Why 79% of Exit Dollars Go to Just 24% of Companies

This editorial appeared in the March 13th, 2025, issue of the Topline newsletter.

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Most founders think they know how to maximize the value of their business. Grow revenue, increase profits, improve cash flow, and voilà—you’ve got a high multiple.

That’s true. But only if you’re selling to the wrong buyer.

See, there are two kinds of buyers:

1. Financial buyers (private equity, hedge funds) look at your cash flow, your EBITDA, your predictability. They’ll slap a multiple on it, take out a loan, and maybe make some operational tweaks.
2. Strategic buyers (big corporates, well-funded startups) don’t care about your P&L nearly as much as they care about what you have that they can’t build or buy elsewhere.

Guess who pays 3x-10x more?

When Facebook bought WhatsApp for $19B, they didn’t care about its revenue (which was close to zero). They cared about its intangible assets—the user base, the encryption technology, and the fact that they couldn’t afford for someone else (Google) to own it.

That’s how real business value is created.

What Most Founders Get Wrong

Today, 90% of S&P 500 company value is tied to intangible assets—things like patents, trade secrets, brand, and proprietary data. Compare that to 1975, when that number was 17%.

Why? Because the economy shifted. Tangible assets (factories, inventory) used to be king. Now, intellectual property (IP), technology, and proprietary know-how drive competitive advantage.

Yet, most founders ignore this entirely. They pour money into growth but fail to lock in the assets that make their company irreplaceable. As a result, they end up selling for 3x EBITDA when they could have sold for 15x.

The Formula for Max Enterprise Value

Max Enterprise Value = Revenue Growth + Profit Growth + Predictable Cashflow + Unique, Hard-to-Replicate Assets

The first three are obvious. The fourth is where the magic happens.

And when it comes to unique, hard-to-replicate assets, two categories dominate:

• Patents – Make your innovation legally exclusive.
• Trade Secrets – Protect proprietary knowledge that gives you an unfair advantage.

Let's break these down.

Why Patents Are a Fundraising & Exit Cheat Code

PitchBook analyzed over 140,000 venture-backed startups and found that patent-seeking companies absolutely crush non-patent companies:

• More Funding: Patent-seeking startups received 58% of all VC funding from 2011 to 2020.
• Bigger Rounds: They raised 40-60% larger funding rounds at every stage.
• Higher Valuations: Angel-stage valuations were 93% higher, and late-stage valuations were 51.2% higher.
• Stronger Exits: Despite being only 24.1% of exits, patent startups captured 78.6% of total VC exit value.
• Better M&A Outcomes: Patent-seeking companies saw 154.9% higher acquisition exit values.

Why? Because patents create defensible market positions. They turn your technology into an asset, not just a feature. That’s why investors love them. That’s why acquirers pay more.

The Trade Secret Goldmine (And How Founders Lose Millions Overnight)

Not everything should be patented. Some of the most valuable IP isn’t even disclosed—it’s protected as a trade secret:

• Proprietary algorithms
• Manufacturing processes
• Customer data & behavioral insights
• R&D advancements

The biggest risk? Trade secrets can be stolen without recourse. Unlike patents (which can be enforced in court), if someone walks away with your trade secrets, you’re screwed.

• Massive Value: Trade secrets contribute over $15 trillion to the US economy—more than all patents combined.
• Instant Loss on Theft: If your trade secret is stolen, it’s gone. Unlike patents, there’s no post-theft enforcement—only litigation.
• Regulatory Risk: The SEC’s Cybersecurity Disclosure Rule (2023) requires public companies to report trade secret risks. If you don’t have clear documentation or insurance, investors will punish you.

And here’s the part that no one talks about: Most cyber, D&O, and crime insurance policies DON’T cover trade secret theft. That’s right. Your business could lose its most valuable asset overnight—and you’d get nothing. That’s why some of the smartest companies are now using the world's first Trade Secret Insurance offering to hedge against this risk, protect valuations, and strengthen M&A deals.

So, if you’re building a company and NOT thinking about defensible IP, you’re leaving millions on the table.

Financial buyers will always pay for what you built. Strategic buyers will pay for what they can’t build themselves.