Venture Capital — We’re Still Not Normal

David Coats
VC by the Numbers
Published in
5 min readJul 13, 2023

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One graph from our proprietary dataset has consistently received the most interest over the years. Some of our VC peers have requested it for their LP communications, universities have requested it for research and course materials, and it’s been published in several books.

We most recently published this graph in a 2019 blog post called “Venture Capital — No, We’re Not Normal.” Particularly given the changes that have occurred in U.S. venture in the past few years, we thought it would be helpful to provide an updated version:

The distribution of outcomes in U.S. venture is still far from a “normal” distribution. It remains highly right-skewed in that a relatively small number of winners drive returns. Less than 4% of the capital invested into venture-funded companies exiting over the last decade generated a 10X or greater multiple, while thirty-seven percent generated a less than 1X return (i.e., lost money).

The distribution is even more skewed when we calculate it by financings rather than dollars. For example, nearly half of financings lost money for investors over the past decade.

So how have these results changed over time, and how do the last few years look in an historical context?

The green line in the graph below plots the percent of invested dollars by exit year that realized a greater than 10X return (the “winners”), while the black line plots the percent of invested dollars that realized a less than 1X return (the “losses”).

Our takeaways from this analysis are:

· Consistent with the experience of many VCs and LPs during the early 2000’s, the “Dot Com Bust” was a challenging time in which to harvest portfolios as there were few winners and the vast majority of invested dollars resulted in losses.

· From the 2008 Financial Crisis through around 2012, the risk/return profile of realized venture investments steadily improved, with the percent of invested capital in winners increasing and in losers decreasing. These statistics have remained relatively constant since then.

· The pandemic years (2020 and 2021) were glaring exceptions. While the economy suffered, venture thrived. These two years were “off-the-charts” in terms of both much higher percent winners, and much lower percent losses, than we’d seen historically.

· The distribution of outcomes that we saw last year, despite feeling like a “reset”, was only a reset when compared with the exceptional pandemic years. The statistics last year were very similar to what saw over the prior decade.

The data for 2023 is too limited so far to draw solid conclusions. However, early indications are that we might see a more significant reset. Also, while not plotted on the graph, we found it interesting that the number of companies that exited peaked during the Dot Com Bust, steadily declined to a low point during the 2008 Financial Crisis, and then has steadily increased each year since then, with 2021 and 2022 being the two largest exit years on record.

U.S. venture continues to be a hits-driven business. Overall industry returns, and most fund returns, are driven by the relatively small percent of outcomes that are the winners.

The math underlying the large right-skewed distribution of outcomes in U.S. venture creates challenges, and opportunities, for all the players in our ecosystem. The challenge for most entrepreneurs is how to beat the odds and be one of those outlier winners. For us as VCs, the key challenge is how to consistently have a disproportionate share of those outliers in our portfolios. For LPs, the challenge is how to select VC funds who are more likely than average to accomplish this feat prospectively.

We’re still not normal but, as author Maya Angelou once said, “If you are always trying to be normal, you will never know how amazing you can be.”

If you are an entrepreneur raising, or a VC or advisor working with a team that is closing a round, let’s connect. Correlation Ventures is actively investing in all sectors and stages in private U.S. headquartered companies.

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Methodology for the above blog: We have spent more than a decade creating what we believe is the most complete database of venture financing-level outcomes in the industry. The first graph in the post above plots the percent of financings and of invested dollars by realized gross cash-on-cash multiple for all U.S. venture-funded companies in our database exiting over the past decade, including those that went out of business, went public, or were acquired. The second graph plots the percent of invested dollars realizing either a less than a 1X, or a 10X or greater, gross cash-on cash multiple by exit year. Public stocks are assumed for these analyses to have been liquidated at the median price six to nine months following the IPO, when investors typically have the first opportunity to liquidate their positions following lockup.

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Correlation Ventures is the predictive analytics pioneer in the venture capital industry and the industry’s leading co-investor. With more than $500 million under management, we’re one of the most active U.S. venture investors. Since inception, we’ve invested in nearly 400 companies. Sample portfolio companies include: AlienVault (ACQ:AT&T), Astra (ASTR), Bluevine Capital, Gabi (ACQ: Experian), IonQ (IONQ), Imperfect Foods, Janux (JANX), Lemonaid (ACQ: 23andMe), Lever, Manticore Games, Personal Capital (ACQ: Empower), PowerVision (ACQ: Alcon), Synthorx (ACQ: Sanofi), and Upstart (UPST). Correlation offers a dramatically better option for lead investors, syndicates, and companies seeking additional venture capital to fill out a round. We offer the most rapid, low hassle, and helpful source of co‐investment capital in the industry; for example, typically making investment decisions within days. Correlation is backed by leading institutional investors.

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