Mastering the exit strategy: Aligning valuations with IPO success

Over the past year, we’ve seen an uptick in US IPOs. Different businesses, with different financial profiles, increasingly have access to the public markets—so there’s been cautious optimism around IPOs.

With more IPOs of high-growth companies in 2025 than in the past three years and the solid trading performance of recently public companies, raising capital in the public markets is becoming increasingly attractive to private companies.

However, macroeconomic volatility continues to affect both investors and late-stage private companies. Among investors, this volatility has resulted in a demand for greater certainty that a business and its financial performance are de-risked, whether through profitability, long-term contracts, or a valuation discount to the company’s public market peers. Without the ability to predict how a company will perform after its IPO, investors are seeking a cushion to insulate stock performance from the macro environment and business-execution risk.

Private companies are navigating today’s market realities in several ways. Many late-stage companies with proven growth potential have attracted significant amounts of capital in secondary rounds. This is particularly true among AI-native businesses. By combining these raises with liquidity events, many of these companies are easing the pressure to turn their equity into cash. As a result, they often have the flexibility to enter the public markets on their own timelines.

The number one shift in the past decade is the increased amount of capital available to in-demand late-stage private companies¹. This has elevated secondaries from an occasional strategy to an always-on part of the liquidity landscape.

At the same time, the success of these large capital raises is at least partly due to the strength of demand from institutional investors that have flexibility in their portfolios to own both private and public companies. Today’s investors are open to buying in the private market as an entry point ahead of a future IPO, where early investment gives them a pathway toward greater ownership. That said, late-stage private companies are under greater scrutiny than in the past. Savvy investors now hold companies accountable and expect clear insights into the financial returns they plan to deliver.

Recently, the companies that have been the most successful in maximizing value at the time of their IPO have taken steps to prepare their business and balance sheet. This includes financial readiness, such as preparing audited financial statements and optimizing growth instead of profitability, as well as crafting a compelling investor story that refines key performance indicators, and governance. Equally important is engaging and educating key public market investors in advance so that they have time to understand the business and get to know the management team prior to the IPO launch.

It’s impossible to speculate about the future without acknowledging the macro uncertainty that overlays all business fundamentals outside of a company’s control. Shifts in these tides will clearly affect outlooks. Yet it’s fair to say that there is a growing cohort of companies for whom IPOs are once again becoming more attractive.

Private companies continue to focus on enhancing their capital efficiency, operational resiliency, and productivity. That means the quality of the companies coming to the public markets will likely be stronger moving forward.

Layered into this is the trajectory of AI-native companies. Although many are barely a few years old, some may soon be considered viable IPO candidates, and right now, valuations remain high for businesses with a significant AI narrative. To date, a lot of the foundational technology breakthroughs have taken place in large-cap public companies, so public market investors haven’t had a significant opportunity to buy into AI-related businesses at an early stage. Between the tremendous growth opportunity, the fear of missing out, and the fact that the winners aren’t yet determined, investors appear more forward leaning on valuations of AI-driven companies.

Either way, it’s worth remembering that every company has unique goals, mandating creative approaches when structuring an IPO. For instance, in cases where there is a gap between private and public company valuations, businesses going public may face a down round, marking a retreat in valuation from their prior financing round. While down rounds aren’t preventing IPOs, they may cause some private companies to hesitate. On the flip side, valuations may be on the rise for companies with compelling growth stories.

Those companies contemplating interesting transitions—such as acquisitions, new hires, or new product launches—may also find it easier to accomplish those goals in the private market. There is no one-size-fits-all formula for business growth, requiring a considered approach to either staying private longer or pursuing an IPO.