Big exits are important for venture investors because they require large distributions to make up for any underperforming investments.
How much capital is burnt to get to those big exits impacts the return multiple a venture investor will realize.
Startups that grow in a capital efficient manner and achieve a big exit become the real needle movers for a venture investor’s portfolio.
Let’s dive into some of the best research in looking at the top-down exit numbers in the venture capital landscape to see how this has played out in the past.
WHAT QUALIFIES AS A BIG EXIT?
Let’s start by looking at what qualifies as a big startup exit.
According to CB Insights 2016 Global Tech Exits Report where they summarize what they found from analyzing 3,358 startup exits, 54% of startup exits were below $50M while 22% were above $200M.
Even for small early-stage VC funds, it is unlikely that distributions realized from exits below $50M will move the needle for investor returns.
It’s the bigger $200M+ exits that can move the needle, especially the 10% of exits which are greater than $500M.
HOW LONG DO BIG EXITS TAKE?
So how long does it typically take for a startup to get to a big exit?
According to SaaStr’s research, the average time it has taken for a startup to get to a $1B+ exit has been 11.7 years.
There also appears to be some correlation where the less capital a startup raised, the longer it took them to get to a $1B+ exit. A great example of this is Mailchimp which sold to Intuit for $12B after bootstrapping their business for 20 years!
LEADING INDICTORS FOR BIG EXITS
To achieve big exits, venture investors must often hold their portfolio equity positions for ten or more years.
Given the long hold times, what are some of the leading indicators that a venture investor may use to determine if startups in their portfolio could be on track to get to deliver a big exit?
1) Has the portfolio startup demonstrated an ability to deliver capital efficient growth over a long period of time? (strong indicator)
2) Is the portfolio startup achieving high Net Revenue Retention from its customer base and is the high NRR likely to continue for a long period of time? (strong indicator)
3) How consistent is the growth of the portfolio startup quarter over quarter, year over year? (moderate indicator)
4) Does the portfolio startup have significant expansion revenue opportunities as it scales? (moderate indicator)
IN CONCLUSION, PATIENCE IS REQUIRED
How should this impact early-stage investors decision-making framework?
Expect for venture capital portfolios to take significant time to mature when making fund investments.
Patience is required to maximize your equity in startup investments.
As the saying goes, the way you go broke in venture capital is selling your equity in your winners too early.
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Demystifying Startup HR
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3 Portfolio Companies Make Inc. 5000 + Quicklly & Instacart Expand
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iraLogix closes $22M + Branch expands with Uber
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Venture Capital Analyst
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$40M Fund II Raised!
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Portfolio raises $125M + talking fundraising with Branch CEO
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Omnia Fishing closes $4M round, joins Great North portfolio!
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Yardstik new to portfolio, closes $8M Series A
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Newsletter: Fund II is open for business!
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Fund II is open for Business!
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Mike Schulte Promoted to Venture Partner
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New Name + New Venture Studio
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Great North Launches Startup Studio
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We Don’t Need No [full-time MBA] Education
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Minnesota's Resilient Startups
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Jumpstart, the Startup School, and Branch Wins a Webby!
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COVID-19 Trends, the Great North response, and our Founders Survey
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New Business Preservation Act
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Great North Labs's Startup Summit 2020
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World Economic Forum, NoiseAware, and the Startup School reboot
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Top 5 Stories of 2019
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Founders Pledge: Support the Organizations that Support You
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BETA Showcase, Greater MN, and Launch MN comes to St. Cloud
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The Greater MN Meetup, Parallax, and Exponential Medicine
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Greater MN at the big show, Neela Mollgaard heads Launch MN, and Misty’s roadtrip.
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Talking VC, tech kids, and Forge North’s Horizon
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June: Great North Labs’s first fund raised!
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May: Innovation Ecosystems, SingularityU Kickoff, and PrintWithMe
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April: Minnebar Recap, ZenLord Pro, and Supporting Entrepreneurs
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MinneBar 14 Recap
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Dispatch and 2ndKitchen claim Tech Madness titles
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Minnesota Innovation Collaborative
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March: Minnebar, Hockey + Hustlers, and Innovation Workshops
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Great North Labs at CES
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Carried Interest: Top Posts from 2018
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Oct.-Nov.: Singularity University, Exponential Tech, and the State of Innovation
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July: Pitchly, ForwardFest, and Where to Invest in the Midwest
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June: Silicon Lakes, FactoryFix, and the Digital Transformation Summit
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May: Team Genius, IoT, and the Future of Everything
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IoT 3.0
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Healthcare Innovation
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March: Exponential Tech, the “Goldilocks Zone”, and Minnebar 13
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February: Team Expansion, Dispatch, and Startup School Events
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Great North Labs Newsletter – December 2017
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A Letter To My Younger Self
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Great North Labs Newsletter
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Great North Labs Featured on Tech.mn
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