VC Exit Activity Remains Strong Despite Rising Valuations

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VC Exit Activity Remains Strong Despite Rising Valuations by PitchBook

Powered by the PitchBook Platform, our 2H 2015 VC Liquidity Report offers data-driven analysis of U.S. VC exit activity in the first half of 2015, as well as over the past decade. The report is broken down by several metrics, including exits by type, sector and valuation, as well as overall exit activity by quarter and year. We’ve extracted the top highlights from the report into the short video above, which presents some interesting findings:

  • 1H 2015 has seen 427 exits valued at a combined $27 billion, a bit off pace from 2014’s monster totals but impressive nonetheless.
  • Transactions valued within the $100 million – $500 million range, as well as sub-$25 million deals, continue to account for the bulk share of VC exits.
  • $1 billion+ rounds are now much more common than $1 billion+ exits by a 4:1 margin; in comparison, last year saw 59 rounds of that value and 22 such exits.
  • From first VC round to IPO, it’s taking startups much longer to go public—from around four-and-a-half years in 2006 to now more than eight years. From last VC round to IPO, however, it’s taking less time. Startups that went public in 2015 got financed only six months earlier, roughly a year shorter than what we have seen in the past.
  • About 90% of 1H exits were acquisitions—a total of 385 exits valued at over $23 billion.

VC Exit Activity Remains Strong Despite Rising Valuations- Introduction

Much of today’s discussion around venture capital revolves around valuations, round sizes and the groundbreaking technologies behind them. Ultimately, however, venture capital is an asset class, and it depends on strong exits in order to justify those rounds and valuations in the first place.

On that point, the public markets offered a stark reminder to optimistic investors in late August. Between August 17th and August 25th, over $140 billion of combined equity value between five tech giants (Apple, Google, Facebook, Twitter and Netflix) was destroyed in a matter of days. The markets have recovered somewhat, but the jolt got the attention of VC investors and their startups. The IPO route looks more perilous and unpredictable today. Doubly concerning is the fact that deflated stock prices in the tech sector will likely translate to fewer, smaller startup acquisitions in the near term. It’s also possible that acquisitions that do happen will be paid more often in cash.

Both the IPO and M&A windows might be narrowing, in other words, while valuations are at a high point. What does this mean for today’s startups valued at $1 billion or more, the so-called “unicorns”? As we highlight on page 6, the number of $1B+ exits has indeed gone up, but not nearly as quickly as the number of rounds valued at that level. Prior to 2014, the number of $1B+ investments and exits were consistent going back to 2006. Last year, however, saw 59 rounds valued at $1 billion or more, but only 22 exits that cleared that mark. Through the first half of this year, the ratio is even starker, with 32 unicorn rounds to only eight $1B+ exits.

Over the last year or so, much of the industry has argued that keeping companies private longer was preferable to going public. “Private IPOs” became the norm, with later stage companies raising large rounds from VC investors rather than filing S-1s. On page 7, this trend is evident in two graphs. The time taken to go from first financing to exit has steadily gone up, from a median of two years in 2008 to over eight years through 1H 2015. On the other hand, the amount of time between a company’s last VC round and its exit has been falling, especially for companies going public. In 2012, the median time between last round and exit was 1.8 years; for exits completed in 1H 2015, the median difference was only half a year. It will be interesting to see what happens to both graphs if the public markets keep behaving this way.


VC Exit Activity

U.S. VC exit activity has slowed this year. 2014 exits harkened back to the dot-com days, though last year’s total was partially skewed by the massive $22 billion sale of WhatsApp. Absent that deal, 2014 was still a post-2000 record by both count and value, so a slowdown isn’t surprising. What has changed over the past five years is the sheer number of exits happening, topping out at 986 last year. Through 1H, 2015 totals aren’t too far behind at 427, and capital exited levels should compare favorably to prior years, as well.

IPO activity, on the other hand, is well off last year’s pace. 121 VC-backed companies went public in 2014 versus only 42 companies through June of this year. Market volatility will likely dictate IPO activity through the rest of the year, though the number of still-private unicorns hints at stronger IPO numbers—at some point. Until then, acquisitions remain the exit of choice for VC, with another 385 sales finalized in 1H totaling $23 billion in value. M&A made up 90% and 85% of VC exit counts and value, respectively, through the first half.

Large exits ($500M+) accounted for the lion’s share (58%) of total capital exited in 1H, down slightly from 63% in 2014. Most years going back to 2006 saw $500M+ exits account for 40% or less of total exit value, and sometimes as little as 21% (in 2009).

VC Exit Activity

See full report below.

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