After about 40 months, exit probabilities begin to outweigh markup probabilities.
At AngelList, we’re constantly analyzing investment data to provide our deal leads with useful insights they can put to work. AngelList Venture has participated in thousands of early-stage investments, including more than 1,500 seed deals in 2019. We analyzed the data on what has happened to those investments to create the following plot:
The different colors correspond to different outcomes for seed investments, and time moves from left to right. After one month, virtually no seed investments have been marked up or exited. As time goes on, more companies are marked up or exited. “Exits” here can be either good or bad; an all-cash acquisition or a winding down at a complete loss would both be shown as green in the plot. (Markups are only registered for priced rounds per the AngelList valuation methodology.)
Our results support one of the more intriguing findings from the whitepaper we released last December: early-stage venture investing belongs to a different asset class, with different qualitative properties, than later-stage venture investing. Studies of later-stage venture investments have suggested that exit frequencies follow an exponential distribution with more exits earlier and fewer exits later. Our results suggest the opposite: the exit likelihood of an early-stage company increases as it ages.
In the first months after a seed investment is made, there are many more markups than exits, as companies raise their Series A rounds. Eventually, though, the rate of exits catches up with the slowing rate of new first-time markups. We found the tipping point — where an exit becomes more likely than a priced round — was about 40 months into a seed investment. Writing from early 2020, that means that if you made a seed investment in 2016 that hasn’t done a priced round, chances are your next update email will be an acquisition or wind down, rather than a Series A.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
Valuations are generally marked to a company's latest priced financing round, as disclosed to AngelList. While AngelList's valuation sources are believed to be reliable, AngelList does not undertake to verify the accuracy of such valuations. Companies that have not received new investments in a priced round since the last mark are held at cost or may be marked down at AngelList's discretion according to its valuation policy. Valuations and returns do not account for liquidation preferences and other non-financial terms that may affect returns. Investments in later-stage companies may be sent to a third-party for valuation if (i) the company's estimated value is over $100M, (ii) the investment is estimated to be worth over $10M and (iii) 24 months have passed since the last investment. Valuations presented herein are calculated as of the date disclosed on the slide on which they are presented and have not been audited by a third-party. Contact us for full details on our valuation methodologies.