No More Billion-Dollar Exits

The venture industry hinges on billion-dollar exits. With the downside in a venture investment limited to what you put in, one big hit can pay for a lot of startup sins across the portfolio.  Trouble is, billion-dollar venture exits are largely a thing of the venture past, as this figure from a Joshua Jaffe piece in TheDeal. com shows:


  1. Brent Buckner says:

    It may now be a bit of a stretch to say: “The venture industry hinges on billion-dollar exits”. The article outlines that there’s a segmentation occuring. Some VCs (per the article, 3i Group et al.) are running a business model that does not rely on billion-dollar valuations. Others (per the article, Granite Global Ventures et al.) continue to run the older business model.
    [Aside: my historical knowledge is not sufficient to determine whether or not the 3i business model really is newer — I have no figures at hand for the pre-Netscape era]
    On a risk-adjusted return to LPs basis, perhaps there’s space for both models. I can see that if the newer model is geared to delivering lower pre-fee returns there may be downward pressure on the base management fees.
    With the flow of institutional funds into VC it seems that something had to change. The impact of the internet on the business environment for start-ups and the tech bubble may have delayed the VC landscape having to reckon with some of the consequences of those funds, but those alleviating forces are now spent.