Help: Understanding the VC Exit Predictor
Learn about PitchBook’s VC Exit Predictor and how to use it on the platform.
Do you want to know if a company is headed toward a successful IPO or acquisition? PitchBook’s VC Exit Predictor objectively assesses this, leveraging machine learning and our vast database of information on venture-backed companies, financing rounds, and investors. The tool then creates exit predictions that can assist you in identifying likely trajectories of venture-backed companies and identify investments that will drive the best return rate at the exit.
In this article, learn everything you need to know about the tool, including its methodology and where to find it on the platform.
How does the VC Exit Predictor work?
For a company to have an exit prediction, it must have received at least two rounds of venture financing in the past six years. This includes Angel, Seed, Early Stage VC, and Later Stage VC deals. Grants or accelerator rounds are not included in the calculation. The company must also be currently backed by VC investors. The tool predicts the exit using historical performance data on venture-backed companies and the following metrics:
Company details
- The number of patents a company has.
- The specific industry the company falls within.
- The number of employees at the company.
- The news article count covered about the company.
- Number of acquisitions made by the company.
Deal activity
- The financial maturity of the company, including years since its founding.
- The fundraising frequency of the company.
- The average deal size of each VC round.
Active investors
- Investor track record measures how the investor’s past investments have performed.
- Number of crossover investors, meaning the count of investors that have reinvested in the company.
- Number of investors currently investing in the company, plus the number of investors that have previously invested in the company.
What type of predictions does the tool make?
The VC Exit Predictor tool has multiple outputs based on the metrics above to assist in your investment decision-making. We have defined each output below:
- Success Class – This shows if the company is predicted to achieve an IPO or M&A exit successfully. This field is defined as Success or No Exit.
- Predicted Exit Type – If the tool predicts a successful exit, this field shows the most likely exit type, between either IPO or M&A.
- Success Probability – The company’s probability of achieving either an M&A or IPO exit shown as a percentage.
- IPO Probability – The company’s probability of achieving an IPO exit shown as a percentage.
- M&A Probability – The company’s probability of achieving an M&A exit shown as a percentage.
- No Exit Probability – The probability of the company not achieving an exit shown as a percentage.
- Opportunity Score – A percentile ranking of the company, indicating which companies have the most opportunity to drive the greatest return through an investment today. This score is calculated using each exit type’s probability and average weighted return, using an estimated IRR presented as a percentile.
What is the difference between the outputs?
The VC Exit Predictor has two main outputs: Success Probability and Opportunity Score. The Success Probability forecasts the likelihood that a company will exit through an IPO or M&A deal. These predictions can be used to understand a company’s trajectory and monitor similar company performance.
The Opportunity Score shows a forecasted rate of return for an investment made into the company based on its current financials. This can be used to identify good investment opportunities in today’s market. The higher the opportunity score a company has, the higher its rate of return is predicted to be.
What is the accuracy of the exit predictions?
The VC Exit Predictor is currently 75% accurate. The statistic comes from a test of 12,000 companies sampled across different geographies and verticals. Predictions for if and how a company will successfully exit were determined using the following methodology:
- If the probability of a company not exiting was greater than 50%, it is classified as being predicted to not exit.
- If the likelihood of IPO was greater than the likelihood a company would exit through an M&A transaction, it is classified as being predicted to have an IPO.
- Every remaining company not predicted to have an IPO is predicted to have an M&A transaction as its form of exit.
How can I see how predictions have changed over time?
Our Historical Predictions chart is a visualization of how our VC Exit Predictions change. You can find the chart in the VC Exit Predictor tab of every company with VC Exit Predictor data.
How do I read the waterfall plots?
The waterfall plots of the VC Exit Predictor show how and why a specific Exit Type is forecasted. You can find the waterfall plot of the VC Exit Predictor in the Exit Type section of the VC Exit Predictor tab on private company profiles.
Ready to get started?
For a detailed look into the VC Exit Predictor calculations and methodology, visit the VC Exit Predictor Technical Documentation below.
VC Exit Predictor Technical DocumentationThis next article section shows you where you can find the VC Exit Predictor in the platform.
Private company profile
The VC Exit Predictor tool is found on VC-backed private company profiles. Click on the VC Exit Predictor section from the sidebar to see an overview of the company’s exit prediction, including the Opportunity Score and Exit Type.
To view more information on the company’s exit predictions, click on the View All VC Exit Predictor Data button beneath the Opportunity Score or the VC Exit Predictor tab in the top ribbon.
The VC Exit Predictor tab is broken down into the Exit Type, Opportunity Score, Historical Predictions, and Peer-to-Peer Analysis sections.
Exit Type
The Exit Type section depicts the predicted exit type of the company using both a donut chart and waterfall plots.
Opportunity Score
The Opportunity Score section shows a percentile ranking of the company, indicating which companies have the most opportunity to drive the greatest return through an investment today. This score is calculated using each exit type’s probability and average weighted return, using an estimated IRR presented as a percentile.
Historical Predictions
The Historical Predictions section allows you to visualize how VC Exit Predictions for the company changed over time.
