Is Private Equity the new IPO?  Why PE is becoming a vital exit path for Europe’s VC-backed startups

2024 marked a modest recovery in VC-backed exits across Europe. Total exit value rose to €20.9 billion - a 23.7% increase from 2023, even after excluding a major outlier - the €12.7B Puig IPO. Exit count also ticked up slightly, although both metrics remain far below the frothy highs of 2021, when exit value topped €150 billion.

Most of the 2024 rebound came in Q2 and Q3, driven by a handful of mega-exits in Life Sciences and AI (e.g., EyeBio, Rezolve AI). However, the recovery was highly concentrated, with deals above €500 million accounting for nearly 80% of total exit value.

More significantly, Pitchbook data shows the composition of exits is shifting:

• Public listings made up 43.5% of exit value (largely due to the Puig deal), but the number of IPOs was still down from prior years
• Private Equity buyouts are gaining share, increasingly edging out both IPOs and strategic M&A

The message from this latest data is simple: The small but significant role of the PE buyout exit pathway can no longer be ignored.

To loosely borrow a wonderful framing from Mitchell Green of Private Equity firm Lead Edge Capital; while the front door (IPO) may be open for a few, and the side door (M&A) is creaking, more founders are discovering that the back door - Private Equity - is wide open.

What is Private Equity - and where does it sit?

To understand why PE is becoming such a critical player in tech exits, a quick reminder of where it fits in the broader capital stack:

• Private Equity vs. Venture Capital: VC funds high-risk, high-growth early-stage businesses with the promise of outlier returns. PE typically enters later, buying more mature, often profitable companies, aiming for more modest 2–4x returns over a 3–7 year horizon.
• Control vs. growth equity:
  • Buyout PE takes controlling stakes, sometimes bringing in new leadership that is better equipped for the next phase of the journey.
  • Growth PE takes minority positions to support further scaling without control.
• An alternative to IPO: PE sits between late-stage venture and the public markets, offering liquidity and scale-up capital without the complexity of a listing.
• A growing force: With dry powder exceeding £2T globally and a rising number of European-focused mid-market funds, PE is more present than ever in the venture-backed ecosystem. By comparison, global VC dry powder is estimated at around £600–700B. This means PE has over three times the capital waiting to be deployed - and VC-backed companies represent just one small slice of the deals PE funds are pursuing.

Think of PE as the "grown-up" buyer for companies that have matured beyond VC but aren’t built for public markets.

What PE looks for in a company

PE firms may have historically chased software, but the reality in Europe today is broader. What they really want are high-quality, cash-efficient, and sustainable tech businesses, from SaaS to DeepTech industrial.

Economic profile (ideal)

• Revenue between €10M and €70M (sweet spot often €30M+)
• 15–40% YoY growth
• Gross margins of 60–70%+
• High gross dollar retention (90%+)
• EBITDA-positive or a clear 12–18 month path to it
• 'Rule of 40' in sight (growth rate + EBITDA margin)
• Capital-efficient: revenue exceeds historical burn

Sectoral fit examples: not just SaaS

• Vertical SaaS: Legal, logistics, accounting, GovTech
• Industrial Tech: Automation, embedded systems, smart sensors
• Manufacturing Tech: Robotics, digitised production tools
• CleanTech / ClimateTech: Grid optimisation, energy storage, HVAC
• HealthTech / Diagnostics: Devices with recurring revenue or software overlays
• Defence & Security Tech: Dual-use infrastructure with long sales cycles

PE buyers especially favour retentive, regulated, or sticky markets - whether that’s a SaaS tool or a hardware-enabled monitoring platform.

The inflection point: when PE becomes the likely exit

There’s a quiet moment when a startup’s profile begins to shift from future IPO candidate to PE target:

• Growth has slowed to 20–30% and can’t easily be reaccelerated
• TAM looks more niche than first assumed
• You've raised significant VC, but an IPO still looks years away
• Corporate acquirers are dragging their feet
• Investors want liquidity, and a PE exit is increasingly attractive.

Because this shift can often be gradual, the realisation doesn't always dawn quickly. Experienced founders tend to read the signs early and begin to course-correct toward a PE-compatible profile. In contrast, less experienced founders may continue pushing in vain on the VC track for a sudden growth spurt that never comes, delaying tough decisions and missing the optimal window for PE engagement.

This is a window that many don't even see - but it's there. Mitchell Green of Lead Edge Capital sums up the PE mindset: “We’re not buying the next Datadog. We’re buying businesses we can grow from €30M to €80M and sell to another PE or strategic.”

The PE exit playbook

PE deals typically follow one of two patterns:

• Growth PE: 20–40% minority stake, helping to fund expansion, team upgrades, and acquisition roll-ups.
• Control buyout: Majority stake (often 60–80%) purchased, sometimes replacing founders or executives. Exit to a larger PE or strategic in 3–5 years.

In control buyouts, liquidity is created through the sale of a majority stake. In Growth PE, partial liquidity is often achieved through secondary share sales to the new investor, giving early shareholders an opportunity to realise gains while the company continues to scale.

What many founders may not appreciate is the sheer scale of the Private Equity market. Globally, PE manages over £7 trillion in assets under management - an order of magnitude larger than the Venture Capital industry. This gives PE firms the firepower and breadth to pursue a wider range of deals and hold investments through multiple ownership cycles.

Moreover, VC-backed companies represent just a small slice of overall PE activity. Many PE targets are profitable, bootstrapped businesses that never raised institutional VC. That includes thousands of founder-led companies in vertical SaaS, industrial automation, and traditional services tech - making PE a relevant buyer not just for startups at the end of a VC journey, but also for those that took a different path altogether.

Is PE a threat or a lifeline?

PE can feel like a forced compromise for VCs chasing 10x returns. But for many funds, especially those nursing 2021-vintage portfolios, it's one of the only paths to making any returns i.e. DPI.

Some VCs are now reshaping their portfolios with PE in mind. Others still hold out for IPOs that may never come. But with the market bifurcating, the middle tier - good-but-not-great companies - need a real home.

The core idea here is that the IPO market is only functional for the very best but inaccessible for many others, leaving Private Equity as a primary acquisition route if the prospects for M&A are slim.

What this means for founders:

• Your startup doesn’t need to be a unicorn: A €40M ARR company with 20% EBITDA and 90% retention could sell for 6x revenue - that’s a brilliant outcome.
• Don’t cling to the IPO dream: Most startups will never get there. Shape your business for optionality.
• Engage with PE early: Start talking to relevant funds by the time you hit €20M in revenue.
• Prepare your board: If IPO or M&A isn’t realistic, be proactive in shaping the PE conversation. Don’t wait for a flat round or a board crisis.

Closing thought

If your business is maturing, profitable, and steady rather than explosive, don’t see that as a failure. Increasingly, that’s exactly the shape that buyers want - just not the buyers you might have expected.

The PE exit is no longer plan B. For many founders, it might be the smartest play in the book.

Let's talk.