ele - vated and assets locked in. The extent to which open-ended investment funds will contribute to addressing temporary market perturbances will therefore be contingent upon the evolution of LPs’ investment preferences, risk appetite, and patience. Expansion of the secondary market Private secondary transactions have emerged as a crucial component of the market, enabling private companies’ shareholders to sell in the absence of a liquidity event in order to gener - ate liquidity for other investment opportunities or personal financial needs. The structuring of such transactions has become more sophisticated as it involves the handling of contractual restrictions such as rights of first refusal and, more recently, involved tender offers to later-round investors. Existing secondary investment platforms can
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