As seen in the chart below, both M&A and IPO markets have placed increasing valuations on successfully
exited venture backed companies.
Not exact matches
There are 17,000
venture -
backed companies in the U.S., and there were only 39
venture -
backed IPO
exits last year.
Exit events today for venture backed companies are no longer IPO's and their typically $ 150 million plus exit val
Exit events today for
venture backed companies are no longer IPO's and their typically $ 150 million plus
exit val
exit values.
More significantly, however, over 50 percent of
venture -
backed IPO
exits went to health - care
companies in the second quarter, the fifth consecutive quarter that health - care
companies have topped technology
companies for public
exits, CB Insights reports.
This metropolitan area (which includes Oakland and Fremont, Calif.) saw the largest proportion of
venture capital -
backed business
exits over the past year compared to other major cities, meaning there are a large number of what Kauffman identifies as «growth
companies» in San Francisco and the East Bay.
Despite recent hype around a handful of
venture -
backed companies raising money at multi-billion dollar valuations, achieving a more than $ 1b
exit for a startup is highly unlikely.
If this strong correlation continues,
exit opportunities for
venture -
backed IT
companies would as a result decline in a weak economy.
While the decline in IPO transactions for
venture -
backed companies in the 2000s is dramatic, the rise in M&A transactions has more than offset the losses such that there is a healthy trend line of positive
exits over the three decades.
Over the last ten years, it has become clear that
exit opportunities for
venture -
backed portfolio
companies correlate strongly with the state of the economy and its ability to support M&A and IPO market activity.
Venture backed companies have achieved consistently strong
exits in each of the last three decades despite the shift in
exit markets emphasis from IPOs to M&A.
Nevertheless, the implications for the
venture market are clear: M&A is the most likely
exit market for successful
venture backed companies today.
White Paper by Roland Reynolds & Ken Wallace September 2009 INTRODUCTION Two key trends have dramatically altered the
venture capital industry over the last three decades: the rise of larger fund sizes and the decline of Initial Public Offerings (IPOs) as an
exit market for
venture -
backed companies.
Fortunately, a string of bellwether
exits (AirBnB, Uber, Lyft, Palantir, etc.) could quickly cure
venture liquidity issues by bringing dollars
back to LP's, opening the gates for
companies sitting on the sidelines, and providing the market with more public acquirers.
Despite the massive increase in dollars flowing into
venture capital
backed companies in recent years, the
exit environment is decidedly tepid.