Venture Capitalists have been in a very good mood lately. That is because 2007 was the best year for VC returns since 1999. I have been following the investments and returns (IPO and M&A) for a long time. See the chart below, all figures in Billions:
| |
Investments
|
Returns
|
|
|
Year
|
VCs
|
M&A
|
IPO
|
|
2001
|
$32.1
|
$16.8
|
$3.5
|
|
2002
|
$22.1
|
$7.9
|
$2.1
|
|
2003
|
$19.6
|
$7.7
|
$2.0
|
|
2004
|
$22.4
|
$15.4
|
$11.0
|
|
2005
|
$23.7
|
$16.0
|
$4.5
|
|
2006
|
$25.5
|
$17.1
|
$5.1
|
|
2007
|
$29.4
|
$25.4
|
$10.3
|
|
|
|
|
|
|
Totals
|
$174.8
|
$106.3
|
$38.5
|
A couple of trends are clear from these numbers:
- VC investment has been growing steadily since 2003
- M&A has been the best exit every year...by far
- Exits have exceeded investments just twice in 7 years
VC investments usually take 5 to 7 years to get to an exit. So, you would expect, on average, that the 2001 investments would exit in 2006 or 2007. However, over the long term, any snapshot in time should show exits exceeding investments. Not so recently.
By any measure 2007 was a great year for VC returns. Both the M&A and IPO markets were very strong. Investments were also at the highest level since 2001.The break down for 2007 by investment stage shows the clear trend towards bigger deals at later stages.
- Seed Stage - $1.2B
- Early Stage - $5.2B
- Expansion - $10.8B
- Late Stage - $12.2B
Angel Investors are filling the void at the Seed/Early Stage investing $10.2B in 2007.
There is a popular refrain heard around Silicon Valley "Party like its 1999". From an investment return perspective it is a lot like 1999. The difference, I hope, is that the stock market is not in a similar bubble condition.
