The venture capital market is undergoing significant structural changes, and TBED organizations are under increasing pressure to adjust existing and develop new strategies to meet evolving market conditions and address emerging gaps. For TBED investors, modeling how long investments must be held and what the exit paths are is critical for setting expectations with stakeholders, projecting fund utilization, and anticipating returns that can be reinvested. To that end, SSTI examined over 6,000 exits from VC-backed companies listed in PitchBook with identified nonprofit or government investments to characterize what TBED investors can expect. Our analysis found that it is taking more time and more rounds for companies to find successful exits, putting additional pressure on venture development organization (VDO) and other TBED portfolios by consuming scarce resources and limiting opportunities to reinvest proceeds.
Exits of companies with nonprofit or government support have changed dramatically since 2000. As regional innovation finance has grown, the total number of annual exits has increased significantly, as have the number of business failures (Figure 1). IPOs have long been the aspirational exit for many investors; however, the data reinforce that IPO activity is relatively limited, averaging 3.5% of annual positive exits since 2010 and notably less than 1% over the past three years. The majority of positive exits are through acquisitions, consistent with the larger private sphere of activity. There is also an increase in secondary exits beginning in 2021. While the data demonstrates what outcomes have been, and can inform planning efforts, TBED investors still need to prepare for whichever exit path will make the most sense for an individual company and the long-term sustainability of the VDOs’ support of regional innovation.
Figure 1. Count of transactions by exit type and year for government and nonprofit-backed companies founded in 1990 or later. Exits prior to 2000 are not displayed.
Understanding the exit path is a common recommendation from experienced and successful investors in SSTI’s TBED Community of Practice. From 2000 to 2016, a significant portion of acquired companies were in the R&D stage or profitable (Figure 2). Now, however, acquired companies are much more likely to be generating revenue. These findings indicate the importance of TBED investors and programs helping companies achieve market-ready products, access markets, and secure paying customers. The Venture Development Organization model, which brings financial and business assistance under one roof, may be especially valuable in markets with less-than-optimal pools of risk financing for innovation firms.
Figure 2. Distribution of surviving business stage at exit for government and nonprofit-backed companies founded in 1990 or later. Failing or bankrupt businesses and exits prior to 2000 are not displayed.
The average number of deals and time required for a company to exit – both positive and negative - has been increasing over the past 26 years (Figures 3 and 4). The extended investment holding period for successful companies creates great pressure on investors’ ability to deploy capital, particularly for VDOs or other investors who reinvest proceeds through an evergreen model or are dependent on public stakeholders with limited direct innovation finance experience and understanding of market dynamics.
If 2026 trends continue, investments exiting this year will have received an average of eight funding rounds over a ten-year period. While TBED investors are well-positioned to close early-stage funding gaps with catalytic investments, they, like other early-stage investors, are not likely to have the resources to provide follow-on funding for nearly a decade. The increase in funding rounds and holding periods for companies that ultimately fail may be an opportunity for investors to think more critically about expanding due diligence efforts with each stage of financing considering a company’s potential growth trajectory, additional finance requirements and the changing market for their particular technology (for example, any potential AI influences). Then the VDO can leverage decision-making strategies to limit investments in ventures that risk prolonged stagnation of progress.
Figure 3. Average deal number to reach exit by survival status for government and nonprofit-backed companies founded in 1990 or later. Exits prior to 2000 are not displayed.
Figure 4. Average number of years between first investment and exit by business survival status for government and nonprofit-backed companies founded in 1990 or later. Exits prior to 2000 are not displayed.
Looking more closely at the average holding period for different exit types reveals that there is no quick exit path. Exiting though acquisition has exceeded eight years since 2022 (Figure 5). The amount of time between the first investment and and simply going out of business is also trending up and has exceeded seven years since 2024. While early exits to generate liquidity may be a factor in some secondary transactions, the longer average holding period may indicate that secondary exits are more typically utilized to realize residual value from companies whose growth has stagnated and other forms of exit are unlikely. The data suggest that TBED investors looking to secondary transactions as an exit path will be best served by a proactive and strategic approach with new and existing co-investors.
Figure 5. Average number of years between first investment and exit by exit type for government and nonprofit-backed companies founded in 1990 or later. Exits prior to 2000 are not displayed.
TBED investors, such as VDOs and publicly backed venture capital funds, play an important role in derisking companies and helping to position them for market success. As many VC activities concentrate in larger deals and fewer cities, TBED investors across the country become increasingly important resources for companies to meet the prerequisites and milestones needed to generate market interest and funding. These same TBED investors, seeing more demand, are also pressed for resources and need to think strategically about how their investments fit into the larger market. By looking at the exit market, TBED investors can better position themselves to generate the economic returns that support regional and national growth, but also the financial returns that can be redeployed.
Please contact us if you are a TBED investor willing to share your experience or if you have questions about exits. Our TBED Community of Practice is another opportunity to discuss investment trends with your peers and to stay on top of a rapidly changing technology, business, and funding landscape.
This page was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.