In April, Scott Kupor of Andreessen Horowitz commented on the relative “paucity of growth tech M&A”, writing:
As more capital shifts from the public markets to the private markets, venture-backed companies are better able to control their destiny rather than seek an earlier M&A exit. Arguably, many of these companies have priced themselves out of the M&A market by raising capital at valuations that few public acquirers can top… Regardless, it also means that a lot more money needs to flow into private markets to sustain these companies until an IPO or sale.
And the data indeed shows that while new billion-dollar valuations are aplenty (unicorns will hit a record in 2015), billion-dollar tech acquisitions are all but absent. The chart below shows the huge spike of new tech companies valued at $1B or more in 2015.
But on the M&A front, unicorn exits haven’t followed suit. For context, six U.S. venture-backed tech companies including Nest Labs and AirWatch had exited for $1B+ each by May of last year, topped by WhatsApp‘s $22B acquisition by Facebook. Tech M&A has been far less robust for VC investors in 2015. According to CB Insights data, just one VC-backed company, Lynda.com, has been acquired for $1B+.
As the chart below shows, this is resulting in fewer VC investors exiting billion-dollar companies. 18 different investors invested in the six $1B+ M&A exits by May of last year (though Sequoia was the sole investor in WhatsApp) while just four investors including Accel, Spectrum Equity and Meritech Capital Partners invested in Lynda.com.
Of course, the M&A market could pick up for venture investors as 2015 progresses, but as the data clearly highlights, the big exits so important for the lifeblood of VC funds haven’t been there for VCs thus far this year. Compounding the issue is a paucity of IPOs as well which have become a bit “unnecessary” because of private IPOs.
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Alfred E. Newman of Mad Magazine image here.
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