Nov 25, 2015 ยท 5 minutes


As regular readers know, we’ve spent the fall sloshing around conflicting stats, bombastic grandstanding, and endless fretting of what’s about to happen to the venture landscape any minute.

Many hoped for some deus ex free-market-a catalyst of a crash coming in the form of --most recently-- Square’s IPO. But that too had mixed results: Slashed price to get the deal done, but a decent pop the first day of trading. OK.

Third quarter data is starting to come out and -- surprise! -- it’s still a mixed bag.

The positive? Somehow mega rounds keep coming, unicorns keep popping out of the metaphorical unicorn womb of Sand Hill Road. In fact, the pace of unicorn-deals in the third quarter matched the previous one, the highest of the year so far. Just this week, there were reports that DoorDash is about to join the club.

So how about a big, steaming pile of negative? CB Insights just released its third quarter exits report.

Oh right, exits. Money coming out of the industry. When it all turns into actual real dollars.

TL;DR: They continue to totally suck. In fact, they suck worse.

Before we dig into numbers and graphs, look at this chart. It shows private fundings with billion dollar-plus valuations and actual exits for that amount….


In a healthy venture market those lines don’t diverge that way. Hell, in a bubble they don’t. This entire report just reads like a market not poised to pop, but rather a market where the air is steadily being let out of a balloon, and has been, unevenly, for a few months and will for-- who knows how long?-- another year?

Some details:

Overall, tech exits were down 18% from the previous quarter but up nearly 30% year over year.

Hey! That sounds like great news! Well, not for the venture set and the Silicon Valley world. Venture backed- tech companies had their worst quarter in more than two years.

Couple things to note about that: First off, did you know that some 82% of tech companies raise zero institutional capital before exiting? Nothing. Not seed, not venture capital, not private equity. Jesus, we live in a tiny microcosm even when it comes to the tech world.

That number has increased from 73% in 2014. Which is basically a mirror image of the fewer-deals-but-for-more-cash phenomenon we’ve been seeing in the venture world all year. VCs in short are making fewer bets but more ungodly sums of cash are going behind the ones that they hope have momentum.

It’s increasingly a world of mega rounds… and not much more.

Now of course, the reason venture backed companies get so much attention is they tend to become the gargantuanly huge ones. Only, yunno, not lately.

Speaking of mega-round-haves and everyone-else-have-nots, the reports says more than 50% of tech companies that had exits in the third quarter went for less than $50 million. Not surprisingly, more than half of the exits were early stage companies-- hence the low price tag.

OK that’s not so shocking. It’s normal and arguably healthy for the bulk of companies to realize early on they got nothing and amass talent and capital back into the Silicon Valley borg. The problem is there wasn’t much beyond that. A dozen exited in the range of $301 million to $700 million. There were only five exits greater than $500 million and none over $1 billion.

This was the first quarter this year without a unicorn exit.

I only recognized the names of two of the “big ones” listed on one CB Insights slide: Business Insider and Good. Good was a mobile technology company that I last covered when it was a huge John Doerr bet more than a decade ago. It was founded in 1996. It was hot back when we synched phones in cradles. Good’s big thing was it didn’t need one. “Cradles are for babies” Doerr famously quipped about the company. Good raised some $300 million in its life and sold to Blackberry for $425 million. I lost track of Good in the intervening years, but I can’t imagine it was the exit Kleiner and so many other investors once hoped for.

Speaking of, did anyone realize Ooma went public last quarter? Does anyone but me remember Ooma? The one time hot Sean Parker/ Ashton Kutcher investment back when Parker was just reclaiming his place in the tech world and Kutcher was just breaking into it? Kutcher was even part of the management team and voiced some creepy early online video ads.

Well, it didn’t die.

I don’t bring up Good or Ooma to prove how old I am nor do I bring them up to shame them. It takes perseverance to go from hot to still standing to exit of any kind. But I bring them up to illustrate that these were the standouts from this quarter. These were the names I recognized.

The fact that bigger names-- or any names-- didn’t go public or get acquired for north of $680 million doesn’t mean they are toast. But it signals fear for sure.

The fear of the IPO market has been covered at length. (There were four venture backed IPOs in the quarter, including Ooma. Yeeeeesh.) Less covered is the growing reticence of would be acquirers.

Former drunken company buying sailor Yahoo did a whopping one deal in the quarter. Google mostly bought very early stage stuff, and has overall been declining as a potential buyer of late. Facebook didn’t buy anything.  

I’ve heard throughout the tech world that the big names, and even the mid-sized names, are watching and waiting. No one wants to buy the overpriced company at the top of a market. In a quarter where BlackRock and Fidelity are marking down their own assets and almost nothing is going public, what’s the hurry? Let’s watch this play out another quarter or so.

Knowing this market, tomorrow there will be a data point that suddenly makes things seem just as frothy as ever. But there’s no doubt: The money coming out keeps getting worse each quarter. At some point, that will impact money going in, even if it continues to happen gradually.