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VC Exits

Inside the boom in $1B+ VC exits

In recent years, it seems everything about venture capital is getting bigger. The funds. The deals. And without question, the exits.

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When Lyft went public in late March at an initial market cap of more than $20 billion, it launched what could be a summer jam-packed with VC-backed IPOs that come with truly enormous valuations.

In recent years, it seems everything about venture capital is getting bigger. The funds. The deals. And without question, the exits.

A VC firm inking an exit worth $1 billion or more used to be a rare event—it happened just four times in the US during all of 2010, with the value of those deals totaling a mere $5.1 billion. Last year, meanwhile, those figures skyrocketed to 33 such exits worth a combined $76 billion, according to PitchBook data from a recent analyst note on valuation performance:

It’s surely no coincidence that the spike in $1 billion exits has mirrored a similar rise in the number of unicorns on the market. It’s also surely no coincidence that the rise in unicorn count is occurring at the same time VC fund sizes are ballooning, reaching a median of $226.5 million in 2018. When there’s more cash to go around, it leads to more valuable companies, and when those more-valuable companies are due for an exit, those deals will in turn come with a higher price tag.

That’s not necessarily a guarantee. It’s certainly possible for VC exits to come at down valuations. But for well-funded companies that are in or approaching the unicorn club, it rarely seems to happen: Less than 5% of all billion-dollar-plus VC exits in the US since the start of 2010 have come at a valuation below the target company’s last private post-money valuation, compared to a 27.1% rate on exits under $1 billion, again per PitchBook data.

And the valuations of those billion-dollar exits aren’t merely holding steady. They’re going up, with a median valuation step-up of more than 1.8x.

But that multiple, while impressive, isn’t what it used to be. Just four years ago, the median step-up multiple was more than twice as high, as you can see:

Why the change? As our recent analyst note points out, the decreasing multiple size has been concurrent with a climb in VC valuations: It’s possible that there’s simply less room for growth by the time the current generation of startups is going public or conducting a different kind of exit, lending credence to the idea that, these days, it’s the private markets where most value creation occurs.

After all, it’s hard to generate a 5x multiple when you’re already worth $15.1 billion—the private valuation Lyft attained last June with its last round of VC funding. It might be equally difficult for Uber, Slack, Pinterest and the rest of the unicorns making their way onto the public markets in the coming months.

The multiples might not be what they once were. But the quantity of billion-dollar VC exits doesn’t seem like it will be declining any time soon.

Featured image via ma-no/iStock/Getty Images Plus

Want more? Check out our analyst note breaking down $1 billion+ VC exits.

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    Written by Kevin Dowd

    Kevin Dowd wrote The Weekend Pitch newsletter for PitchBook, covering startups, buyouts and the rest of the private market.

    A native of the Pacific Northwest, he’s an alumnus of the University of Washington with a degree in creative writing and journalism. He enjoys books and basketball and, most especially, books about basketball. He feels uncomfortable writing about himself in the third person.

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