Dow Jones VentureSource just released their Q1 report on venture capital. I love the raw data in this report and below we compare M&A reported by venture funds relative to funds deployed. There are some very interesting observations:
Value of exits are larger than investments. The average size of a new deal in the past three years is $16mm. The average exit over that same time from prior investments is $142mm, nearly 8.6x greater than the size of a new deal.
Number of exits are way lower than investments. Over the past three years, VC in the survey have made on average 5,093 investments per year. Over the same period the number of exits each year has averaged only 552. In other words for every 9 investments over the past three years, the VC funds have realized 1 exit per year from prior funds.
While the vintages of the exit are not the same of the vintages of the investments, if we assume the trends have held somewhat in line over the last 5 to 10 years, the data shows that returns are coming from large but less frequent exits. VC are not consistently performing well on their investments but rather are still on a few stand out investments to cover the losers. If the trends do hold historically, VC may not be performing particularly well: if you’re exiting 1 of 9 investments but only earn 9x on those exits, you’re barely returning capital.
Again, this analysis is very imperfect as it assumes the numbers going back 5 to 10 years have stayed consistent in terms of size of exit, number of investments per exit, etc, but it’s still interesting to extrapolate.