We recently revealed that among tech’s 100 largest exits, consumer tech companies are fewer in number but dominate in terms of size (as measured by valuation). In response to this brief, Kent Goldman (formerly of First Round Capital) asked how things would look if you compared these exits on the basis of capital efficiency.
— Kent Goldman (@kentgoldman) March 30, 2014
So taking Goldman’s suggestion, we broke down the data by “value creation”, i.e. exit valuation / total funding raised.
And the story changes pretty significantly when looking at things through this lens – in favor of enterprise. On a pound-for-pound basis, enterprise is a more efficient home for VC capital. But in a game of outliers, thunderlizards, black swans and unicorns, perhaps efficiency isn’t the name of the game?
Here’s the data.
Top 100 VC-Backed U.S. Exits Since 2009 – Valuation Distribution Curve
The chart below highlights the power law distribution of venture capital. The largest, by far, was Facebook’s IPO in May 2012 valuing the company at $104 billion. After Facebook, there is a significant dropoff in exit valuations.
Top 100 VC-Backed U.S. Exits Since 2009 – By Value Creation Ratio
Next, we analyzed the same order of exits by their value creation ratio (valuation at the time of exit/total funding raised). Interestingly, while we earlier found that 7 of the top 10 VC-backed tech exits over the period came from consumer tech, just one (WhatsApp with a ratio of 266x) stands out in terms of value creation ratio. The big winner was cloud-based life sciences software firm Veeva Systems which topped last year’s list of venture-backed exits by value creation, netting a valuation of over $4B in its IPO on just $4M of financing from Emergence Capital Partners.
Top 100 VC-Backed U.S. Exits Since 2009 – By Value Creation Ratio (Consumer vs. Enterprise)
Lastly, we analyzed the value creation ratios by the market they were going after – consumer vs enterprise. And while the data shows that consumer tech smokes enterprise on exit valuations, few of the top 100 VC-backed consumer tech exits were massive winners from a capital efficiency standpoint. In fact, B2B exits saw an average value creation ratio of 37.3x vs. 22.4x for B2C exits with a median value creation ratio of 11.7x vs. 8.7x for B2C. Of note, the enterprise space has seen a host of top recent exits with outsized value creation ratios including NEA-backed Tableau, US Venture Partners-backed Trusteer and of course the previously referenced Veeva.
Below is the distribution of exits by value creation. Outliers Veeva and WhatsApp are not included.
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.