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This research paper investigates the impact of capital structure on the exit potential strategies of European VC-backed startups, focusing on the role of equity and debt financing in their decision to go public or exit through mergers and acquisitions. The study hypothesizes that startups primarily financed through equity are more inclined towards going public, while those with a higher debt structure are less likely to have a high valuation premium. Building upon previous research that suggests market and deal-specific factors influence exit outcomes, this paper aims to empirically explore the various factors affecting exit strategies, including the choice between an Initial Public Offering (IPO) and an acquisition, and the valuation of these exits.
The dataset for this study is derived from Refinitiv, covering exits reported by firm name from 2014 to 2024, spanning a decade. The geographical scope is restricted to European companies. The initial dataset comprises 1,348 transactions, including 156 IPOs and 1,192 acquisitions.
Our findings can be summarized as follows. While factors like company size, debt-to-asset ratio, and ECB rates significantly influence a firm's decision to go public or be acquired, the evidence is mixed and does not fully support the hypothesis that equity-financed startups are more likely to go public. Further notable findings include the valuation dynamics post-exit which reveal that acquired firms tend to have higher valuation premiums, and IPO firms adjust their leverage differently. These findings contribute to a deeper understanding of the financial strategies and outcomes associated with different exit routes in the corporate lifecycle.
