These are challenging times for venture capitalists hoping to eke out a palatable exit from a struggling portfolio company.

Many venture-backed companies could soon be facing an undesirable yet straightforward decision: go out of business or be acquired at a fraction of their last valuation.

Investors expect all types of M&A to pick up next year. Acquirers could be publicly traded companies, PE firms or even other startups that are well-funded and, in many cases, profitable.

Although every acquisition is different, investors say that they generally prefer selling to a public company because it provides them with a path to liquidity right away.

But for companies that end up selling to another startup, those exits may feel especially disappointing for shareholders. That's because VC-backed businesses seldom pay with cash and instead offer a stock swap as currency.

Startup-to-startup deals are more difficult to get done because the target and the buyer need to figure out how much they are worth relative to each other, said Emily Anderson, managing director at Union Square Advisors, a tech-focused investment bank.

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