No, It’s Not Taboo to Talk About Exits

No, It’s Not Taboo to Talk About Exits

With tougher economic conditions, the Swedish tech ecosystem has shifted its focus from company valuations in the latest funding round as a measure of success to highlighting actual distributions and exits. This shift is reshaping the dynamics between founders and investors, making it essential for companies to present clear exit strategies early on. Discussing exits is no longer taboo—it will become a necessity for attracting VC capital in 2025.

Following the bubble of 2021/2022, when company valuations were inflated, and capital was abundant, the economy took a sharp turn. During the boom, the main concern for many VC funds was not missing the next Klarna or Spotify. In today’s tougher market, however, a new challenge has emerged: increased pressure on venture capital funds to generate distributions for their investors, known as Limited Partners (LPs). This marks a clear shift in mentality. Previously, many VCs primarily communicated hypothetical portfolio valuations based on the latest funding rounds to their stakeholders. Today, there’s only one question everyone wants answered: how much cash VCs are actually distributing, often referred to in terms of DPI (Distributed to Paid-In Capital). To put it simply, cash is king.

To provide cash to their investors, VCs need to sell their portfolio companies at a satisfactory valuation—meaning they need exits. Media coverage has long presented funding rounds as a measure of success, which they can be—but not always, as valuations are often influenced by other factors, for better or worse. We believe the narrative is about to change, and discussions will soon focus more on actual returns.

Exits are a central part of a venture capital fund’s business model—or at least, they should be unless the fund relies on high management fees to stay afloat. (Management fees are charges VCs collect from their investors to cover operational expenses.) Yet, until six months ago, very few VCs openly discussed exits with their founders. The rationale was that entrepreneurs should focus on growing their core business and aim ambitiously toward a long-term goal like an IPO. Perhaps more importantly, the perception was that a founder who talked about selling their company lacked motivation or simply wanted to make a quick buck. In many investment circles, mentioning the word "exit" as a founder has been taboo—something that’s starting to change.

Whether you, as a founder, plan to make a personal exit or your investors gradually change, exits are an inherent part of a VC-backed company’s journey.

For many companies, an IPO has long been the ultimate dream exit. While an IPO might be the right path for Klarna, it’s far from the right path for every company. The reality is that few companies actually make it to the stock market, especially in today’s economic climate. According to a report from EY, only two IPOs occurred in Sweden in 2023. Despite being a notable increase, only nine companies have listed on Nasdaq Stockholm so far this year. Compare this with the approximately 1,000 VC-backed companies in Sweden. Additionally, several studies show that valuations for many tech companies have decreased after going public.

An IPO, therefore, isn’t the optimal exit model for every VC-backed company. What are the alternatives? According to a recent report from EIF and Invest Europe, which examined exits made by European VC firms over the past year, IPOs accounted for only 4% of all exits. The rest reflect our current market conditions: 29% of VC-backed companies went bankrupt, 28% were sold to strategic buyers such as industry partners, and 19% were sold to other venture capital firms.

So why should you, as a founder, think about exits? Taking VC capital isn’t the right model for everyone, but if you choose this path, exit opportunities are a critical factor we evaluate during due diligence. Investors have different time horizons for when we want our money back, but ultimately, the goal is always to generate a return on invested capital.

If you raise external capital, you can still choose to own and run your company for a long time, but there will come a point when early investors often want to sell their shares. An exit isn’t the endpoint for a company—it’s a recurring part of its journey. This natural shift in ownership is often a support mechanism for founders, as different owners are better suited to different stages of a company’s development. The investor best equipped to help in the early years is rarely the right partner when your company has matured. Often, your investors will lead the exit process, which is why it’s crucial to choose investors with a strong network of future buyers. It’s also important to define your exit strategy early. This not only helps streamline fundraising but also provides a clearer direction for building your company in a sustainable way.

In summary: If it was taboo to discuss exits 18 months ago, today it’s all investors talk about, think about, and work toward. Any VC who says otherwise is still considering various exit paths for your company—they’re just not telling you about it. Talking about exits isn’t taboo—it’s a necessity if you want to raise capital in 2025. And no, it doesn’t show a lack of motivation. Quite the opposite, in our opinion.

Jessica Rameau and Maria Lindholm

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