IPO Boom Pronounced in Fresh VC Exits Data Released by PitchBook

Peter Fogel September 30, 2013

Venture investors exited 131 companies for more than $6.7 billion in the third quarter, tying and slightly exceeding the number of exits and capital raised, respectively, from the second quarter, data released today by PitchBook show. This marks the most active quarter for VC exits this year.

The obvious starlet in recent quarters has been the returned prominence of the venture-backed IPO. Venture capital firms took 19 companies public this quarter, the second highest quarterly total since the end of 2007 (second only to 2Q this year).

Pharmaceuticals & biotechnology made up an overwhelming proportion of VC-backed IPOs in 3Q 2013.

Pharmaceuticals & biotechnology made up an overwhelming proportion of VC-backed IPOs in 3Q 2013. / Source: PitchBook Data

One of the most notable things about the IPO boom is the prominence of the pharmaceuticals & biotechnology sector, which represents more than half (28) of all VC-backed IPOs through the first three quarters of the year (55). PitchBook highlighted some of these IPOs in its recent Venture Capital Liquidity Report. The usually strong software sector saw just two exits through IPOs in the third quarter (down 75% from eight in 2Q 2013), which included an offering from the well-known business intelligence company Tableau Software.

With public markets roaring and the announcement of the most anticipated venture-backed IPOs since Facebook (it’s Twitter, in case you didn’t know), IPOs have dominated much of the conversation about VC-backed exits so far this year. But the old workhorse behind successful liquidity events, the always-reliable corporate acquisition, chugged along near its usual pace to comprise about 75% of exits in the third quarter. That proportion is down slightly from its three-year average of 80% of all VC-backed exits.

Software may have been relatively absent from the IPO market in 3Q 2013, but the sector was well represented on the acquisitions side of the exit tracks. Software accounted for about 40% of acquisitions by strategics and 60% of acquisitions by financial buyers in the third quarter, good for 48 total acquisitions. Following a similar trend as venture capital as a whole, the majority of software’s exits came through strategic acquisitions. There are multiple reasons so many exits come in the form of acquisitions. Many businesses that VCs invest in are not always most effective as standalone companies. Oftentimes, companies’ products complement products of larger technology corporations, especially in the software space, and are able to operate better as a business unit of those larger companies. In addition to the complementary relationship that venture-backed companies have with their corporate acquirers, the corporate acquisition route is also generally the shortest path to liquidity. The median time from a company’s first round of institutional investment to its exit has hovered consistently at about 4.5 years over the last six years. Breaking it down, however, we find the median holding time for companies exiting through acquisition is 4.1 years, compared to 6.4 years for financial buyers and 7.2 years for exits on the public markets.

For PitchBook’s take on 3Q 2013 private equity exits data, click here.

9-27 3Q 2013 Snapshot VC Exits FINAL