The perils of staying private forever
Startups have always preferred to stay private for as long as possible, with the belief that going public comes with increased scrutiny and pressure to deliver financial results. However, recent data from Carta has challenged this narrative, showing that younger startups, especially those in the seed stage, are actually faring better in terms of fundraising prospects.
According to the data, earlier-stage startups are seeing stronger valuations and smaller declines in total capital availability, which is a welcome trend in a year that has been mostly negative for startups. On the other hand, late-stage investment has been in retreat, leading some to believe that there is a general downturn in the startup industry.
But the data also suggests that the traditional wisdom of staying private for as long as possible may no longer hold true. While there are certainly struggling early-stage startups and thriving late-stage startups, the overall trend is making a case against delaying an IPO for too long.
Parsing the data from Carta on the third quarter of 2023, it’s evident that the situation differs based on the stage of the startup. Seed-stage startups have seen only a 58% decline in capital raised, while Series A, B, and C rounds have all seen declines of 80% or more in value compared to the same period in 2021.
This data challenges the notion that startups should delay going public and instead suggests that taking an early path to an IPO might be the better option. With the traditional method of staying private for as long as possible proving to be less fruitful, it’s time for startups to reconsider their strategy and explore the benefits of going public sooner rather than later.
It’s important to note that the data from Carta is based on its own customer base, and while it provides useful and directional information, it may not provide a complete picture of the entire startup landscape. However, the trends it reveals are compelling enough to make a case for a shift in the approach to staying private versus going public.
In a year marked by economic challenges and uncertainty, startups need to carefully consider their fundraising prospects and the potential benefits of going public at an earlier stage. The traditional logic of staying private for as long as possible may no longer hold true, and startups should be open to exploring new strategies to navigate through the current startup landscape.
