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Posts Tagged ‘Valuation for Tech M&A Startups’

Most tech startups exit without raising funds, sell for under $50M

Billion-dollar valuations and mushrooming funding round amounts gathered much of the attention of recent years in startup-land.

But a new report shows that the majority of tech startups exit before they raise any venture or private equity funding and their valuation on exit is less than $50 million.

Venture investment research firm CB Insights said in a report on tech exits in the first half of 2016 that 53 percent involved startups that had raised less than $50 million. Another 26 percent were valued at between $50 million and $200 million.

Only about 4 percent were acquired or went public with a unicorn valuation of $1 billion or more. These included General Motors buying Cruise Automation for $1 billion, Twilio going public with a market cap of $1.2 billion and Cisco Systems buying Jasper Technologies for $1.4 billion.

Marquee acquisitions like Cruise and Jasper have increased during the tech IPO drought of the past year or so, but remain rare, Josh Elman of Greylock Partners said last week.

“That is increasing but it’s really only the strong companies that are getting acquired,” Elman said. “The acquihire market, where every team is worth something, has been falling away.”

It’s easy to see why they say that launching a successful tech startup is hard when you consider all of those numbers in the context of this rule of thumb — between 90 percent and 95 percent of them fail to achieve any sort of exit at all.

But the CB Insights report shows that it may not be necessary to do any venture visits to Sand Hill Road to sell a tech startup for millions or even tens of millions.

About 72 percent of the companies that exited in the first half did so without raising any outside venture, private equity or growth funding. That’s actually down slightly from the first half of last year when the number was 75 percent.

Cromwell Schubarth is TechFlash Editor at the Silicon Valley Business Journal.

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