"Companies solving mission-critical problems can secure financing and exit optionality without timing a narrow public listing window—strategic acquirers are increasingly viable, and secondary-ready cap tables attract institutional secondary buyers," said Nick Foreste, co-chair of Reed Smith's Emerging Companies and Venture Capital practice.

Strategic M&A emerges as primary liquidity path

Heading into 2026, many predicted a prolonged IPO drought would strand venture-backed companies. The IPO market has remained challenging for many companies, but the anticipated "SaaS-pocalypse" has largely failed to take hold, as strategic acquirers and growth-stage investors have stepped in to fill the liquidity gap for companies that solve mission-critical problems and demonstrate real product-market fit.

Liquidity is back – but not for everyone

The first half of 2026 set records on paper, with Q1 reportedly being the biggest exit quarter on record. SpaceX's approximately $1.75 trillion IPO alone topped the combined value of every VC-backed public listing since 2016—but a handful of companies account for nearly all that value. For everyone else, liquidity depends on company quality and secondary buyer access.

The IPO window has largely favored profitable companies or those in sectors such as AI, crypto, fintech, defense, and space. With approximately 81% of secondary trading concentrated in the top 20 names, investors may want to consider building positions in the next tier of quality companies, before mega-IPO exits reshape the secondary landscape.

Rise of nontraditional investors

Nontraditional investors play an ever more important role, with corporate venture capital and infrastructure fund deals taking a growing share of deal value. Private equity sponsors, traditionally focused on buyouts and majority investments, are increasingly making speculative minority investments in AI to gain exposure to the sector’s rapid growth.

While much nontraditional activity remains at larger, later-stage deals, early-stage companies also seek this funding. Founders are considering a defined thematic niche and target funds whose focus aligns with their sector, including corporates whose commercial assets, distribution, and sector knowledge add value alongside capital.

"We’re seeing sophisticated investors move well beyond the traditional playbook. Private equity sponsors and corporate venture arms are now competing alongside traditional VCs for allocations in high-quality companies. The winners are the ones targeting verticals where they bring tangible, differentiated expertise," said Teresa Tate, co-chair of Reed Smith's Emerging Companies and Venture Capital practice.

Additionally, cross-border venture activity between the United States and Europe continues to accelerate, with U.S. funds deploying in European markets and European founders raising from U.S. investors or expanding stateside.

“The European venture ecosystem has matured. Germany is producing standout companies in enterprise AI, climate tech, deep tech, healthcare, and life sciences,” said Thomas Strassner, partner in Reed Smith’s Munich office.

Reed Smith’s Emerging Companies and Venture Capital team—with a recently expanded presence in Munich and the Middle East—advises founders, investors, and growth companies at every stage, handling hundreds of transactions yearly including growth financings, AI infrastructure deals, and complex cross-border matters.