In the old days, if you’d told me you’d invested in a startup, I’d have asked the obvious question:
“When do you think it’ll IPO?”
That was the dream. The startup would grow, go public, and your small investment could turn into a big sum.
But it’s a different story nowadays…
Today, an IPO isn’t the only way for a startup to deliver a payday to its early investors. In fact, it may not even be the most important one.
For investors like you, this has big implications.
Meet the New Finish Line
Last week, I told you about Kevin Durant’s investment in Hugging Face.
Back in 2017, Durant invested $100,000 in the tiny AI startup. He later invested another $150,000. Then Nvidia came knocking.
Instead of waiting for Hugging Face to go public, Nvidia agreed to buy it for $12.9 billion — generating an estimated $60 million profit for Durant.
Here’s what’s interesting. Hugging Face was already doing everything a company might do before an IPO. It had reached ~$150 million in annualized revenue and attracted 18 million developers to its platform.
But it never needed to ring the Nasdaq bell. Nvidia simply wrote a check.
And according to a recent report from PitchBook, this path is increasingly becoming the new normal. PitchBook says the IPO is being “demoted” — from the expected destination for a successful startup, to just one option among many.
The $50 Million Problem
This matters, because there are only two ways startup investors make money:
- The startup they invested in gets acquired.
- The startup goes public.
I’ve written about this before, but the numbers are worth repeating.
In 2024, there were roughly 225 U.S. IPOs. Meanwhile, there were about 8,000 acquisitions that year. In other words, acquisitions outnumbered IPOs by more than 30 to 1.
But there’s an important wrinkle here. Despite the occasional mega-deal that makes headlines — Facebook buying WhatsApp for $19 billion, Nvidia buying Hugging Face for $12.9 billion — most startup acquisitions are much smaller.
Historically, the majority have taken place below $50 million.
That’s why I’ve argued that valuation is one of the most important things to look at when making an early-stage investment.
If you buy a startup at a $5 million valuation, a $50 million acquisition can potentially deliver a 10X return.
But if you buy that same company at a $20 million valuation? That same $50 million acquisition doesn't look nearly as exciting.
You’re paying too much to begin with.
Wall Street Isn't the Only Buyer Anymore
There’s a bigger reason this shift is happening: Public investors and corporate buyers are looking for different things.
A public-market investor might ask, “How much revenue will this company generate next quarter?”
A strategic acquirer asks a different question: “How much would it cost us to build this ourselves?”
That distinction can be enormously valuable for startup investors. Consider Hugging Face.
Nvidia could have tried to build its own platform for distributing AI models. But it couldn’t instantly manufacture a community of 18 million developers.
So instead, it bought the community — along with the technology, talent, and ecosystem surrounding it.
That’s the beauty of M&A. A giant company doesn't necessarily care what Wall Street thinks your startup is worth. It cares what your startup is worth to them.
And sometimes, that number can be enormous.
The Lesson for Startup Investors
There’s an important lesson here.
Don’t invest in a startup simply because you think it’s going to IPO. Invest because you think the company can become extraordinarily valuable.
Then let the market decide whether its ultimate buyer is the public markets, or a larger company.
And most importantly, keep a close eye on the valuation. One of the best ways to stack the odds in your favor is to avoid overpaying. The lower your entry valuation, the more potential exit opportunities you have.
A $5 million startup doesn't need to become the next Nvidia to generate a 10X return. It just needs to become a $50 million company.
And these days, there are plenty of potential buyers willing to write that check.
The IPO isn't dead. It's just no longer the finish line.
For startup investors, that's great news. Because it means there are more roads to the same destination: a big payday.
Happy Investing
