Tech Industry

Startups drop off pace for hitting big-money mark

The first half of 2016 saw fewer tech company exits than in the same period a year ago, a new report says.

As tech company exits slow, will investors have to wait to see their money?
Mark Wilson, Getty Images

Knowing when it's time to exit is a valuable life skill, including in the startup world.

During the first half of 2016, that moment for startups was on the decline, industry watcher CB Insights said Wednesday in a report.

An exit takes place, essentially, when an investor or an entrepreneur cashes out. This can happen if the startup meets certain performance goals -- or doesn't. It can also happen during a buyout or an initial public offering. Investors determine exit strategies early on. In short, exits are how they make their money.

In the first half of the year, there were more than 1,590 tech exits worldwide, down 17 percent compared with the same period a year earlier.

The report also found that there were more venture-capital-backed unicorns -- a term referring to a company valued at more than $1 billion -- exiting than being created. This could be a mildly encouraging sign as those investors get their payoff, said Marcelo Ballve, research director at CB Insights.

Otherwise, he said, the new numbers are fairly consistent with what CB Insights has seen in the past. So if you're looking for evidence of a bubble or a rebound, there's not much to see.

The report also noted a bit of a comeback in exit activity in the first half of the year compared with the last half of 2015.

"It's a sign that despite the continued pullback in deals to private VC-backed companies we've seen, there is [merger and acquisition] appetite and opportunity out there for startup exits," Ballve said.

In the first half of the year, IBM and Microsoft were the most active in acquiring other companies. Amid that activity, CB Insights singled out IBM's $100 million acquisition of Resilient Systems in February and Microsoft's $500 million acquisition of Xamarin, also in February.

Another area of interest for startup watchers is the initial public offering, or a company's debut on a stock market. In the first half of 2016, IPOs were down 41 percent from the same period last year.

"The emphasis on growth rather than profit or even revenue has meant a lot of tech companies have hesitated before going public," he said.