The new reality for VC-backed exits?

Mark MacLeod · September 16, 2009 · Short URL: https://vator.tv/n/aa0

Looking at the Mint exit

The big news (so far) this week was Mint's acquisition by Intuit for $ 170M. I love this deal. It shows that the VC model of rapid funding and growth can work. And it puts Internet M & A back on the map. Median exits in the sector have been sub $ 50M and most deals did not have a value disclosed (i.e. they were small).

 Still, for all the fanfare about this (with I think every VC involved posting about it), I can't help but notice the returns are way lower than what used to be considered a big win not that long ago. With $32M of capital raised, even if the VCs owned 80% of the company they would have collectively generated a 4.25X multiple on their cash ($170M * 80% / $ 32M). I don't believe the founders would have parted with 80% of their company in two years, so the returns are likely much lower.

The first money in (First Round Capital) would have made a killing, but overall, this is only a good outcome by past standards. Yes, given that the company is less than two years old, the IRR must be great, but the multiples are not.

What I'm wondering is - is this the new reality? Are the fabled 10X multiples that investors talk about a thing of the past? Or will they continue to use potential for 10X as a real benchmark in evaluating dealflow?

Speaking for the entrepreneur side, I truly hope that VCs can and will embrace lower multiples as an ongoing fact of life. We all know that the true home run plays are very rare and shooting for them excludes many great companies from funding. It also kills many companies that do get funded but are shooting for a goal that they will never attain.

I posted some thoughts a while back on how VC could adjust to the reality of smaller returns. That post contemplated exits well below $ 170M and capital requirements way below $ 32M. Still, while its great to see this big exit, I hope the industry is gearing itself for long term success even when the exit values are well below what Mint got this week.

(Originally posted on https://startupcfo.ca)

(Image source: ridgeonline.files)


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