There has been ongoing speculation and discussion in the financial press regarding a potential bubble brewing within the venture capital asset class, where funding rounds and valuations are reaching higher and higher amounts. It is therefore important to consider recent trends and the state of the exit environment. The exit environment for venture capitalists has witnessed strong and steady growth since 2007, according to Preqin’s Venture Deals Analyst. In particular, 2014 was a significant year due to the number of exits that occurred and aggregate value of these exits reaching a record high. Venture capitalists were able to realize 1,087 investments, fully or partially, and generate an aggregate $123bn. For comparison, the corresponding figures for 2007 were 699 exits totalling $56bn.
Trade sales continue to be the most prominent form of exiting, as shown in the chart below, with technology companies Facebook and Google contributing significantly towards the $70bn worth of trade sales exits in 2014, having been involved in deals for “unicorn” companies WhatsApp, Oculus VR and Nest Labs. Portfolio companies launching onto the public market through IPOs and follow-ons have also seen success. The total exit value ($49bn) was always going to be sizeable due to Alibaba Group’s $25bn IPO, but records show that there had also been a 38% increase in the number of public offerings (via either an IPO or a follow-on offering) from 2013 to 2014.
When looking at the regions where venture capital-backed exits have been taking place, it comes as no surprise that North America continues to host the lion’s share of activity. However, a trend that had already been observed in financings in the internet sector seems to follow a similar pattern. North America had accounted for 68% of all realizations in 2012, but has seen this proportion fall for three consecutive years to 57% in H1 2015 TD, owing largely to a shift in activity towards the regions of Europe, Greater China and India. The global IPO pipeline suggests that Asia will continue to narrow this gap, with 17 Chinese venture capital-backed portfolio companies having filed public offerings this year, compared with 23 US-based portfolio companies.