The best VCs are now underwriting strategic relevance. In an AI economy where time has become the scarcest asset, understanding how Corp Dev thinks may be just as important as understanding the public markets.

Venture’s Exit Market Has Changed. Underwriting Should As Well.

Every venture investment begins with a deceptively simple question: Can this become a great standalone company? For decades, that question formed the foundation of venture underwriting because it reflected the industry’s implicit objective: build a category-defining business, reach the public markets, and create enduring shareholder value. Strategic acquisitions were always part of the venture ecosystem, but they were generally viewed as alternative outcomes rather than considerations that meaningfully shaped the investment thesis from the outset.

That framework served the industry well because it reflected the market structure of its time. Today, however, the market is evolving in ways that warrant a broader perspective.

The IPO market has reopened, which is unquestionably good news. Healthy public markets remain the ultimate mechanism for price discovery, validating private market valuations and providing the liquidity upon which venture capital depends. Yet while much of the industry’s attention has focused on the return of IPOs, a quieter and more consequential shift has been unfolding beneath the surface: Public investors have become substantially more selective about the businesses they are willing to own, while strategic acquirers have become far more deliberate about the capabilities they are willing to buy. Those developments are two sides of the same coin. Both reflect a technology landscape that is moving faster than at any point in recent memory.

AI is compressing technology cycles, reducing the half-life of competitive advantage, and forcing incumbents to make strategic decisions under unprecedented time pressure. As a result, venture investors should increasingly evaluate every company through two complementary lenses. The first remains unchanged: can this business become an enduring independent company? The second asks a different, but increasingly important, question: if the company executes exceptionally well, does it become strategically indispensable to the broader technology ecosystem? Increasingly, the businesses that create the greatest realized value satisfy both conditions simultaneously.

To be clear, this is not an argument that founders should build companies to sell, nor is it another prediction that M&A will replace IPOs. Exceptional companies should still aspire to reach the public markets. Rather, it is an acknowledgment that market structure has evolved. As it has, the mental models we use to underwrite great companies should evolve with it.

The IPO Market Is Back. The Old IPO Playbook Isn’t.

The reopening of the IPO market is not a return to the conditions that prevailed in 2020 and 2021. Capital has become available again, but the quality threshold has moved materially higher.

That conclusion emerges consistently across this year’s major capital markets reports. PwC’s latest Capital Markets Watch found that the first quarter of 2026 was the strongest opening quarter for the U.S. IPO market in five years, with 22 traditional IPOs raising more than $9.4 billion. More revealing than the increase in activity, however, was the type of companies successfully reaching the public markets. Investors are rewarding businesses that combine durable competitive advantages, recurring revenue, capital efficiency, and credible paths to long-term profitability rather than simply maximizing top-line growth.

EY reaches much the same conclusion globally, observing that the IPO window has reopened, but primarily for companies demonstrating operational maturity, disciplined governance, resilient business models, and the flexibility to pursue multiple strategic paths. Increasingly, companies are remaining private longer and entering the public markets with stronger operating systems and more predictable economics than investors demanded only a few years ago.

That shift extends well beyond the IPO market itself. During the previous cycle, abundant liquidity often allowed founders and investors to postpone difficult conversations about capital efficiency, pricing power, governance, and unit economics because growth overshadowed almost every other consideration. Today’s market rewards a different profile. Growth remains enormously valuable, but only when paired with durable competitive advantages, improving operating leverage, and evidence that a business can compound value over time. In short, this represents a return to first principles. Markets eventually force narrative to reconcile with arithmetic. The only uncertainty is how long they allow optimism to postpone the inevitable.

For founders, that raises the execution bar. For venture investors, it expands the importance of optionality. If the public markets increasingly reserve their highest valuations for companies that combine scale with operational excellence, then preserving multiple credible paths to realized value becomes a strategic advantage rather than simply prudent risk management.

AI Has Changed What Strategic Buyers Value

While public investors have become more selective, strategic buyers have become considerably more urgent.

