Trevor Kienzle
Jul 30 · 5 min read

By Trevor Kienzle and Ryan Isono of Correlation Ventures

A small number of high-profile, venture-backed exits have consumed headlines recently — Lyft, Pinterest, Uber, Slack, and Zoom to name a few — along with the massive financial impact on investors, founders and executive teams. We, at Correlation Ventures, were curious about how frequently entrepreneurs, specifically, reaped the benefits of these life-changing outcomes in venture-funded companies. You might be surprised by how frequent they are.

As venture capitalists, we are inherently dependent on the bold, daring entrepreneurs who are willing to take risks and make sacrifices necessary not only to start a company, but also scale it successfully. In turn, these founders need to be rewarded commensurately. We analyzed our large database of U.S. venture capital outcomes, which we believe to be one of the most complete in the world, in order to quantify how well management teams, defined as the founders and C-level team members, are being compensated upon exit. Our hope is to provide more clarity and transparency on this topic, and to arm potential entrepreneurs with information on the risk/reward tradeoffs of taking the plunge.

In analyzing our dataset — specifically the subset of companies that received venture funding¹ and exited over the last decade — the results were impressive. While 66% of venture-backed startups that exited in the last decade did not return any meaningful capital, 20% generated at least $25M in proceeds for management, 7% generated at least $100M in proceeds for management, and more than a fourth of this subset (or 2% of the total) generating $250M or more in proceeds to management².

While 66% of venture-backed startups that exited in the last decade did not return any meaningful capital, 20% generated at least $25M in proceeds for management, 7% generated at least $100M in proceeds for management, and more than a fourth of this subset (or 2% of the total) generating $250M or more in proceeds to management².

Unlike other analyses of venture-backed company performance, which usually analyze returns from the investor’s standpoint, we’ve looked at returns from the entrepreneur’s perspective³.

An exit for these purposes is defined as one of the following outcomes for a company: an IPO, an acquisition, or an out of business (OOB) event. The graph below shows the distribution of returns to management for all U.S. VC-backed companies in our database that exited in the last ten years (Q3 2009 — Q3 2018). Of course, these results may not be indicative of the next 10 years. The time period we are analyzing is taking place during the longest bull market in history, which has lent itself to an active M&A market and high valuations, in addition to record amounts of capital raised and deployed by venture funds⁴.

We also looked at how management returns varied based on the stage of funding reached by analyzing the percentage of startup exits that returned $50 million or more to management. As shown in the graph below, this percentage increased as the company reached subsequent financing rounds from Series A through Series C, with a slight decline after Series D. This is encouraging, as additional capital raised may also come with management dilution. This could imply that the value creation enabled by invested capital and option pool expansions more than offset the dilution to the team through Series C rounds.

Clearly, there are inherent risks in becoming an entrepreneur and raising capital from VCs. We are not suggesting that everyone is cut out to be a successful founder, nor are we encouraging everyone to start a company. However, there are clearly benefits to society, ranging from companies like Apple that were started in a garage and are now integral parts of our lives, to the 1.5 million net new jobs created in the U.S. per year by companies less than one year old⁵.

…there are clearly benefits to society, ranging from companies like Apple that were started in a garage and are now integral parts of our lives, to the 1.5 million net new jobs created in the U.S. per year by companies less than one year old⁵.

While entrepreneurship isn’t meant for everyone, we are encouraged by the large percentage of venture-backed startups which create significant wealth for management teams. We hope by sharing this research that we can help can arm prospective founders with more information to make an informed decision and “take the plunge” knowing that the potential rewards are great.

1. Companies that received funding from an institutional investor defined by Dow Jones VentureSource as a Venture Capital firm.

2. For the purposes of this exercise, we defined management as founders and C-suite executives.

3. These statistics include empirical, data-driven analysis regarding option pool expansions, liquidation preferences, and venture debt.

4. Tarhuni, Nizar, et al. Venture Monitor 1Q 2019. Pitchbook Data, Inc; National Venture Capital Association (NVCA), 2019, Venture Monitor 1Q 2019, nvca.org/wp-content/uploads/delightful-downloads/2019/04/1Q_2019_PitchBook_NVCA_Venture_Monitor.pdf.

5. Entrepreneurship Policy Digest. The Importance of Young Firms for Economic Growth. Ewing Marion Kauffman Foundation, 2015, www.kauffman.org/-/media/kauffman_org/resources/2014/entrepreneurship-policy-digest/september-2014/entrepreneurship_policy_digest_september2014.pdf.

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We would value any introductions to entrepreneurs raising venture capital where we might be helpful as a co-investor. Correlation offers a dramatically better option for lead investors, syndicates, and companies seeking additional capital. We offer the most rapid, convenient, and reliable source of co‐investment capital in the industry, committing to make investment decisions within two weeks or less.

Correlation Ventures is the predictive analytics pioneer in the venture capital industry and the industry’s leading co-investor. With more than $360 million under management, we’re one of the most active U.S. venture investors, investing in about two to three new investments a month. Selected portfolio companies include: AlienVault (acquired by AT&T), Bluevine Capital, Casper, Imperfect Produce, Optimizely, Personal Capital, Sun Basket, Synthorx (THOR), and Upstart.


VC by the Numbers

Venture capital insights from the Correlation Ventures team.

Trevor Kienzle

Written by

Co-founder @correlationvc. Former startup founder. 19-year VC. Father of three & soccer enthusiast. “Luck is what happens when preparation meets opportunity.”

VC by the Numbers

Venture capital insights from the Correlation Ventures team.

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