How Much Are Actual Startup Exit Prices And Returns?
What are the actual returns for investors and founders when startups get acquired? There is plenty of talk lately about bubbles, burn rates and risk, but what are the actual returns that these companies are making?
One obstacle to determining real numbers is that most tech companies that are acquired do not release exit prices. Only 31.6% of the total M&A deals last year released an exit price, per Crunchbase. This happens for various reasons. Private company buyers are not required to release prices. Meanwhile, public company buyers often do not release a price if it is not considered large enough to be “material.”
Despite the lack of disclosure, it’s still possible to analyze the industry’s exit prices and returns. To do this, Exitround did an in-depth analysis of exit returns across different verticals. Using detailed data from Exitround’s Exit Report, we found that companies with exit prices below $100 million returned on average 12.8 times their total invested capital. For comparison, companies in Crunchbase with exit prices below $100 million generated 8.97 times total capital invested. Meanwhile, that number was higher for all acquired companies in Crunchbase: 17.2–that includes companies exiting over $100 million.
For comparison, Fred Wilson has written that a typical venture fund needs to get 4x return on its investments to generate a 2.5x distribution to limited partners. While a 4x return is lower than the average companies in Exitround or Crunchbase’s data, Wilson’s analysis includes companies that are shut down–which are typically one-third of a fund. So if you want to consider the return figures at an investment fund level that should be kept in mind.
As noted above, the M&A deals in Crunchbase’s data under $100 million had a lower average return on capital invested (8.97) than did the companies in Exitround’s report (12.8). What explains this difference?
One explanation is that Exitround’s data has the exact amount of capital that companies raised – whereas often companies do not publicly disclose this information. Crunchbase does not always have this data, particularly for smaller companies. So Exitround’s data has some higher ROI deals that Crunchbase does not. This can be seen in the capital raised section below (chart 3), where Crunchbase companies with exits below $100 million raised close to $10 million at the median and $23 million on average, whereas companies in Exitround’s data had raised $1.2 million at the median and $3.6 million on average.
The other explanation is that Exitround’s data set comes primarily from top seed investors and incubators that have backed companies that have generally performed well. Crunchbase, however has a broader set of companies, some of which may not get strong returns from seed or Series A deals.
Which Companies Had The Best Return On Capital?
In terms of specific sectors, mobile companies and SaaS companies had better returns on capital invested, while ad tech and social companies did worse, according to Exitround data. Some larger exits boosted the average prices of mobile and SaaS companies, while median prices of mobile and SaaS did not differ much from ad tech and social companies.
The Exitround exit data is directionally similar with Crunchbase data for return on capital invested. The sector where Exitround’s data differed from Crunchbase’s most was in social/adtech. This suggests there were proportionally more high multiple exits in ad tech/social than in other sectors.
Which Companies Had The Best Exit Prices?
While return on capital shows mobile and SaaS companies did best, a look at exits in absolute dollar terms shows that mobile companies had the largest exits, according to Exitround’s data. Interestingly, however, mobile companies raised among the least amount of capital (see chart 3 below), which explains why mobile companies had among the highest return on capital invested. One explanation: more mobile companies were consumer companies and therefore got traction faster than some of other types of companies.
The other sectors, such as adtech/social media and cloud/SaaS had lower prices than those for mobile, hovering near $10 million in average exit price. But lower exit prices did not mean that ROI was not high. For example, despite lower average cloud/SaaS exit prices compared to mobile companies, ROI for cloud/SaaS companies was almost as high as it was for mobile companies in Exitround data (See chart 1).
We also compared exits prices in Exitround’s data set at less than $100 million with companies in Crunchbase to get an equivalent comparison. In this comparison, median Crunchbase deals were 5.1 times larger than median deals in Exitround’s data and 2.84 times the average deal in Exitround’s data. This can be explained by the fact that the prices of many smaller deals under $10 million do not get reported publicly and therefore not included in Crunchbase, which inflates average Crunchbase deal sizes. Also, many “leaked” exit prices are not accurately reported in the media. Typically, leaked small deals are reported as a $10 million or $30 million deal but are actually much, much smaller.
Which Companies Raised The Most or Least?
In terms of capital raised, mobile companies raised the least on average, according to Exitround data. This could be because a number of mobile apps were quickly acquired before raising much capital. Cloud and SaaS companies raised the most on average, which could be due to enterprise companies often taking longer to build their products and gain traction in the market.