The reason is straightforward. AI has compressed technology cycles so dramatically that time has become one of the scarcest resources in technology. Foundation models improve at extraordinary speed, open-source innovation diffuses capabilities almost immediately, and infrastructure that once required years of engineering investment can increasingly be assembled in months. As a result, the economics of ‘build versus buy’ have shifted in profound ways. Increasingly, strategic acquirers are not simply purchasing products or revenue streams. They are purchasing time: time to establish leadership before competitors do, time to acquire scarce talent, time to secure proprietary data, and time to control strategic enterprise workflows before they become someone else’s competitive advantage.

Viewed through that lens, many of the defining technology acquisitions of the past two years become much easier to understand.

Google’s acquisition of Wiz, the largest in the company’s history, was never principally about adding another cybersecurity product. Google described the transaction as a way to strengthen cloud security across increasingly complex multicloud environments while accelerating enterprise AI adoption. Reuters added another important detail, reporting that Google ultimately concluded the strategic cost of waiting exceeded the acquisition premium itself. Google was not simply purchasing a fast-growing software company. It was acquiring years of customer trust, product maturity, and market position that could not realistically be recreated on the same timetable through internal development alone.

Salesforce’s acquisition of Informatica reflects the same logic from a different direction. As enterprises deploy AI agents across increasingly complex workflows, trusted data has become strategic infrastructure rather than operational plumbing. Salesforce positioned Informatica as the governance, metadata, lineage, privacy, and master data management layer required to power Agentforce at enterprise scale. The acquisition was less about expanding Salesforce’s product portfolio than about strengthening the data foundation upon which enterprise AI increasingly depends.

ServiceNow’s acquisition of Moveworks and Microsoft’s restructuring around Inflection reinforce the same pattern. ServiceNow combined enterprise workflow orchestration with an AI-native conversational interface, accelerating its transition toward agentic workflows. Microsoft, meanwhile, chose not to acquire Inflection outright, instead recruiting its leadership team and licensing its technology. The structure of the transaction underscored the objective: acquiring capability, accumulated research, and execution velocity rather than simply another software business.

The pattern extends well beyond enterprise applications. Cisco’s acquisition of Splunk strengthened its position across observability, cybersecurity, and enterprise infrastructure as AI workloads increase operational complexity. NVIDIA has pursued a similarly disciplined strategy, expanding into orchestration, infrastructure optimization, and synthetic data through acquisitions such as **Run:ai**. In both cases, corporate development functions less as opportunistic dealmaking than as an extension of long-term product strategy.

Taken together, these transactions reveal a broader shift in market structure. The largest technology companies are no longer acquiring businesses primarily because they generate attractive revenue. Increasingly, they are acquiring capabilities that compress execution timelines, strengthen ecosystem positions, deepen customer relationships, and accelerate strategic initiatives that would take years to build internally. That subtle but profound shift has important implications for how venture investors should think about value creation long before any acquisition discussion ever begins.

Every Investment Now Has Two Underwriting Cases

The implications for venture investors extend well beyond exit planning. They suggest that the underwriting framework itself should evolve.

The first underwriting case remains unchanged: Can this company become an exceptional standalone business? Can it compound value over decades, generate durable cash flows, and ultimately earn the confidence of the public markets? That question remains the foundation of every investment decision and should never be compromised. Companies built primarily to be acquired rarely produce exceptional venture returns because they optimize for someone else’s roadmap rather than creating one of their own.

Increasingly, however, every investment deserves a second underwriting case: If this company executes extraordinarily well, how does it change the strategic calculus of the larger platforms operating around it?

That is a fundamentally different question from asking who might eventually acquire the company. The latter encourages speculation. The former encourages analysis. Rather than attempting to predict an exit, it asks whether the company is creating strategic leverage that becomes more valuable as the market evolves. Does it own a workflow enterprises increasingly depend upon? Has it accumulated proprietary data that competitors cannot realistically recreate? Has it become deeply embedded within customer operations or established an ecosystem position that materially accelerates another company’s product roadmap?

