Exit strategies are a crucial consideration for biotech startup founders, venture capital (VC) investors, and life sciences executives. In venture capital, an “exit” refers to how investors realize returns—typically through an initial public offering (IPO) or an acquisition. Given the long development timelines and high risks in life sciences (only about 10% of drugs entering Phase I trials receive approval), planning a viable exit is essential.
Contrary to the popular image of startups ringing the NASDAQ opening bell, most successful biotech exits happen through acquisitions rather than IPOs. This trend has only become more pronounced in recent years. While biotech IPOs peaked in 2021—when over 100 companies went public, raising nearly $15 billion—public markets cooled significantly in 2022–2023, making mergers and acquisitions (M&A) the preferred exit route.
With market conditions shifting unpredictably, founders and investors must stay flexible and prepared with multiple exit strategies. This article explores common exit options in life sciences venture capital, key factors influencing exit decisions, optimal timing considerations, potential risks and challenges, and real-world examples of successful exits.
Life sciences startups have several exit pathways, each with distinct implications for founders and investors. The primary options include initial public offerings (IPOs), mergers and acquisitions (M&A), and private equity (PE) buyouts, with additional alternatives depending on market conditions and company strategy.
An IPO allows a private company to list shares on a public stock exchange, raising capital from public investors while providing liquidity for existing shareholders. In biotech, IPOs are often more about financing than a final exit—many companies go public well before generating revenue to fund expensive R&D and clinical trials.
For venture capital investors, IPOs provide an opportunity to eventually sell shares on the public market, though lock-up periods and liquidity constraints mean cashing out isn’t immediate. Many biotech companies see IPOs as a stepping stone rather than the finish line. The capital and market validation gained can set the stage for a future acquisition or phased investor exits.
During boom periods—such as 2020–2021—biotech IPOs reached multi-billion-dollar valuations. However, IPO markets are highly cyclical. When investor sentiment weakens, going public may be neither feasible nor attractive, pushing startups to consider alternative exits.
M&A is the most common exit for biotech startups. Acquisitions—typically by large pharmaceutical or biotech firms—offer a clear, often all-cash payout, allowing investors to realize returns without the uncertainty of public markets.
Big pharma companies frequently acquire smaller biotechs to strengthen their pipelines, with deals ranging from modest acquihires to multi-billion-dollar takeovers. While private biotech buyouts account for about 70% of M&A deal volume, they represent only 15% of total M&A deal value. Larger deals tend to involve public or later-stage companies.
Many biotechs follow a dual path—first going public to de-risk assets, then getting acquired. Some of the largest biotech buyouts involve public companies that IPO’d before being purchased. For private startups, an M&A exit means relinquishing independence in exchange for financial security and the resources of a larger company to bring innovations to market.
Though less common than M&A or IPOs, private equity can provide an alternative exit route, particularly for more mature life sciences companies. PE firms may acquire controlling stakes in commercial-stage medical device companies, profitable research tool providers, or contract research organizations (CROs) as part of a roll-up or growth strategy.
Early-stage drug development companies are less frequently targeted by PE, but it can happen in specific cases. PE-led exits may take the form of leveraged buyouts, growth equity investments (recapitalizing the company while buying out early VC investors), or acquisitions of spun-out divisions. Recent years have seen multi-billion-dollar PE buyouts in the medical technology and CRO sectors.
For founders and VCs, a PE exit offers liquidity and continued growth under new ownership, though operational priorities often differ from those of a strategic buyer or an IPO.
Beyond IPOs, M&A, and PE, biotech startups may pursue alternative exit strategies, including:
Given the shifting market landscape, many biotech startups pursue a dual-track strategy—preparing for an IPO while simultaneously engaging potential acquirers. This flexibility ensures they can capitalize on the most favorable exit opportunity when the time comes.
Choosing the right exit path for a biotech startup is a complex decision shaped by market conditions, company-specific factors, and strategic priorities. Founders and investors must assess multiple variables, including:
Market dynamics often determine which exits are viable. When biotech indices are high and investor appetite is strong, IPOs become attractive—or even possible. However, if public markets turn bearish, as they did in 2022 when biotech valuations plummeted, IPOs may be off the table, pushing companies toward M&A or private funding.
