The international law firm Reed Smith has published its Mid-Year Review 2026 for Emerging Companies and Venture Capital. The report analyses current developments in the venture capital market and notes that access to initial public offerings (IPOs) remains difficult for many venture-backed companies. Despite this challenge, strategic buyers, growth investors, and various alternative capital sources are significantly contributing to closing the emerging liquidity gap. There is a growing share of non-traditional investors in the total transaction volume.
Nick Foreste, Co-Head of the Emerging Companies and Venture Capital practice group at Reed Smith, explained that companies solving business-critical problems can secure financing and exit options without relying on a narrow IPO window. Strategic buyers are proving to be an attractive alternative. Furthermore, capital-structured companies prepared for secondary transactions are increasingly attracting institutional secondary market investors.
Strategic M&A as the primary liquidity path
At the start of 2026, market observers feared a prolonged IPO drought, which would leave venture-backed companies without exit opportunities. Although the IPO market remains challenging for many firms, the anticipated 'SaaS-pocalypse' has largely failed to materialise. Strategic buyers and growth investors have closed the liquidity gap for companies addressing business-critical problems and demonstrating proven product-market fit. The first half of 2026 saw record figures on paper. The first quarter was the strongest exit quarter ever. The IPO of SpaceX alone, with a valuation of approximately US$1.75 trillion, exceeded the total value of all VC-backed IPOs since 2016.
Liquidity is back, but not for all players. Almost all of the value accrues to a small group of companies. For the majority of firms, liquidity continues to depend significantly on the quality of the company and access to secondary market buyers. The IPO window was primarily open to profitable companies or firms in sectors such as Artificial Intelligence, cryptocurrencies, FinTech, defence, and space. Given that approximately 81 per cent of secondary market trading is concentrated in the top 20 names, investors should build positions in the next generation of high-quality companies early, before mega-IPOs once again change the landscape of the secondary market.
Increasing Importance of Non-Traditional Investors
Non-traditional investors are playing an increasingly important role. Transactions involving corporate venture capital firms and infrastructure funds account for a growing share of the total transaction volume. Private equity investors, traditionally focused on buyouts and majority stakes, are increasingly making speculative minority investments in Artificial Intelligence to participate in its rapid growth. While much of this activity is concentrated in larger, later-stage transactions, early-stage start-ups are also seeking such funding sources. Founders are increasingly focusing on clearly defined thematic niches and approaching funds whose investment priorities align with their sector. This includes companies that can offer additional value beyond capital, such as market access, distribution channels, and industry expertise.
Teresa Tate, also Co-Head of the Emerging Companies and Venture Capital practice group at Reed Smith, remarked that sophisticated investors are going far beyond the traditional approach. Private equity firms and corporate venture units are now competing directly with traditional venture capital investors for stakes in high-quality companies. Those successful are the ones focusing on industries where they can bring concrete and differentiating expertise.
Furthermore, cross-border venture capital activity between the US and Europe is continuously increasing. US funds are investing more in European markets, while European founders are raising capital from US investors or expanding their operations to the US. Thomas Strassner, partner in Reed Smith's Munich office, emphasised that the European venture ecosystem has matured. Germany is producing outstanding companies in the fields of Enterprise AI, Climate Tech, Deep Tech, healthcare, and life sciences.
Reed Smith's Emerging Companies and Venture Capital team, which recently expanded its presence in Munich and the Middle East, advises founders, investors, and growth companies at all stages of development. The firm handles hundreds of transactions annually, including growth financing, AI infrastructure projects, and complex cross-border transactions.