Those questions push investors beyond market size and toward market structure. They illuminate where strategic gravity accumulates, which assets become scarcer over time, and how competitive advantage evolves as technology platforms mature. More importantly, they improve investment decisions even if an acquisition never occurs because they identify the sources of durable value creation long before those advantages become obvious in financial results.

That perspective has become increasingly important because AI is changing the nature of competitive advantage itself. A decade ago, superior technology alone could often sustain a durable moat. Today, foundation models improve rapidly, inference costs continue to fall, and core capabilities diffuse quickly across the industry. Increasingly, differentiation resides elsewhere: proprietary enterprise data, trusted customer relationships, workflow ownership, ecosystem integration, distribution, governance, and execution. As Tomasz Tunguz has argued, long-term enterprise AI value is migrating toward the workflow and orchestration layers rather than the models themselves. For enterprise software investors, that should sound familiar. The application is becoming the control plane.

Viewed through that lens, strategic relevance becomes another dimension of venture underwriting rather than a conversation reserved for investment bankers years later. It encourages investors to evaluate product architecture, customer integration, ecosystem position, governance, and data strategy with greater intellectual rigor because each contributes not only to standalone value but also to long-term strategic importance.

Strategic Value Is Built Long Before It Is Recognized

One of the more persistent misconceptions in venture capital is that strategic value emerges during a sale process. In reality, by the time investment bankers begin calling prospective acquirers, most of the important work has already been done.

Strategic value compounds quietly over many years as companies become deeply embedded within customer workflows, accumulate proprietary datasets, establish trusted brands, and position themselves as indispensable infrastructure inside larger enterprise ecosystems. Buyers rarely pay extraordinary premiums for individual products. They pay for years of accumulated customer trust, product integration, organizational learning, and ecosystem influence that would be prohibitively expensive, time-consuming, or simply impossible to recreate internally.

That helps explain why so many of the transactions discussed earlier commanded substantial premiums. Google did not acquire Wiz solely because of its revenue growth. Salesforce did not pursue Informatica because it lacked another enterprise software product. Microsoft did not reorganize its AI strategy around Inflection because it needed more engineers. Each transaction reflected years of accumulated strategic positioning that compressed development timelines and accelerated product strategy in ways internal investment alone could not match.

Cisco has understood this principle for decades, using acquisitions to extend platform capabilities into adjacent markets that reinforce its broader competitive position. NVIDIA is following a remarkably similar playbook, expanding beyond GPUs into orchestration, infrastructure optimization, networking, and synthetic data to strengthen its position across the AI stack. In both cases, corporate development functions less as opportunistic dealmaking than as an extension of long-term product strategy.

For founders, the implication is straightforward. Do not build a company that someone might want to buy. Build one that competitors increasingly cannot afford to ignore. The distinction may appear subtle, but over the course of a decade it leads to profoundly different product decisions, capital allocation choices, and strategic priorities.

What This Means for Founders, Boards, and Investors.

For founders, the implication is not to optimize for acquisition. Instead, build a company capable of standing on its own merits. The difference is that founders should think more deliberately about where strategic value naturally accumulates. Which workflows are becoming mission-critical? Which proprietary datasets become more valuable with scale? Which integrations become indispensable as customers automate larger portions of their operations? Which customer relationships deepen as AI assumes more routine work? Those questions produce stronger companies regardless of whether an acquisition ever occurs because they point toward more durable competitive advantages.

Boards should also rethink how they engage with Corporate Development (“Corp Dev”) organizations. Too often, those relationships begin only after an investment bank launches a formal sale process. By then, most of the strategic context has already been established.

The best Corp Dev leaders possess one of the broadest perspectives in the technology industry. They sit at the intersection of product strategy, engineering, customer demand, competitive intelligence, and capital allocation. Every acquisition they evaluate forces them to answer the same questions venture investors should be asking: Where is competitive advantage migrating? Which capabilities are becoming strategic necessities rather than nice-to-haves? Which technologies can no longer be built quickly enough to matter?