Timing is critical. Many biotechs delay IPO plans until market conditions improve, as seen in 2024 when companies that had waited out the downturn rushed to go public once sentiment rebounded. Broader economic factors, such as interest rates, also play a role—low rates and bullish markets tend to favor IPOs, while in downturns, cash-rich acquirers may find startups more affordable, driving M&A activity.
A startup’s development stage and funding requirements heavily influence exit strategy:
Ultimately, founders must decide whether maximizing value means staying independent through an IPO or selling to a larger company with the resources to accelerate product development.
The best exit strategy is the one that delivers the strongest returns—or at least meets investor expectations. If an acquisition offer significantly exceeds what a company could fetch in an IPO, M&A becomes the clear choice. However, if public market comps suggest a higher valuation, an IPO might be the better path.
Venture funding history also impacts decisions. If a startup has raised $200 million at a $600 million valuation, any exit below that threshold may disappoint investors. In such cases, the company may push for an IPO or a high-value M&A deal to justify prior investments. Conversely, founders must remain realistic—holding out for a unicorn IPO in a weak market can be riskier than accepting a strong buyout offer.
The decision between IPO and M&A often depends on whether a company has credible long-term growth potential:
External factors can heavily influence exit decisions.
Timing exits around key data readouts and market trends is crucial—leading into the next section on timing and decision-making.
Knowing when to pursue an exit is just as critical as deciding how to exit. Biotech startups operate in a dynamic environment where clinical milestones, financing cycles, and market sentiment can rapidly shift, influencing the optimal timing. Key factors in exit timing include:
Biotech value creation often hinges on specific milestones—such as Phase II trial readouts, an investigational new drug (IND) application, or a strategic partnership with big pharma. Companies typically align their exit strategies around these inflection points to maximize valuation.
A successful clinical trial can validate a startup’s science, making an IPO more attractive or prompting acquisition interest. For example, Kyverna Therapeutics timed its 2024 IPO to follow strong patient data in 2023, raising $367 million based on compelling real-world evidence. The takeaway: exit timing should align with proof points that enhance credibility and valuation.
However, misjudging timing can be costly. Exiting too early—before a milestone—may leave money on the table, while waiting too long exposes a company to trial failures or market downturns. A common strategy is setting conditional timelines: “If our Phase II data in Q3 is strong, we will file for an IPO in Q4 or pursue acquisition talks.”
The broader market environment significantly impacts exit feasibility. The biotech “IPO window” refers to periods when investor appetite for new public offerings is strong. These windows open and close quickly—after the 2020–2021 biotech boom, the IPO market largely shut down in late 2021, forcing many companies to delay plans.
Signs of a favorable IPO window include:
If these conditions aren’t met, an IPO may be unwise, and companies may pivot to M&A or private funding. On the acquisition side, timing depends on big pharma’s M&A cycle—when large drug companies have excess cash and face pipeline gaps, they aggressively seek biotech deals (as seen in 2023’s pharma M&A surge).
A common strategy is running a dual-track process—preparing for an IPO while simultaneously exploring M&A. This gives startups flexibility and negotiating leverage. If IPO investors hesitate, a ready acquirer may step in, and vice versa.
Exit timing isn’t just about market conditions—it requires alignment among key stakeholders, including founders, the board, and major investors.
Misalignment can derail an exit. A founder reluctant to sell, or investors unwilling to wait for an IPO, can create friction. Clear communication and a shared understanding of strategic goals are essential. Many startups bring in experienced advisors (investment bankers, legal teams) or hire executives with exit experience to navigate these decisions.
Even the best-planned exits can be disrupted by unforeseen events—a trial failure, market crash, or regulatory setback. Companies must stay agile and have backup plans.
A resilient exit strategy includes scenario planning:
By balancing ambition with pragmatism, biotech startups can optimize exit timing—seizing opportunities when conditions are right while maintaining the flexibility to adapt when they aren’t.
A successful exit in life sciences is far from guaranteed. The sector’s inherent risks can complicate exits, delay deals, or reduce returns for founders and investors. Key challenges include:
Biotech startups operate in a high-risk environment—clinical failures or regulatory setbacks can erase company value overnight. Since only about 10% of drug candidates progress from Phase I to approval, many companies never reach a lucrative exit.
