Map: Where startup exits shape local economies

The AI bubble debate and ballooning valuations have dominated stock market discourse this year.

Looking at startup exits shows which kinds of companies are finding buyers, and who’s making money when they do.

When a startup gets bought or goes public, shareholders may receive cash or stock in exchange for their ownership stakes. The theory goes that those payouts can also seed new businesses, fund other investments and put money back into the community.

That makes exits a potential way for capital to circulate beyond the companies that created it. 

But that doesn’t happen automatically. How many people share in the cash back — and what they do with that money — can determine whether a startup’s success has a ripple effect or simply adds to the wealth of those who already have it.

So far this year, AI is part of the exit picture, but the activity spans a range of industries. Healthcare companies accounted for the largest share of US startup exits during the first three quarters of this year: 64 of 170, according to PitchBook and NVCA’s quarterly Venture Monitor reports. Meanwhile, 58 companies had an artificial intelligence and machine learning designation, including eight of those in healthcare.

Geographically, exit activity tracked familiar patterns. San Francisco led the country with 35, followed by Boston with 19. San Jose and New York each recorded 18. The data show where exits are happening, but not necessarily what the deals are worth or where the money goes afterward.

Specialization can be a factor in keeping wealth local. Boston’s numbers show how and why that happens: 14 of its 19 of its exits were healthcare companies, reflecting the region’s slew of health-related universities, research institutions, specialized labs and investors, according to Forrest Wright, an independent research analyst.

Unlike software or AI, “the type of innovation and startup activity [in Boston] can’t be ported to Silicon Valley,” Wright said.

Those connections can help keep companies, jobs and related economic activity in the region. Whether the financial returns stay depends in part on where shareholders live and how they use the proceeds.

Wright also pointed to Colorado’s aerospace and defense industry. Its Air Force presence and established aerospace sector give companies in those fields resources they might not find elsewhere. 

Sure, there’s a lesson in specialization, but it doesn’t guarantee exit success. 

Pittsburgh is known for robotics and applied AI, for example, and saw just two exits. Philadelphia is a center for cell and gene therapy — but its two exits were not in those fields. Baltimore’s two exits happened in a hotspot for biotech. Washington DC, with a specialization in cyber and fedtech, saw four exits.  

Startups are staying private longer, while the traditional exit routes of acquisitions and IPOs have struggled to keep pace with the industry’s growth.

Companies that raised big during the 2020 and 2021 funding boom are now facing a tougher market. Some are selling for less than investors expected, leaving less money and resources flowing outward.

“They reached valuation that they definitely can’t IPO at,” Wright said. “They’re facing this tough dilemma of do we just try to get acquired at a much lower valuation, or do we try to kind of keep on trying to chug along here?”