Acquisitions remain one of the most common exit paths, especially for earlier-stage companies. Larger tech giants are always on the lookout for innovative new technologies and talent that can accelerate their own roadmaps. Once a startup reaches a certain scale or achieves key technical milestones, they become acquisition targets.
IPOs have also been increasingly popular in recent years as public markets warm to technology. However, IPOs generally require a longer timeframe – 3-5 years is typical to demonstrate consistent growth and profitability. Going public also means ongoing public disclosure requirements.
Special purpose acquisition companies (SPACs) have emerged as an alternative to the traditional IPO. In a SPAC deal, a public shell company acquires the private startup, allowing it to obtain public listing more quickly. However, SPAC mergers also come with risks and uncertainty.
Other options include strategic partnerships where technology or IP is licensed rather than the whole company being acquired. Management buyouts may let founders cash out earlier if a larger exit isn’t imminent. In the worst cases, bankruptcy or shutting down remains an “exit” of last resort.
The optimal strategy depends on each startup’s specific situation, goals and investors.
Having alternative exit pathways in mind from the beginning can help navigate the business through different market conditions as well.
Here is a list of ideas that RFC has contributed to:
- Acquisitions by larger companies in related sectors often make strategic sense once a startup has demonstrated proof of concept for their technology. This de-risks further development costs for the acquirer. In healthcare, we’ve seen deals like Johnson & Johnson acquiring Momenta Pharmaceuticals, which was developing novel AI tools for disease screening.
- IPOs are well-suited for companies that have progressed beyond the earliest stages of R&D and are generating significant customer revenue. This provides access to public capital markets to further scale commercial operations. One medical AI company that went public relatively early is Butterfly Network, which has created portable ultrasound devices and last year raised $300M in its IPO.
- Licensing agreements can be an attractive path if a startup wants to focus on its core technology development rather than long-term operations. This allows the IP and research to be leveraged more broadly. In healthcare, Brainomix signed deals licensing its stroke detection algorithms to larger hospital networks to aid diagnosis.
There are several potential exit strategies for AI and technology startups in the healthcare field as they progress from early research to commercialization efforts. Acquisitions by larger companies, IPOs, and licensing deals all represent common paths, allowing startups to realize value from their innovations while larger entities gain access to promising new technologies.
The optimal approach will depend on each individual company’s specific goals, investors and stage of development. With advance planning and flexibility to consider different options as conditions change, startups can help position themselves to successfully navigate changing market dynamics and achieve an attractive exit.