While initial public offerings (IPOs) were an important exit mechanism prior to 2000, they now account for less than 10% of all large, publicly reported, startup exit events. The rate of startups going public is at an all-time low – down more than 75% in the last decade. (Angel Resource Institute)
Changing Landscape for US Venture Capital Exits
700
600
500
400
300
200
100
0
IPO
M&A
Source: NVCA , 2011 Yearbook
There are many reasons for this, including: • It is an onerous and expensive process (costing from $250,000–1 million) • In the US, the Securities and Exchange Commission requires compliance with Sarbanes-Oxley regulations • There is increased exposure to risk • There is exposure to public accountability • Most founders are ill-suited to being CEO of a public company and just don’t enjoy it (Zwilling) The vast majority of successful exits occur through the investee being acquired by another, usually much larger, company. Companies are holding historically large amounts of cash and are under tremendous pressure to buy back shares and pay dividends if they are not using their cash to grow the business. US companies alone spent over $170 billion on tech acquisitions in 2014. (Luckerson) Large companies are just not very good at coming up with new ideas, pivoting, and growing them inside their bureaucracies. They are bad at nurturing innovation but great at growing businesses once the business model has been proven. This way, acquisitions are used to sustain high growth rates – buying innovation rather than growing it organically. (Stunt)
82 A Practical Guide to Angel Investing: How to Achieve Good Returns
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