Don’t Overdose on VC: Lessons from 166 startup IPOs

1. Venture Capital is an extraordinary asset class

This cohort of startups has, in aggregate, created over four trillion dollars in value, nearly an 80X return on the capital invested. Entrepreneurship is an incomparable economic engine. Not only does tech create tremendous value, but it also does so quickly. The median company on this list was founded in 2005 and all were founded after the year 2000.

2. The last five years have been more extraordinary than usual

We looked at a five-year span of IPOs in October 2016 and the most valuable company at that time was also Facebook which had a market cap of $364B. The second most valuable company on the list was LinkedIn, then worth $26B. The 20th spot was held by FitBit with a market cap of $2.9B.

3. You need less than you think to get public

4. Venture Capital has diminishing returns

The average market cap of the 30 most funded startups is ~5X higher than the average market cap of the 30 least funded startups.

5. Outliers create bad mental models for founders

Uber raised over $13B of venture capital. Depending on the day Facebook is worth over a trillion dollars. These iconic success stories have become anchor points in the minds of entrepreneurs despite being truly atypical outcomes and a poor model for how any given startup is likely to perform.

6. Public markets aren’t particularly generous

7. Maintaining valuation is tough

Even if you’re able to get a high valuation from the public markets to start, holding it over time can be hard. There are a dozen companies on this list that have market caps/exit values that are lower than the amount of VC and IPO proceeds they’ve raised.

8. Some of the best companies are rarely discussed

Many of the startups on this list will surprise no one and they have been endlessly studied, debated, and celebrated. Books have been written about the management philosophies and their founders have been subjects of hagiographic biographies. However, many of the most successful companies are relatively under-discussed.

9. Four of the 20 least-funded companies are decacorns

There’s a belief among some investors that deploying huge amounts of capital is the only way to build substantial businesses. Among the twenty least-funded companies, four are decacorns and more than half of the least funded startups are worth more than the median market cap of the data set.

10. B2C Companies are worth more, But there are more B2B winners

The breakdown between B2B and B2C businesses is fascinating. B2C startups create more value in aggregate despite there being half as many of them.

Summary

Capital has no insights. This is one of our core beliefs as investors, and we believe this data supports the thesis. That said, this data isn’t the last word on anything.

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