The Venture Capital Math Problem (continued)

My post yesterday is still generating comments. We've got about 180 comments so far and will certainly pass 200. It's an important topic so I'm thrilled that so many people feel compelled to engage in the discussion.

I've also received a number of private emails on the topic and several of them have included data which I did not have access to when I wrote the post. So I am going to do some follow up posts as I drill down in the data.

First up is the number of exits per year. The debate in my post was between 200 exits per year and 1000 exits per year. As you might expect, the answer is in between.

A friend sent me Thomson VentureXpert data going back to 1990. Here's the raw numbers:

Total Reported Exits Since 1990: 7,373
Total M&A Exits Since 1990: 4,392
Total IPO Exits Since 1990: 2,981

Whenever I look at venture capital data, I like to back out 1999 and 2000 because those years were not normal by any measure.

Total Reported Exits (less '99/'00): 6,204
Total M&A Exits (less '99/'00): 3,812
Total IPO Exits (less '99/'00): 2,392

If you take the data, after backing out 1999 and 2000, and calculate the annual numbers, they are:

Annual Average Reported Exits: 365
Annual Average M&A Exits: 224
Annual Average IPO Exits: 141

We know that these do not include all the exits as many funds who do poorly do not report and surely Thomson misses some of the exits from the funds that do report. But we also know that the 1000 exits per year number is way too optimistic. It's probably in the 400 to 500 range.

The next step is to figure out two important data points; the value of the biggest exit each year and the shape of the distribution curve of exits (is it power law, gaussian, poisson, etc). Now that I have the data and have access to the right kind of mathematicians (the readers of this blog), we can get somewhere.

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