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Think Big. Move Fast.

The chart below shows the average time in years between a startup’s first equity investment (usually Series A) and its sale, for companies sold in each year from 1997 to 2007. (Source is Dow Jones Venture One/E&Y study)

As you can see, companies sold in 2007 had seen almost seven years pass since their first financing. Often they were founded up to a year before they took their first financing, so they were likely eight years old when they were sold. These numbers are averages – some companies exit faster, but some exit slower as well.

This data represents M&A exits. Usually the time to exit via IPO is even longer.

Although no data is available yet for 2008, there has been virtually no venture backed IPO activity in 2008, and the number of M&A tractions is sharply down from previous years. That means that the time to liquidity is likely getting longer.

Obviously, these are backward looking metrics (2007 numbers refer to companies that were sold in 2007, not companies that were started in 2007). However, founders of companies looking to raise venture capital should be ready for the long haul. You can’t start a company and expect a quick flip.

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  • http://www.techaviv.com Aaron

    Jeremy:

    Great job. I posted a link with some quick thoughts on my blog Yallaguy.com

    Aaron Cohen

  • Greg Tseng

    Is this skewed by the fact that so many companies were funded in 1999 and 2000? Doesn’t it seem curious that this stat has gone up about 1 year for every year since 2001? :)

  • http://techlang.com/ TechLang

    True entrepreneurs always be ready for change :)

  • http://www.angelunplugged.com Jeff Schrock

    interesting data.

    would also be interesting to see (although unlikely in the data source) the mean / median time for cash flow break even.

    gotta look at cohorts (vintage) as this data could be skewed by # of firms started in a given time period.

  • http://www.getyapd.com kevin gao

    I agree with Greg – I think one thing to keep in mind here is that the bubble clearly had a large impact, and the steady increase post 2000-2001 points to that (although its not exactly 1 year, which probably reflects the success of those post-bubble startups which had faster turnovers). Most likely these numbers will flatten if not drop in the coming yrs

  • Stephen

    I think that this number will actually come down. There will be many more smaller rounds in the future driven by the new crop of VC’s that are thrilled to exit for $50M. These VC’s have biz models that are driven by $100M-$150M funds versus the typical $600M-$900M funds.

    What do you think?

  • http://www.samstewartnz.com Sam

    Great chart Jeremy.
    Sam

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  • http://kenberger.com/blog Ken Berger

    point taken, although for any practical purposes for entreps now, the one that matters is the bar for ’09. That bar tosses out all previous bars, as rules have been suddenly re-written.

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