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Venture capital investments require an exit event in order for you to recoup your investment and realize some gains. If you have ever considered getting involved in venture capitalism but have held back because of the difficulty of exiting from these investments, there is some more encouraging news to consider. The latest update from CB Insights gives you reason to hope that more high profile exits are starting to happen more consistently now.
Billion Dollar Exit Successes Reward Venture Capitalists
Twice a year the firm CB Insights puts out a document called the Global Tech Exits report. In this release, they provide a variety of useful information facts and charts on the state of the venture capital investments and their successes. The first half 2016 report was a mixed bag, but it had some positive statistics to share. The data came out this week and is already making waves in the industry.
The data was encouraging, but not all rosy. During the first half of the year 2016, there were 1590 exit events from tech venture capital firms. This represented a 17% decline from the same half period of 2015. The quarterly news was better. Aggregate tech company activity achieved 820 exits on a quarterly basis for 2016 Q2. This figure showed a 6% increase over the first half of the year 2016. While the first quarter of the year had been weaker, the second quarter boasted fully 16 technology initial public offerings. Among these were high profile firms such as Twilio and NantHealth that went public.
Some of the best news from the CB Insights first half 2016 report focused on Unicorn exits. For a company to be considered a unicorn, it has to be acquired for minimally $1 billion. The second quarter of 2016 represented the first instance in six quarters where the total number of venture capital backed firms that were acquired for or taken public at $1 billion or more surpassed the total number of start up firms which became billion dollar members on the private market.
The most significant initial public offering deal of the second quarter 2016 turned out to be Twilio. It was a standout in what had been a smaller number of tech company IPOs for the year. There were four additional venture capital backed firms that received billion dollar buyouts or at least sold a majority stake for that amount. Among these was Cruise, the self driving start up company. General Motors purchased Cruise for more than $1 billion back in May of this year.
Many Tech Companies Exited Between $50 Million and $200 Million
The CB Insights report also covers tech companies that exited for less than a billion dollars. The tier that ranges from $50 million to $200 million of companies that are acquired by initial public offerings, mergers and acquisitions, or other venture capital exits is extremely important. CB Insights shows that based on valuations that have been disclosed, only 4% of the tech companies exited at a billion dollars or more to qualify as Unicorn exits. Over 25% of such companies received exit amounts that ranged from $50 million to $200 million. The majority category for exits falls in the next tier down. Over 50% of all tech companies exit for in excess of the $50 million threshold.
The Big Tech Billion Dollar Exits Have Been Increasingly Rare
These big billion dollar tech company buyouts have been limited at 4% of total exits as the data above reveals. This makes them somewhat rare, but at least they are occurring. This is important as the strong fundraising environment that marked both years 2014 and 2015 has deteriorated. In those heady years, over 150 companies attained the stature of Unicorns. The second quarter saw four of these companies reach that billion dollar plus status. This amount represented a decline from 22 newly minted Unicorns in the second quarter of 2015.
CB Insights commented on this in their report. “Unicorn births have been on a downward trend since Q4 2015, and reached a 6-quarter low in Q2 2016.” This is the less good news in the report.
Early Exits Still Dominate the Trend
If you are worried about how long you will be tied to a Venture Capital investment, the CB Insights report offers some encouraging news regarding early exits. The majority of Venture Capital backed technology firms exit before they achieve the Series C (mid round) stage in their lifetime. In fact, the 2015 Global Techs Exits Report showed that almost half, equating to 48%, of these VC-backed technology firms around the world provide exits in the first stage, Series A (seed). Another 27% of exits in tech companies occurred following successful mid stage Series B or Series C rounds of financing. A mere 13% of technology firm exits happened once the companies succeeded in raising late stage Series D or Series E financing for their final round. These average are for tech company exits from around the world.
It is interesting to know that not every early stage startup has to go through numerous rounds of fundraising in order to succeed in a high valuation exit for their early investors. Several examples of this occurred within the last year. Purplebricks is a United Kingdom based real estate technology firm. It went through an $11.7 million Series A fundraising as a final round before it went public for an impressive $360 million value price. The cyber security startup company Caspida obtained $9.7 million in first round funding before another company acquired it for a respectable $190 million.
Internet Sector Dominates Global Tech Exits
The top five countries in tech exits include the United States, the United Kingdom, Canada, India, and Germany. What is interesting is that each of the nations in the top 5 saw the internet sector dominate its exits. In the cases of Canada and India, mobile and telecommunications were strong seconds at more than 20% during the first half of the year 2016. These numbers proved to be slightly higher than in 2015.
As the chart above shows, Internet sector exits continued to garner the most activity in first half 2016 as they had in the last quarter of 2015. Of the sub industries within the Internet, the greatest number of exits that were achieved took place in the business intelligence, analytics, and performance management startups category. This report can be effectively used to guide your decisions for future Venture Capitalist endeavors.