Deloitte's first annual survey of US startups found big changes in 2020 in terms of their exit plans, with far higher numbers choosing initial public offerings (IPOs) over other exit strategies such as mergers.
About one in four startups reported they are considering an IPO -- Deloitte called this number "shocking" because the normal rate is typically less than one in ten. Also, there has been a big rise in what is sometimes referred to as a "reverse IPO" in which Special Purpose Acquisition Corporations (SPAC) acquire startups.
Startup exits are critical to venture capital funding for further rounds of startups developing innovative technologies and services.
Usually, startups need to show around $100 million in annual revenue with predictable quarterly estimates before they are considered for an IPO in the US. Stock market rise could open the door to younger startups with less revenues.
The Deloitte Startup Benchmarking Survey consists of responses by 236 senior executives at startups with private equity investments. About four out of five have fewer than 500 staff. The data was collected in the last two weeks of July 2020.
Surprisingly, the survey found few startups concerned about cybersecurity even though the number of incidents has been increasing. However, startups acquiring other startups are very much concerned about fraud risks and 80% will perform risk assessments.
With most startupsthere's no need to provide workplace benefits such as free food, drinks, haircuts, etc. The survey found that startups have been pulling back on options and other incentives, which indicates concerns over cash are taking precedence over attracting and retaining talent.
Deloitte says that the annual survey will help other startups see where they are in their journey to an exit compared with startups in their industry and at different levels of growth.