In our earlier research, we highlighted the power law distribution of venture capital exits. When we break venture’s largest exits down by the market they were going after – consumer vs enterprise – the data is telling.
- Enterprise dominates the largest exits in terms of quantity – 67% of the largest exits have gone to enterprise-facing companies including Veeva, Workday and ServiceNow to name a few. As we’d previously highlighted, there has been a recent shift to enterprise investments by VCs with their clearer path to revenue and greater receptivity by public market investors. In fact, 70% of the top 50 largest tech VC deals in the year-to-date went to enterprise tech companies – after just 38% in 2011 vs. consumer tech companies.
- On exit valuations, consumer tech smokes enterprise – Yup. There is no other way to say it. While making up only 1/3 of the top 100 exits, when consumer tech companies win in the marketplace, they win big. We see that the aggregate valuation of the 33 consumer exits actually tops that of the 67 enterprise exits by a notable 209%. Of course, Facebook’s gaudy exit valuation skews this, but (1) venture capital is ultimately all about outliers and (2) the next five largest exits over the period were all consumer tech as well (see distribution graph below).
The chart below shows the full breakdown of consumer vs. enterprise exits with blue being enterprise companies and orange being consumer tech. It is easy to see the frequency of enterprise tech exits throughout the distribution but the preponderance of consumer tech exits at the top of the exit valuation distribution curve (7 of top 10 are consumer tech).
A few more interesting notes/questions emerge from this:
- Perhaps this explains why there are so many private consumer tech companies valued at over $1 billion.
- For entrepreneurs who are “playing the odds”, is enterprise the way to go?
- Will the VC shift to enterprise which has been underway for the last 18-24 months continue on?
Methodology/Notes
For companies that exited via M&A, the valuation is simply the amount that the company got acquired for. For a company that went public, the exit valuation was that on the day of the IPO. Tech sectors include internet, mobile, software, computer hardware and electronics (chips & semis).
The time period covered ranges from January 1, 2009 to February 24, 2014.
All of the underlying exit and investor data used in this research brief is from the CB Insights Venture Capital Database. Sign up for free below.