Peer-to-Peer Analysis
The Peer-to-Peer Analysis section provides an interactive way to compare companies in your investment universe and see which ones PitchBook predicts will have the most success. View a quintile ranking of the specific company against its peer group and sort by industry, vertical, geographic location, and specific financing details. Click on the View Companies in Advanced Search button to view all the companies as a search result.
Screeners
Search for companies with specific exit predictions from the VC Exit Predictor tab of a Companies & Deals search. This tab enables you to screen for:
- Predicted Exit Type – Choose an exit type to view either an IPO or M&A exit prediction. Choosing either option means you will only see results of companies with that predicted exit type.
- Success Probability Range – Choose a probability range of the company achieving a successful exit as a percentage.
- Opportunity Score – Choose the opportunity score range as a percentage. The opportunity score is a percentile ranking of venture-backed companies, indicating which companies have the most opportunity to drive the greatest return through an investment today. This score is calculated using each exit type’s probability and average weighted return, using an estimated IRR presented as a percentage.
- Inclusions – Include companies without score predictions in your search.
Search results
You can add VC Exit Predictor columns in the Companies tab of your Companies & Deals search results.
From the search results, you can click on the Opportunity Score to contextualize the score among similar companies. In the image below:
- Represents the company’s opportunity score against the whole universe of companies with a score available.
- Represents the company’s score against the universe of the same primary industry the company is tagged to.
- Represents the company’s score against the result of the screening criteria.
Not a PitchBook customer?
Now that you have been introduced to the VC Exit Predictor, this section breaks down different business cases you can use the tool to address. Below are some scenarios with steps that can be used as a guideline to help you get the most out of the tool.
I’m looking for a new investment opportunity in the FinTech space that will drive high returns in this specific sector.
- From the Data section in the lefthand sidebar, click on the Companies tab to land on a Companies & Deals screener.
- In the Key Fields tab, type “Fintech” into the Industries, Verticals, & Keywords field to indicate that you’re looking for FinTech companies. Select the Fintech vertical from the drop-down menu that appears.
- On the same tab, select the Completed deal status checkbox under the Deal Info section.
- Next, go to the Company Status tab and select the VC-backed checkbox under the Backing Status section to indicate that you’re looking for VC investment opportunities.
- Press Search in the upper right corner to run your search.
- In your search results, add the Opportunity Score column to your search results list and sort by highest to lowest. This will show you which companies within that sector score the highest. Companies with a higher score are predicted to give higher returns if you invest today.
I’m looking at a company for the first time, and I’m interested in understanding the company’s direction.
You can understand more about a company’s trajectory by clicking the VC Exit Predictor tab on the company’s profile. In the tab, you will also discover what exit type is most likely, helping you to understand the company’s future.
I have an existing list of companies and want to monitor their trajectory.
- From the Data section in the lefthand sidebar, click on the Companies tab to land on a Companies & Deals screener.
- In the Key Fields tab, use the Upload a List function to narrow down your results to companies of your choosing.
- Press Search in the upper right corner to run your search.
- In your search results, add the Success Probability and Predicted Exit Type columns to see which companies have the highest probability of a successful exit and whether the exit will be an IPO or M&A.
I want to find later-stage companies based in the UK that will exit through an IPO and assist them.
- From the Data section in the lefthand sidebar, click on the Companies tab to land on a Companies & Deals screener.
- In the Key Fields tab, click the Location drop-down menu and select the United Kingdom checkbox under Europe>Western Europe. Afterwards, click the Search HQ Only checkbox.
- Next, go to the VC Exit Predictor tab and click the IPO checkbox.
- Press Search in the upper right corner to run your search.
- In your search results, add the Success Probability column to see which of the companies are most likely to have a successful exit.
I want to benchmark my company against companies in the same sector to understand how I am performing.
Visit the VC Exit Predictor tab from the top ribbon of a private company profile and use the Peer-to-Peer Analysis tool to see a company’s performance relative to the marketplace.
Why is there no exit prediction?
As the tool relies on company data to create an exit prediction, the lack of company data covered in How does the VC Exit Predictor work section of the article can result in a company having no exit prediction. A company would also have no exit prediction if it is not backed by VC investors or has only received grants or accelerator rounds. For a company to have an exit prediction, it must have received at least two rounds of venture financing in the past six years. This includes: Angel, Seed, Early Stage VC, and Later Stage VC deals. Grants or accelerator rounds are not included in the calculation.
The VC Exit Predictor’s tracking scope includes all regions globally, except for Greater China.
How do I send feedback on an Exit Score?
The scores of the VC Exit Predictor are a quantitative analysis based on historical data available within the PitchBook Platform. The tool relies on current company information to help the algorithm to run optimally and create accurate exit predictions. While we can’t change exit scores, we encourage you to submit any new information on the company. Do you know about missing data from one of these companies? Reach out to us at [email protected].
How often is the VC Exit Predictor data updated?
VC Exit Predictor data is updated six times daily as new data becomes available in the platform.
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Source : G2.com
To understand how this feature fits into a broader workflow, check out the following PitchBook Pioneer courses - Market Analysis and Deal Sourcing: Identifying Opportunities.