Why VC Returns Languish

So you see a pattern here?

Number of VC-backed IPO's:
1995    205
1996    272
1997    138
1998      68
1999    250
2000    202
2001      22
2002      20
2003      23
2004      67
2005      43
2006      56
2007      76
2008        7 (none in Q2 or Q4!)

Average Time to IPO
1998    3 years
2008    9 years

Number of Companies Funded:
1998    1,896 ($14.0B invested)
2008    1,930 ($14.1B invested)

When you cut through all of this data, what you see is that VC's portfolios have filled up with deals while there has been little liquidity.  With 1,930 companies funded but only 7 IPO's (and another 300 M&A's), you have a lot of overhang in the existing company portfolios. The average time to exit has grown linearly since 2000. For entrepreneurs, what this means is exits will take longer to realize, requiring a long-term perspective to decision making and strategy.  Also, VC's are going to be very pre-occupied managing existing companies and have less time to a) due new deals and b) spend time with those deals.

The IPO machine will not likely return until the markets have hit bottom, stabilized and begun their growth again. Additionally, the notion of a promising $30m in revenue company (like Apple was) going public has been replaced by $100m thresholds. This means M&A is the primary driver of exits for some time ahead, which requires less swinging for the fences and more low burn/capital raised.

Interesting stats…

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