VC exits soar for some

by Scott Denne

With its $8bn purchase of Qualtrics earlier this week, SAP helped push venture exits into the nosebleeds. About seven weeks remain in the year and the total value of acquired startups has already smashed the previous post-dot-com record. Yet the spoils aren’t evenly distributed. Those startups getting sold are often commanding a premium, although most aren’t getting sold at all.

According to 451 Research’s M&A KnowledgeBase, venture funds have sold a collective $75bn worth of tech vendors, 50% more than the previous record of $50bn. Rising prices, rather than deal volume, are driving that total. Since the dot-com days, VCs have sold five private companies for more than $5bn. Four of them have traded this year. Moreover, 11 have sold at $1bn-plus, more than the previous two years combined.

The trend isn’t limited to the big-ticket transactions. Overall, the businesses that are getting sold are selling for more. The median price tag for a venture-funded vendor stands at $123m this year, well above the typical $55-65m for the most recent years. Demand from acquirers isn’t the only reason for rising startup prices. Venture-backed companies are also raising more and bigger rounds, staying private longer and, therefore, fetching more when they do sell. Still, the number of venture-backed vendors to find a buyer this year – 520 so far – is on pace to be the lowest since 2009.

The perception that there’s a major tech-driven transformation afoot has sparked many of this year’s exits. Indeed, the largely untried idea of combining ERP, CRM and HR data with customer and employee sentiment drove SAP’s Qualtrics purchase. According to 451 Research’s Voice of the Enterprise: Digital Pulse report, 46% of respondents told us that they expect digital technology to highly impact their organization’s industry over the next five years. Whether acquirers view the looming transition as an opportunity or a challenge, it’s pushing them toward the perceived winners in each category and creating a willingness to pay up. There doesn’t appear to be much of a prize for second place.