IPO, acquisition, or secondary: how startup exits actually pay out
Paper valuations become real money in only a few ways. How each exit path works, who gets paid in what order, and why the waterfall matters more than the headline price.
A startup’s valuation is an opinion. An exit is a fact. Until a company is sold or goes public, every number on the cap table is a mark — and the gap between marks and money is where venture fortunes are made and lost.
#The IPO
Going public converts preferred shares to common, ends liquidation preferences, and — after a lock-up period, typically 180 days — lets investors and employees sell into the market. IPOs maximize optionality but expose everyone to public-market pricing, which can be brutal to companies that raised their last private round at peak multiples.
#The acquisition
In an acquisition, the liquidation waterfall runs in strict order: debt first, then preferred shareholders by seniority and preference, then common — founders and employees — with whatever remains. A $150M sale of a company that raised $120M with senior 1x preferences can leave common shareholders with very little. The headline number is not the payout.
#The secondary
Secondary sales — existing shares sold to new investors without the company raising — have grown from an exception into infrastructure. Founders take chips off the table in growth rounds; dedicated secondary funds buy employee shares; LPs trade fund stakes. Liquidity no longer waits for the exit, at least for the companies everyone wants.
Valuations are opinions. Wires are facts.
For employees with options, the practical rule is to understand the preference stack before celebrating a headline price. For investors, it is that DPI — distributed to paid-in capital, money actually returned — is the only metric that survives contact with reality.