Don Dodge consistently puts out thought-provoking content on his blog, and today is no exception. Don serves as Microsoft's liaison with the venture community, handling business development between VCs and startups.
Today, he takes a stab at the ever elusive question of how one reconciles the imbalance between VC and angel capital investments versus the sparsity of identifiable exits.
I encourage you to read his piece in its entirety, but here is the key finding:
- Exits have averaged $18B over the past 6 years while investments have averaged about $40B over the same time period.
In Don's piece he combines venture and angel investments, with venture making up $24.2 billion of the $40 billion figure. I would be interested in hearing from some VCs on what percentage of the exit data would be attributed to venture-backed entities versus angels. I was frankly startled to see that angel investments comprise such a large annual nut.
It's also important to remember that Don chooses arguably the most difficult vintage in venture history for this piece. Given the long-term nature of venture investments, we really can't judge 2002-2006 vintages for several years to come. And certainly the 2000-2001 vintage is one most of us would like to generally forget.
That said, even if we normalize for a bad starting point, I agree with Don that it's awfully difficult to look at these numbers and come away with an overtly positive viewpoint. The IPO market is loosening up a bit it seems, and there are certainly some interesting companies in the pipeline. But will this be enough to reverse the negative IRR trends Don's data points toward?
One friend of mine in the VC business [who shall remain nameless] suggested that this data points toward the oft-cited "80-20 rule". That is, the top decile or quintile of venture funds generates a preponderance of the returns. Is this true? I can't say; but I would love to hear from the VCs who read this blog on where they think Don's data measures up and where it might fall short.
Note: At the time of this writing, I and/or funds I maintain discretionary control over, maintained long equity positions in MSFT and YHOO but did not maintain a position (long or short) in GOOG or IBM.
don dodge venture capital exits vc microsoft google yahoo ibm M&A woodrow enterprise+irregulars
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