Will Startups Prefer IPOs over Unicorn Rounds by 2026?

The exit game is changing rapidly in the startup world. Everyone is discussing whether going public (IPO) will become more popular than those big unicorn funding rounds by 2026. For a while, private funding, particularly huge unicorn deals, was the most popular option for quick money and less regulation. However, with the market shifting, investors seeking a fast return on their investment, and a greater emphasis on profitability, startups are already eyeing the public markets.

This blog examines the causes of this significant shift and whether IPOs are indeed becoming the new exit strategy for startups.

What Is an IPO?

An IPO, or an upcoming IPO, is when a private company decides to sell its shares to the general public for the first time on a stock exchange. This whole thing means the company is no longer privately owned; it's now "gone public." It's a huge moment because it allows the company to raise a lot of money — maybe to fuel new growth or settle some bills. Additionally, it's a significant payday for early investors, including founders, angel investors, and even family members, who can finally cash in on their investments.

But getting an IPO done isn't a quick thing. It's a lengthy process where an investment bank (or several of them) guides the company through the process. They assist with all the preparations, file loads of paperwork and financial details with the SEC, compile a draft prospectus, and even take the company on a "roadshow" to excite investors, among many other steps.

What are Unicorn Rounds?

A unicorn round occurs when a private startup is valued at a billion dollars or more. The whole "unicorn" thing started in 2013 because, seriously, reaching that kind of success was super uncommon, like finding an actual unicorn! 

Venture capitalists and large investment firms typically fund these rounds. They're essentially gambling on the company's potential to grow exponentially and completely disrupt the market, not just on how much cash its current revenue generates.

Unicorns are typically tech companies that rapidly expand in their markets and either create new industries or disrupt existing ones. Even though every startup wants to be a unicorn, remember: they stay private. That's different from an IPO, where a company goes public on the stock market.

Why Does a Company Decide to Go Public?

1. Raise Capital

The public stock market enables companies to sell their shares to general investors, facilitating significant capital accumulation. These funds become available to support business growth initiatives, new product creation, and to reduce outstanding company debts.

2. Increase Liquidity

The process of going public lets early investors, along with founders and employees, convert their shares into cash through share sales.

3. Boost Brand Visibility

Stock exchange listing provides companies with enhanced visibility and credibility, which generates better relationships with customers, partners, and media entities.

4. Attract Top Talent

Public companies can offer stock options, making them more attractive to skilled employees.

5. Facilitate Acquisitions

Publicly traded shares can be used as a form of currency in mergers and acquisitions.

6. Set a Market Value

The process of going public creates an exact market valuation, which supports strategic planning as well as future financing opportunities.

7. Encourage Discipline

The regulatory oversight of public companies leads them to establish enhanced governance practices and financial discipline.

The Rise of the Unicorn Round

Unicorn Round is born out of an act of injecting huge capital into startups, thereby flooding them with valuations of $1 billion and above. Rounds mark a boom time of inventory optimism and rapid tech innovation, implying that the venture is high-risk but has high potential. However, increased concerns arising around these rounds revolve around valuation explosions and whether the business will be sustainable in the long run amid competition.

Why It’s Happening

● Fortification of venture capital and private equity funds.

● An increase in interest from non-traditional investors, such as hedge funds and sovereign wealth funds.

● Startups are opting to remain private for more extended periods to avoid IPO pressure.

Benefits for Startups

● Access to large amounts of capital without going public

● Greater control over company direction and ownership

● Avoidance of regulatory burdens and market volatility

The Flip Side

● Increased pressure to deliver massive growth

● Higher valuation expectations with fewer exit options

● Risk of overvaluation or delayed liquidity for early investors

Will IPOs Be Preferred Over Unicorn Rounds?

By 2026, several forces could tilt the balance in favour of IPOs:

1. A Shift in Perception

The IPO may once again be seen as the natural evolution of a successful company rather than a risky leap. With more startups demonstrating profitability or sustainable growth, public investors will be more willing to reward these companies. The stigma of IPO volatility, born from the SPAC mania and failed tech IPOs of 2021, may begin to fade.

2. The Return of Quality Over Hype

Startups are facing a new funding environment where hype alone is no longer sufficient. Unicorn rounds will still exist, but they'll be reserved for truly exceptional companies. Others will need to go public to access growth capital.

3. Tech Regulation and Transparency Demands

Governments worldwide are tightening regulations on large private tech companies. Pressure for transparency—on data privacy, AI usage, and labour practices—will encourage companies to become more transparent to build trust.

4. New IPO Models

Things are changing for IPOs. New options, such as direct listings, hybrid offerings, and even a revamped safer SPAC 2.0, are making it way easier and fairer for company founders. These tools are taking the stress out of going public for companies that didn't want to deal with the old, rigid IPO rules.

Conclusion

Get ready for a significant shift by 2026: Mature startups will likely opt for IPOs (going public) rather than prestigious 'unicorn' funding rounds. Unicorn rounds receive money immediately and keep things private, but currently, especially in India, everyone is particularly excited about public listings. The stock market is performing well, company valuations are more realistic, and everyone is finally focused on generating profits.

Also, investors (even big VCs and PEs) want a straightforward way to exit money, and IPOs provide that excellent liquidity. So, while early-stage companies will still do unicorn rounds, IPOs will be the best option for established, growing startups that want more investors and to increase their visibility.

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