When it comes to angel investing, there are no more exciting words to hear than “exit scenario.”

After all, that is when all your due diligence and foresight pays off.

However, as the world confronts the reality of the current macroeconomic landscape, these paydays are currently few and far between for investors.

For example, while in 2020 and 2021 there were 248 and 613 special-purpose acquisition IPOs, respectively, 2022 has seen just 83. In total this year, 189 SPAC IPOs were either withdrawn or the transactions terminated altogether.

Indeed, this has been a year best summarized by adjusting expectations, and there are a host of startups forced to grapple with that reality.

However, in doing so, there may actually be an increase in the number of exits for startups.

The problem is, those exits – while still welcome – are not producing the outsized returns investors dreamed of when they threw their hats in the ring.

That’s because there are a growing number of startups that, when faced with the decision of shutting down the business altogether or keeping it alive in a different capacity, must swallow their pride and take what they can get.

Increasingly, in this landscape, that comes in the form of mergers and acquisitions.

Whether it be a public or private company, struggling startups that still possess valuable IP or products represent attractive additions to more stable companies.

And for these struggling startups, the decision of getting something is far more appealing than nothing.

“Founders understand that it is better to convert their stock into another company’s stock or get a little bit of cash rather than run the company to zero,” Canvas Ventures general partner Mike Ghaffary told Pitchbook in October.

These acquisitions are far more likely to come at valuations representing decreases from prior rounds of funding – that is the reality of these lean economic conditions.

So, for angel investors or VCs looking to reap strong returns, the exits fall short of hopes. That said, the prospect of getting your money back or potentially recouping more valuable shares of stock is far better than being left with nothing.

And in some cases, these situations have worked out very well. For example, back in 2019, Airbnb bought HotelTonight for $400 million, half in stock and half in cash. When Airbnb went public in 2021, early investors of the acquired startup were handsomely rewarded.

That is more the exception than the rule, especially given the difference between the investment landscape at the time. However, it is a reminder that these exits can still pay off big in the long term.

On the flipside, for startups with more stable financial standing, they have the opportunity to acquire companies that will only serve to reinforce their position of strength.

2023 figures to be a busy one in the M&A space, and there could just be fallout for startups in your portfolio.

It’s best to be aware of the possibilities so you fully understand all that they entail.

We’ll be here to help.