PwC and CB Insights put out their annual report on venture capital and it’s fantastic. One of the slides buried way in the back discusses M&A of venture backed companies. The insights are valuable so we’re posting the slide below.
In any given year for the past 5 years, 600 to 650 M&A deals are getting done for venture backed companies. The median years to exit is a pretty steady 5 to 5.5 years.
We keep hearing about companies staying private longer as growth stage VC are putting more money to work than ever. So how does the number of M&A deals compare with number of later stage deals done in a given year? Why is the title of this article “Growth rounds are the new exit”? See below.
The big take-away is that there are 2.5x more growth rounds as exits in any given year, and given growth stage VC’s propensity to buy out older investors each round via secondary transactions, growth rounds are a great alternative to exiting. In other words, if you want to continue to play for the upside but also get old investors out, a growth round is actually better than an exit to achieve both. We believe growth rounds are the new exit for early investors and as such, if you’re a founder thinking about M&A to exit, explore a growth round as well. It can achieve a more optimal outcome and you may actually get a higher valuation in a growth round versus M&A.
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