“An IPO is not an exit.” Increasingly, experienced founders and exit advisors are making this claim, and for a good reason. While going public can raise capital and boost visibility, it rarely delivers the clean break entrepreneurs often imagine, nor deliver maximum value.
The first step for any founder should be to clarify their goals through an Owners Outcomes Exercise (OOE) – identifying both required and preferred outcomes. Only with those in mind can you assess the best path forward: IPO, strategic sale, or a combination. In many cases, starting with a strategic sale can maximize value before pursuing an IPO. These paths are not mutually exclusive.
Too often, business owners get IPO advice from investment bankers whose incentives are tied to taking companies public – a bit like asking a barber if you need a haircut. That’s why it’s critical to step back and consider the data. Most founders remain deeply involved in their companies long after an IPO. Lock-up periods, market pressures, and investor expectations make liquidity feel less like a final exit and more like a drawn-out transition. Meanwhile, strategic acquisitions dominate the landscape: in the U.S., roughly 80% of tech and VC-backed exits happen through acquisitions, compared to just 20% via IPOs. Even among public companies, more than 60% of delistings occur through M&A, with under 5% through voluntary IPOs.
Harvard Business School research reinforces this reality. Professor Rory McDonald’s analysis shows that VC-backed companies are six times more likely to exit via M&A than IPO. And the Private Capital Project at Harvard, co-led by Professor Victoria Ivashina, highlights how liquidity increasingly flows through strategic buyers, secondary markets, and continuation vehicles, not just public listings.
Yet many business owners still view the IPO as the ultimate goal. At STS Capital Partners, we help founders see beyond the headline appeal. IPOs aren’t inherently “wrong,” but they’re often not the right choice for every business or founder. A carefully structured strategic sale can deliver faster timelines, higher valuations, and greater control – allowing founders to define success on their own terms, whether that means maximizing value, preserving culture, or leaving a lasting impact.
In this article, we’ll explore why a strategic sale can offer a more complete, customizable, and value-maximizing exit than an IPO, giving entrepreneurs a framework to make informed decisions about their future.
Table of Contents
3. Founder Goals and Exit Vision
1. The Fundamental Difference
At their core, IPOs and strategic exits serve different purposes.
- An IPO transforms your private company into a public one, allowing you to raise capital from the market in exchange for regulatory oversight, public scrutiny, and diluted ownership.
- A strategic sale, on the other hand, involves selling your business, either fully or partially, to a company (public or private) that sees operational synergy, market expansion, or innovation potential in acquiring you.
Where IPOs focus on raising money from the market, strategic buyers focus on long-term value creation through alignment.
2. Timing and Process
An IPO typically takes 12 to 18 months to prepare. This includes preparing audited financials, building an investor relations team, navigating regulatory filings, and conducting investor roadshows. Even after a successful IPO, founders often face a lock-up period of 6 months or more before they can sell shares, introducing risk in case of market downturns.
In contrast, selling to a strategic buyer can be completed in 6 to 12 months, depending on their complexity. The process is usually confidential, allowing the owner to maintain focus on the business while negotiating behind closed doors. More importantly, terms such as valuation, post-sale roles, and integration timelines are highly negotiable and tailored to the seller’s goals. Because an IPO is irreversible, many owners benefit from exploring a strategic sale first – securing value and liquidity – before deciding if going public is still the right next step.
What’s really important is:
- The Lock-Up Trap
When a company goes public, founders typically face a lock-up period of at least six months, sometimes stretching up to two years, during which they can’t sell a single share. Meanwhile, private equity and venture capital investors often negotiate the right to sell sooner. The result? The people who built the company are the last to see any liquidity. - The Price Drop Problem
Even when the lock-up ends, you can only sell if the stock price is favorable. In reality, a large percentage of IPO stocks fall after listing, sometimes before founders ever get the chance to sell. Even if the price jumps immediately after the IPO, founders often can’t sell without signaling the market, which can trigger an “overhang” effect where increased supply pushes the price down. As a result, they wait, hoping for the peak, but risk watching it slip away. The stock can stay flat or decline for months. The bottom line: an IPO is rarely a true liquidity event for the founder – it’s a long wait followed by a risky exit.