That is why I increasingly view Corp Dev as one of the most valuable market-intelligence functions in technology. Unlike public investors, Corp Dev teams have visibility into internal product roadmaps, engineering constraints, customer demand, and board-level strategic priorities. They understand where their organizations are falling behind, where competitors are pulling ahead, and which capabilities CEOs are prepared to buy rather than build. They are not simply observing changes in market structure; they are helping shape them.

For venture investors, that distinction matters enormously. Relationships with Corp Dev teams should not exist simply because they may someday acquire one of our portfolio companies. They should exist because they provide one of the clearest windows into where strategic value is accumulating across the technology landscape. Those conversations sharpen underwriting years before they produce acquisition discussions by revealing where competitive advantage is migrating, where enterprise budgets are moving, and where the next generation of platform battles is likely to emerge.

In a world where AI is compressing technology cycles, understanding how the largest technology companies allocate strategic capital may become almost as important as understanding how public markets allocate financial capital. Public markets tell us what investors value today. Corp Dev often tells us what the technology industry will value next.

Final Word

Venture capital has always been an exercise in allocating capital under uncertainty. The best investors succeed not because they predict the future with greater precision than everyone else, but because they continually refine the mental models they use to interpret changing markets.

The reopening of the IPO market is welcome news. But it would be a mistake to conclude that the return of IPO activity means the venture playbook has reverted to where it stood five years ago. Public investors have become more selective. AI has compressed technology cycles. Strategic buyers have become more sophisticated. Together, those forces have changed not only how companies are valued, but also how enduring value is created.

The companies most likely to produce extraordinary outcomes over the coming decade will not optimize around a single exit path. They will build businesses that are strong enough to stand on their own while becoming increasingly difficult for competitors to replicate or ignore. That combination creates optionality, strengthens strategic positioning, and ultimately expands the universe of potential outcomes without compromising the quality of the underlying business.

For venture investors, the implication is equally clear. We should continue underwriting exceptional standalone companies. We should also become far more disciplined about understanding how those companies reshape the strategic landscape around them. That is not about predicting acquisitions. It is about recognizing where strategic gravity is accumulating before the rest of the market does.

Twenty years ago, Corp Dev teams were viewed primarily as exit partners. Today, they are also among the clearest leading indicators of where strategic value is emerging across the technology landscape. Public markets tell us what investors value today. Corp Dev often tells us what the technology industry will value next.

The acquisitions may happen years later. The underwriting advantage begins the moment you understand why they eventually will.

***Jonathan Tower has been a global venture investor for over 20 years, having managed more than $5 Billion in AUM, invested in more than 85 companies, and seeded 9 companies that went on to become unicorns across three core investment themes: consumer (marketplaces, ecommerce enablement, digitally native brands), enterprise (software, services, infrastructure, storage, data orchestration) and frontier technologies* (AI/ML, IoT, robotics, Fintech, etc).

Jonathan’s direct investments have resulted in more than $10 Billion in exits, including early bets in Jet.com (acquired by Walmart for $3.5 Billion), Dollar Shave Club (acquired by Unilever for $1 Billion), Freshly (acquired by Nestle for $1.5 Billion), IfOnly (acquired by Mastercard), InsideView (acquired by Demandbase), and MapR Technologies (acquired by HP). Other notable investments, which Jonathan led or helped champion, include Groq (acquired by Nvidia for $20 Billion), Virtue AI (acquired by Meta), Hammerspace, Cohere, TogetherAI, Snorkel AI, Jeeves, SingleStore, Artera, Cart.com, Madison Reed, Qumulo, and many other companies that have gone on to become market leaders.

Jonathan writes frequently on venture capital and technology topics on his blog, Adventure Capitalist, and he’s been a frequent contributor to The New York Times, Fortune, The Wall Street Journal, FastCompany, Forbes, The Washington Post, The LA Times, and other leading publications.

X: @jonathan_tower; instagram: jonathan_tower