The Great Exit Debate: IPO Dreams vs. M&A Reality in the Startup World

In the high-stakes game of startup building, the endgame conversation inevitably turns to one question: IPO or M&A? In a Vertex roundtable series, our General Partners - Aviad Ariel (Israel), Noah Carr (US) and Piyush Kharbanda (SEA & India) discuss which exit paths make the most sense, especially when it comes to their respective markets.

The IPO North Star

"In every company that we back, the hope is that becomes a multibillion-dollar, 10-billion-plus type IPO outcome," says Noah Carr. This sentiment echoes across venture capital boardrooms worldwide. The IPO represents the ultimate validation—a public declaration that your company has arrived.But here's the beautiful irony: sometimes the most direct path to an IPO isn't actually aiming for one. As another investor puts it, "When you are building towards that IPO outcome, that's when good things happen." By setting your sights on building a massive, enduring company, you create the conditions where multiple positive outcomes become possible—including that coveted IPO or an attractive acquisition.

The Red Flag Moment

For Piyush, alarm bells start ringing when founders mention M&A as their target exit too early in the game. "As soon as I hear a founder starting to think about an M&A in five to seven years as an outcome, that's a red flag for me," confesses Piyush.Why? Because it suggests limited ambition or, worse, a lack of conviction in the company's long-term potential. Investors want to back founders who are building for the long haul—those who, in their words, "want to build it forever." The paradox is that this very mindset often leads to the best exits, whether through IPO or acquisition.

Regional Realities Shape Exit Strategies

The conversation also reveals fascinating regional differences in exit strategies. In India, the path typically leads to IPOs, with the journey taking around 10 years to reach public markets. The Indian ecosystem has fewer M&A opportunities, but its public markets are increasingly welcoming to growth companies."In today's market, a $100 million revenue company can go public in India," notes Piyush. "If you have that kind of scale and a decent path to profitability—you need not even be profitable—there is a very high probability of getting an IPO outcome."Contrast this with Israel, where the cybersecurity sector is "hot" precisely because of M&A activity. Early investors who align with founding teams can turn $100 million exits into significant wins for their funds. The ecosystem is built around this reality.

The Practical Dreamer's Advantage

Perhaps the most intriguing insight from Aviad is their preference for what he calls "practical dreamers"—founders who can envision building a massive company while remaining grounded enough to pivot when necessary."I look for founders that can dream, but be practical," says Aviad. This balanced approach recognizes that while shooting for the stars is admirable, sometimes the rocket needs course corrections.The all-or-nothing founder who says, "I'm going to go all the way regardless," might seem appealing at first glance. But as Aviad notes, these founders "tend to be those who are going to raise tons of money... and to be honest, in most cases, probably too risky."

When to Shift Gears

So when should a startup reconsider its IPO trajectory and look toward M&A?

When fundraising becomes challenging: "You need to shift that energy when things maybe are not on track or you don't feel like you can get to that next fundraising round."
To avoid the zero-outcome scenario: No one wants to end up "bankrupting the company" or "running out of cash."
When an opportunistic M&A presents itself: Sometimes, a deal comes along that's simply too good to pass up.
From a position of strength, not desperation: You never want to be in a situation where "someone needs to buy you and bail you out" because then "you don't have the power" in negotiations.

The Counterintuitive Truth

The most compelling insight from our General Partners might be this: the best way to achieve a successful M&A isn't to target one from the beginning. Instead, "Do the best you can, build the best company, keep the dream alive. In a sense, that's the only way to get a good M&A."

This approach—building with IPO ambitions while remaining open to M&A realities—creates a win-win scenario. Companies built to go the distance attract better valuations when acquisition offers do come in. They maintain negotiating leverage because they're not desperate for an exit. And if market conditions align, they still have that IPO option in their back pocket.

The startup journey is unpredictable by nature. Markets shift, technologies evolve, and competitive landscapes transform overnight. The founders who succeed in this environment aren't necessarily those with unwavering commitment to a specific exit strategy, but rather those who build something valuable enough that multiple exit paths become available.

As Aviad compares it to parenting: "The IPO is like telling your kid that you can do anything. It's like from day zero, you just work hard, you're gonna be an astronaut." It's an inspiring vision that motivates extraordinary effort.

But just as not every child becomes an astronaut, not every startup reaches an IPO—and that's perfectly okay.The true art of company building lies not in rigidly pursuing one exit strategy, but in creating something so valuable that the market offers you choices. Whether through the grand public spectacle of an IPO or the strategic alignment of an acquisition, the best founders keep their options open while building something that matters. In the end, that's what creates both outsized returns and lasting impact.