Taking a company public used to be the goal of every startup, said Mark Suster, the well-known partner at Upfront Ventures, during a panel on Tuesday. “The IPO market is pretty tough right now,” Suster said.

Despite a roaring start to the year, IPOs have largely been on hold since 2021. A total of 74 companies had gone public as of June 24 on U.S. exchanges using a traditional IPO, together raising nearly $17 billion, Fortune reported. The number of businesses listing their shares is 40% greater than in 2023. 

Venture firms also look to M&A to exit their portfolio companies. But mergers have been on lockdown for the last three or four years, Suster said.

Instead, Suster predicted that venture firms will use secondaries to exit their holdings. Secondaries refer to transactions where existing shareholders of a company sell their stakes to new investors. Such deals allow investors to cash out of investments.

Earlier this week, Sequoia Capital sent a letter to LPs of funds raised between 2009 and 2012 and offered to buy up to $861 million of Stripe shares, according to Axios. “The Sequoia deal is a secondary deal,” Suster said on Tuesday.

Upfront has been selling small pieces, 25% to 30% of good performing companies, from its portfolio over a five-year period, he said. While this might not be a lot of money for bigger funds, Upfront’s pools are typically smaller, between $200 to $300 million, Suster said. The VC firm sent this cash—around $1.2 billion, according to Suster—to its investors. He told the LPs that he was still “majority long” but was sending them the money at a valuation “that’s higher than normal,” he said.

Upfront also became a buyer of secondaries last year and has so far scooped up about $65 million worth of stakes, Suster said. “The secondary markets are a really important venture, and I think they will mature over the next 10 years as more people learn how to price them,” he said.

Private equity will also be an important exit market for VC firms. There were 1,200 newly created unicorns launched in 2021 and 2022 alone; 60% of them were marked by just four firms: Softbank, Tiger Global, Insight Partners and Coatue, Suster said.

Suster argued that venture capital needs to start emulating private equity where it’s acceptable for assets to change hands. “Marketplaces need to be created, and hopefully the best tool will come out of this cycle,” he said.

Are AI companies overvalued or undervalued?

Many panels at Brainstorm Tech focused on A.I. and whether these companies deserve their hefty valuations. Raja Doddala, a managing director at Churchill Asset Management, said that he felt that 90% of AI companies may be overvalued and 10% might be undervalued. “It’s hard to know which one’s which, and everybody thinks they know,” said Doddala, who joined Suster on Tuesday’s panel. 

“There’s lots of capital sloshing in the market,” added Michelle Gonzalez, corporate vice president and global head for M12, Microsoft’s venture capital fund. Gonzalez cited one company in the AI application services space that recently raised around $250 million and was seeking a $500 million allocation. “This gives you a flavor of where we are within the early stage,” she said. 

Gonzalez suggested that if AI is a platform shift on the order of the PC or mobile devices, and if AI companies are undervalued, then investors might be able to get extreme value from backing future hundred-billion-dollar companies. “We are investing in great founders that are going after really big markets,” she said.

Suster maintained that he’s not bearish on AI, saying that “AI is everything, and it’s gonna be pervasive,” and that companies can’t afford to ignore it. However, he doesn’t think AI deserves its own category of funds. 

Venture capitalists are “essentially lemmings,” Suster said. “They all fund the same thing.”