Goodbye Capital Efficiency: Tech Startups Are Raising More, And Exiting For Less

Investors take note: exits of VC-backed tech companies are becoming less capital efficient, i.e. startups are taking on relatively more investment and exiting for lower amounts.

We used CB Insights data and our private company valuations and multiples search to identify more than 400 $100M+ VC-backed US tech exits since 2009. We dug into the exits to analyze their capital efficiency, the ratio between the company’s valuation at exit and total disclosed funding.

When we break down the recent cap efficiency trends by year, we see that large exits are actually becoming less capital efficient over time.

Between 2012 and 2014, the capital efficiency ratio for $1B+ exits has been cut in half, dropping from 22x to 9x.
The capital efficiency of exits in the $500M-$1B range fell by 46% during the same time period, to 7.5x.
Exits in the $100M to $500M range also saw decreased capital efficiency, although the trend was less dramatic.

Note: We did not include 2015 year-to-date in our analysis, since the overall lack of exits has restricted sample sizes dramatically. For example, there were only 4 exited companies so far this year in the $500M to $1B range

Not surprisingly, larger exits are more capital efficient than smaller ones. For the full period 2009 to 2015 year-to-date, unicorns stand out as having the most efficient exits, with a median capital efficiency ratio of 15.3x, more than twice as high as the ratio for exits in the $100M-$500M range, which had a median capital efficiency of 6.3x. Some of the notably capital efficient exits of $1B and above are Veeva Systems (which raised $4M prior to a $4.4B exit), Whatsapp (which saw $60M invested by Sequoia, prior to a $19B acquisition from Facebook), and Indeed (which raised $5M before being acquired by Recruit Holdings for $1B+).