The unicorn: a dying breed or exit catalyst in 2025?

Many investors are optimistic about the outlook for private capital in 2025. Stronger market conditions, the potential for more rate cuts, and a more favorable US regulatory environment could reopen the venture exit market.

This can’t come soon enough for many in the industry. General partners (GPs) are feeling the heat to generate returns for limited partners (LPs), and there’s a growing backlog of IPO-eligible portfolio companies around whom anticipation is mounting: unicorns. According to PitchBook, “40% of US unicorns have been held in portfolios for at least nine years, and that group accounts for more than $1 trillion in value.” 

So, what does this mean for the 700+ US-based startups valued at more than $1 billion in venture portfolios? We asked this question to nearly 300 dealmakers in our 2025 private capital predictions survey.

Here are the four primary outcomes our respondents anticipate for unicorns in 2025:

{{report-202411="/rt-components"}}

1. An uptick in IPOs, though not to prior highs

In recent years, the lack of liquidity has been the main story in private markets. Higher interest rates drove up the cost of borrowing, challenging exit routes and slowing distributions.

To provide returns to LPs and extend runway timelines before taking companies public, many GPs pursued continuation funds or secondary sales. At the same time, many LPs turned to other asset classes (like public equities and real estate) as private markets grew relatively unattractive.

However, with three Fed rate cuts in 2024 working their way through the economy and market sentiment improving, investor appetite for private assets is growing. In fact, the majority of our respondents were relatively bullish about the industry and exit opportunities in 2025—provided economic factors and market sentiment hold up.

As one respondent put it:

“Exit opportunities will look to further open up in 2025. IPO markets began to unfreeze slowly in 2024, and I see this trend continuing into 2025. There are a lot of good companies waiting on the sidelines; the markets are catching up slowly but surely.”

Unicorn IPOs present a significant opportunity to drive fund returns. Pitchbook reports that, as of Q3 2024, the IPOs of five VC-backed unicorns drove almost 25% of the year-to-date exit value. Many of these companies are poised for potential exits in the coming years, and Pitchbook’s base case scenario for 2025 is 12 unicorn IPOs—with an exit value of around $70.5 billion.

Our respondents’ IPO optimism was also tempered by a fair share of more cautious responses, especially around the volume of activity—with many noting deal activity is unlikely to reach 2021 highs. One respondent captured this sentiment of moderation: “2025 will see slightly improved market conditions for IPO exit/listing opportunities, but not a huge improvement.”

2. M&A activity will outpace IPOs 

In 2024, M&A was primarily defined by regulatory scrutiny, a heightened focus on value creation, and increased selectivity from acquirers. Looking ahead, investors seem more hopeful about M&A activity. 

For starters, a new US administration could create a more favorable regulatory environment (with some predicting a less stringent Federal Trade Commission and Department of Justice). And many of our respondents believe more companies will be pushed towards M&A due to less favorable IPO valuations. 

One respondent says: “IPO valuations will likely not be as appealing, pushing more companies toward M&A or even selling at a discount. Some sectors, like cybersecurity and health tech, will likely see strong demand, while others might struggle a bit more.”

While the regulatory environment and the relative attractiveness of M&A prime firms for a more promising exit market, acquirer selectivity is expected to continue. Companies looking to exit will likely continue to face more stringent selection criteria, having to prove solid financials and paths to profitability to be worthy of acquisition in this environment.

“The break-out [unicorns] with great economics and continued fast growth might see an IPO window. The high-quality ones will keep being able to raise capital or be profitable. The unicorns that are burning cash and are way overvalued will be recapitalized at lower valuations, go out of business, or sell for low prices. Expect good M&A activity to still be muted,” one respondent noted. 

Several respondents expect a more negative outlook for M&A—either in terms of activity levels or pricing. As one investor says, “Many [companies] will be acquired by PE shops or public tech companies at a steep multiple discount. As the rate environment loosens, some may be able to go public, but at very depressed multiples. Many VCs will likely turn to continuation vehicles and LP-led secondaries.”

{{report-202402="/rt-components"}}

3. An initial drop in valuations

While the consensus from our survey results was that there will be more exits next year, our respondents expect a correction in valuations and a more discerning approach from investors. One respondent notes that “VCs will have to weigh lower valuations with a greater chance of successful exits.” 

Since many companies are overvalued relative to their current growth rate and size, exits likely won’t be at valuations seen in prior years. Another respondent says, “Many companies from 2021 and 2022 cohorts have slowed down, burned through a lot of capital raised, and will exit below their prior priced round valuation.”

Although most of our respondents anticipate a drop in valuations, PitchBook predicts a growth in valuations once exits take off—noting that as liquidity improves, a stronger exit market will “likely place a higher premium on VC-backed companies.”

4. A surge in zombies 

For our respondents who don’t anticipate an increase in exits, many expect a rise in the number of “zombie” unicorns—companies that continue to operate despite being stagnant.  

“Depending on who came into the last round and what's going on with their funds, some of these investors will block sales for the time being (e.g., if they need to show some multiple of a return for that particular asset), and these may become ‘zombie companies,’” a respondent says. 

Many unicorns—especially those that raised in 2021 and 2022—raised funds at high valuations and now, as growth slows, they face significant challenges. “Companies who raised in 2021/2022 are out to raise now, and many are failing,” another respondent notes. 

Axios captures the broader sentiment, describing how “part of the trouble is a herd of unicorns that got stranded when they took too much money at inflated valuations. A lot of them are dead but just don't know it yet.” These companies could continue to exist in a limbo state, unable to exit, grow, or raise new funds—before eventually being acquired for less than they raised or shutting down entirely. 

Are unicorns primed for exits in 2025? 

Regardless of investors’ outlooks for unicorns in 2025, one theme was abundantly clear from our survey results: most believe these companies wouldn’t be considered unicorns by today’s standards. 

“There will be less than 700 unicorns in 2025 because valuations will prove to be fake,” a respondent notes, reflecting the sentiment that the era of inflated valuations is over. Another adds, “More than half of those will not be unicorns by H2 2025. The IPO market will be stronger due to low interest rates, but investors will be more discerning.”

As valuations recalibrate and the exit market shows signs of recovery, the challenge for unicorns that want to take the next step will be to demonstrate real, sustainable growth in an era of heightened scrutiny. 

For more insights on the evolving private capital landscape, check out our 2025 private capital predictions report. You’ll also learn: 

• Why investors are turning up the notch on deal sourcing
• How firms are using AI to tackle data complexities
• What investors are doing to stand out amidst greater competition

{{report-202411="/rt-components"}}