The value of venture capital (VC) exit activity is on track to have its worst year since 2009 as tech investor appetite shifts to focus more on profits rather than the promise of future growth.

Only $32bn worth of VC-backed exits have been tracked so far this year according to PitchBook data up to 14 September, less than half the $76.5bn seen in the whole of 2022. This is also barely 4% the value of exits recorded at the peak of 2021, when VC funding reached historic highs before inflation and interest rates rose.

The number of VC-backed exits, which include listing via an initial public offering (IPO) and mergers and acquisitions (M&A), is also down significantly. Just 703 exits have been recorded so far in 2023, which is also lower than any other year since 2009. 

“High interest rates, declining valuations and relatively low performance from tech companies in the public market during 2023 have left many VC-backed companies looking at a difficult IPO market,” write PitchBook analysts Kyle Stanford and Vincent Harrison in a third quarter 2023 note.

There has been a drought of tech IPOs over the past 18 months, with just 50 VC-backed companies completing a public listing. This is in stark contrast to 2021, when roughly 87% of the record $777.2bn of exit value was generated from public listings.

Hopes of a revival in the tech IPO market have been raised by three recent filings by chip designer Arm, online grocery delivery company Instacart and Klaviyo, a marketing automation platform. More than 800 unicorns — private companies valued at $1bn and above — in the US and many more globally are expected to seek a listing on a US stock exchange in the near future.

More on tech start-ups and venture capital: 

• Mind the tech gap: the AI divide in Europe
• Unicorns face mass extinction as funding plummets
• Global venture capital-fuelled investment slows
• European start-up scene reckons with the end of boom times
• Big tech layoffs barely touch pandemic-era hiring

However, investor sentiment has shifted away from subsidising start-up business models in hopes of future growth towards companies that are already generating profits and positive cash flows. 

“Since the beginning of 2022, poor market conditions have created an enormous backlog of companies that should be exiting via IPO,” according to PitchBook’s analysis. “Taking into account the number of VC-backed companies remaining private, roughly 220 companies should have listed publicly during this time.”

PitchBook estimates that the backlog of IPOs has stood at 70 or above every month since November 2022, higher than any other time since data began to be recorded in October 2004.

Prominent venture capitalists expect there to be a “mass extinction” of unicorns with business models that do not work and a suite of “downrounds”, when companies raise financing at a lower valuation than their previous round.

As long as the higher-interest-rate environment persists, VC returns fall and companies continue to perform unevenly across the tech sector, analysts expect a tough exit environment for many.

“While strong companies should be able to IPO in variable market conditions, the dynamics of venture that have given way to such high private valuations have positioned many companies poorly for the current market,” reads the PitchBook analysis.