This year's hot start-ups are next year's takeover targets, Adobe CEO says

Despite the cash piling up in Silicon Valley, some start-ups might be better off selling out next year, according to the CEO of Adobe.

"A lot ...will depend on valuations, and the way valuations go in the private market," Shantanu Narayen, Adobe's president and CEO, said on CNBC's "Squawk Alley" on Friday.

"There's certainly some frothiness there. And there a number of companies that have been created that are not stand-alone companies, and so I think a number of them will look to acquisition as an exit strategy."

Adobe is a major player in the software industry — the industry that's gotten the most dollars from venture capitalists for 28 straight quarters, according to the third-quarter MoneyTree report by PricewaterhouseCoopers and Thomson Reuters.

Though funding has slowed down, October marked the 11th straight quarter of more than $10 billion in venture capital invested in a single quarter, the report said.

Shantanu Narayen, President and CEO of Adobe Systems.
Hemant Mishra | Mint | Getty Images
Shantanu Narayen, President and CEO of Adobe Systems.

While the crowd of billion-dollar start-ups has swelled again this year, fewer companies are going public. There have been 120 offerings filed in the U.S. so far this year, a 47.1 percent decline from last year, according to Renaissance Capital.

That leaves mergers and acquisitions as one possible strategy for 2017. PwC predicts that "pent-up demand" and recent signs of increased activity suggest more opportunities for deal-makers in the next year, according to the firm's year-end deals review.

Adobe itself announced plans to acquire video advertising company TubeMogul last month.

Narayen's comments come a day after Adobe reported better-than-expected quarterly results. The company's shares fell nearly 1.5 percent Friday.

The maker of PhotoShop and Acrobat posted adjusted fiscal fourth-quarter earnings of 90 cents per share on revenue of $1.61 billion, higher than the 86 cents per share on revenue of $1.59 billion expected by a Thomson Reuters consensus estimate. Still, the company's guidance for 2017 fell slightly short of expectations, at $3.75 a share versus $3.83 estimates.

Though consumers are no longer upgrading their phones as frequently, Narayen said a growing total number of mobile phone users across the globe is still driving Adobe.