This uncertainty is why many VCs prefer earlier M&A exits, transferring development risk to a larger acquirer rather than betting on long-term clinical success.
Life sciences markets are notoriously volatile. A startup may file for an IPO during a market high, only to face a downturn that forces delays or lower-than-expected pricing.
The challenge is securing a strong enough exit to clear investor preferences and deliver meaningful returns.
There’s a fine line between exiting too soon and waiting too long:
Many biotech startups face pressure from VC fund timelines—investors may push for an exit based on their fund cycle, rather than when the company is truly ready. Conversely, some companies rush to IPO in hot markets before they are operationally prepared, leading to poor post-IPO performance.
Even when an exit path is clear, execution challenges can derail deals:
Additionally, post-acquisition integration failures—such as culture clashes or strategic shifts—can lead to disappointing outcomes. In worst cases, acquirers abandon acquired programs, rendering the exit meaningless for the startup’s mission.
Exits bring cultural and leadership shifts:
In some cases, founders resist exits because they fear their technology will be shelved or their team will be laid off—creating tension with investors focused on financial returns. The best deals align incentives, offering retention packages or earn-outs that keep key players engaged.
With these risks in mind, it’s helpful to look at real-world examples of companies that successfully navigated the exit process—whether through IPOs, M&A, or alternative strategies.
Despite the challenges, many life sciences ventures achieve successful exits, generating strong returns for founders and investors while advancing medical innovation. The following examples illustrate different exit strategies and their outcomes.
During the 2020–2021 biotech bull market, several platform-based biotech companies secured large IPOs at high valuations:
These IPOs provided significant capital for the companies and liquidity opportunities for early investors. While post-IPO stock performance has been volatile, these public offerings validated each company’s platform and created substantial value at the time of listing.
More recently, CG Oncology became the first biotech IPO of 2024, raising an upsized $380 million following strong Phase III trial data. Its success highlights that even in tougher market conditions, biotech companies with compelling clinical results can execute strong IPOs.
Mergers and acquisitions (M&A) remain a dominant exit strategy, particularly when a startup develops a high-value drug asset:
These cases demonstrate how biotech startups can secure lucrative exits by selling drug programs individually rather than pursuing full-company IPOs.
Some biotech companies first go public to raise capital, then exit via acquisition once their lead product matures—a strategy known as the two-step exit:
This strategy allows companies to de-risk their technology in public markets before attracting a major acquirer, often delivering higher returns than an early M&A.
While less common for drug developers, some life sciences companies achieve successful exits through private equity or non-traditional buyers:
These alternative exits highlight the diverse pathways beyond IPOs and big pharma acquisitions, particularly for companies with strong revenue streams or proprietary technologies.
These examples illustrate the range of exit strategies available in life sciences. While not every company achieves a billion-dollar outcome, strategic timing and positioning can significantly enhance exit potential.
Exit strategies in life sciences venture capital require balancing ambition with pragmatism. Founders and investors must navigate a sector where scientific breakthroughs intersect with financial realities, ensuring that both returns and long-term impact are considered. A well-executed exit not only rewards stakeholders but also increases the likelihood that promising therapies and technologies reach patients—whether through the public markets or integration into a larger organization.
There is no one-size-fits-all approach. The optimal exit strategy depends on market conditions, the company’s stage, and stakeholder goals. IPOs offer independence and potential long-term upside but come with market volatility and dilution. M&A provides immediate liquidity and risk transfer but may limit future gains and autonomy. Timing is everything, and flexibility is essential in an industry where fortunes can shift with clinical results or economic trends.
Exiting a life sciences startup is as much about preparation as it is about timing. The journey from startup to exit is rarely linear—it’s shaped by breakthroughs, setbacks, and unexpected opportunities. But with a clear strategy, flexible execution, and a focus on value creation, biotech entrepreneurs and investors can significantly improve their chances of achieving a successful exit.
At its best, an exit isn’t just a financial transaction—it’s a step that enables groundbreaking therapies and technologies to reach the people who need them. And in the world of life sciences, that’s the ultimate win-win.