Many assume strong demand guarantees an IPO’s opening trading price will exceed its offer price. But Nasdaq reports that while the average first-day gain is 18.4%, 31% of IPOs actually fall on day one, and nearly 50% fall on the second day of trading versus their first-day close.
The IPO process carries significant market risks. Unfavorable macroeconomic shifts, regulatory scrutiny, or poor timing can derail a public debut. Post-IPO, companies face activist investors, fluctuating share prices, and reputational risk. Valuation is unpredictable and often influenced by short-term speculation. First-day “IPO pops” benefit institutional investors and early backers, while founders may receive less-than-optimal value with delayed liquidity.
Strategic sales mitigate much of this risk. Deals are driven by strategic alignment rather than market sentiment, and valuation depends on your fit with the acquirer’s goals, not weekly headlines. Investment banks don’t need to “test the waters” – the buyer already knows why they want your business.
Example: LinkedIn & Microsoft (2016)
In 2016, LinkedIn’s stock dropped 43% in a single day after weak guidance erased nearly $11 billion in value. Months later, Microsoft acquired LinkedIn for $26.2 billion in cash – a 50% premium over the pre-announcement trading price. The strategic sale insulated the deal from ongoing market volatility, unlike an IPO reliant on market recovery.
Strategic buyers often pay 20–40% above market value, reflecting the control, synergies, and growth opportunities your business can unlock for them. In contrast, IPO valuations swing with market moods, analyst forecasts, and pricing games – leaving founders exposed, while strategic sales anchor value in tangible, long-term strategic worth.
3. Founder Goals and Exit Vision
No two founders have the same post-exit aspirations. Some want to retire. Others want to reinvest and build something new. Many want to protect their team and legacy. Strategic exits often give founders more control over the outcome – including who acquires them, how the team is treated, and what happens next. Importantly, a strategic buyer can be either a private or a public company, meaning you can still sell to a publicly traded business without going through the IPO process yourself.
As outlined at the start of this article, STS Capital Partners begins every engagement with the Owners Outcomes Exercise to ensure alignment on the founder’s required and preferred outcomes. Doing so allows founders to choose the exit path that best supports their objectives.
4. Strategic Alternatives
Even a strong IPO debut doesn’t guarantee liquidity. Lock-up periods and market volatility can prevent selling at peak prices, leaving founders exposed to declines. One alternative is selling to a publicly traded strategic partner, which provides the stability, resources, and growth opportunities of the public markets without the direct risks of an IPO.
At STS Capital Partners, we specialize in guiding founders through Extraordinary Exits™ by connecting them with strategic buyers and structuring deals that maximize value. This approach allows founders to achieve liquidity, reinvest proceeds, and leave a lasting legacy – all on their terms.
5. Final Thoughts
An IPO comes with cost, rigidity, and risk. Strategic sales, while quieter, can deliver greater value, vision alignment, and personal freedom.
“Having recently guided the sale of a privately owned business to a public strategic buyer, I’ve seen firsthand how preparing for both an IPO and a strategic sale can directly improve business performance, create competitive advantages, while maximizing valuation. In this case, the buyer gained access to a critical business model and process they needed, generating powerful synergies and long-term growth opportunities. The founder, rather than going public, sold to a public company – securing both liquidity and stock ownership. This allowed him not only to participate in the upside of the buyer’s performance but also to influence the outcome directly through a leadership role. The structure provided the freedom to achieve liquidity while still being part of the power the transaction created.” – Kempten Schwab, STS Managing Director.
For business owners considering their exit options, now is the time to explore both paths. If your goal is not just to go public, but to go beyond, Selling to Strategics may be your path to an Extraordinary Exit.
