VC-backed tech companies take seven years on average to go public and now it looks like they need a boatload of cash to get there too. What happened to not being capital intensive? Using CB Insights venture capital data, we analyzed VC-backed tech companies that have exited since 2007 to identify how much funding they need to raise prior to exiting via IPO and M&A.
The following chart shows the average total amount raised by tech companies that have exited since 2007. In 2007, a tech company needed to raise $73M in funding before going public and only $31M if exiting via M&A. Since 2007, the total funding needed on average prior to an M&A exit has declined marginally while going public has become increasingly more capital intensive. Companies exiting in 2013 YTD via M&A raised an average of $22M in prior funding while an average IPO saw $102M in prior financing.
The 2011 blip seen in the above graph is due to the IPOs of Zynga and Groupon in 2011 as both compaies raised considerable amounts of funding prior to exit. To balance for these outliers, we then looked at the median amounts raised prior to exit which paints a similar picture of increasing amounts of capital prior to IPO with the amount raised by a tech company prior to an IPO exit increasing steadily since 2010. In 2007, the figure stood at $52 million and currently stands at $78 million. Median pre-M&A funding went down from $20M in 2007 to $9M in 2013 YTD driven in-part by the significant number of acqu-hires which have become recently popular.
When evaluating the sectors within tech which saw these exits, two sectors, namely Computer Hardware & Services and Electronics, represent a fairly small portion of the exits since 2007. The vast majority of these exits (83% overall) have been in either Internet, Mobile, or Software sectors, so we delved deeper into these three sectors next.
Looking at the average funding raised prior to exit by companies in internet, mobile, and software sectors, we see that average funding needed by a software company has remained quite flat over the years. On the other hand, mobile companies required much more funding prior to an exit in 2007 than they do in 2013 due largely to the shift in the mobile sector from capital-intensive telecom equipment and services to the relatively lean mobile software and app-based companies.
The median funding amounts highlight the same trend. Mobile has seen a considerable decline (from $38M in 2007 to $7M in 2013 YTD) while software has remained fairly flat with some variability over the years. In addition, the median funding raised by an internet company prior to an exit has also decreased – albeit slower than in mobile – from $17M in 2007 to $6M in 2013.