Venture Capital Exit Times - What it Means for Entrepreneurs and Angel Investors

My two previous posts described how venture capital investors will want to invest too much and then exit only for very high returns.

Why are those bad things for entrepreneurs and angel investors?

They can be very bad because they make:

1. Venture capital exit times extremely long - much longer than you probably realize

2. The risk of actually achieving an exit increase dramatically

This post describes why these factors make venture capital exit times so long.

If the successful venture capital investments need to return 30x on average, or at the very least 10x, to generate a minimum VC return of 20% per year, how long will the VC fund have to hold the investment before an exit?

The graph below shows how many years it takes to generate a minimally acceptable VC fund return from the winning investments.

Venture Capital Exit Time

Some companies will create increases in share value faster than 30 or 40% per year, but these are extremely rare. Everyone who has run a company knows that generating consistent 30 to 40% annual increases in value requires a great deal of hard work and some luck.

This is especially true when you realize that these are not just the increases in the overall enterprise value, but instead the increase in the per share value of the company. The difference is the additional dilution from any future financings or employee equity plans.

The 8 to 10 years shown in the graph above seems almost impossibly long. Could it really take that long?

The rest of this post on Venture Capital Exit Times shows actual data on venture capital exit times and describes what this really means for entreprenuers and angel investors.

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Basil Peters

Basil Peters

For the first half of my career I was an entrepreneurial CEO. More recently, I've been a hedge fund manager, venture capitalist and angel investor. This my personal website. It describes my background, has links to my other web sites and hosts the presentations from my recent speaking engagements. Technology Entrepreneur I have always been fascinated by technology. While I was still in... more

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