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Correlation looks at realized exit multiples and finds an increase

Ever wonder how the value of exits varies year by year, or just how much the dollars GPs shovel into their portfolios ultimately bring back to the industry?

Correlation Ventures set out to find the answer and it’s not always as impressive as one might hope.

The firm released what it calls the U.S. Venture Exit Year Index last month to get a picture of these realized exit multiples on an annual basis. What it shows is that over the past decade, average annual returns from venture exits run from 0.5x to 2.8x, according to a blog post from firm co-founder and Managing Director David Coats.

Of course, top-decile exits are more exciting. Over the past five years, aggregate returns range from 4.9x to 6.3x, the index shows.

Correlation’s index seeks to provide a composite value for all venture-backed exits that took place over the course of a year, whether through IPO, M&A or simply because a company shut down. The derived multiple is gross realized and dollar weighted.

The index relies on exit data for more than 80,000 financings dating from 1987 to the present on which the firm has gathered data.

Source: Correlation Ventures
Source: Correlation Ventures

The peak year over the decade is 2013, when the average return was 2.8x and the top-decile multiple was 6.2x. Coming close was 2015, when the average was 2.5x and the top decile was 6.3x.

Last year, the average return was 2.2x and the top decile was 4.9x, down from 2015.

In 2009, the average was 0.5x, which was only slightly worse than 2008. It took until 2012 for average returns to get above 2x.

Coats weighs in on the increase over the past decade. First, companies are more capital efficient and rely on less money to get up and running. Second, exit values have increased.

As for last year, higher prices appear to be the major cause of the drop in realized returns, he wrote.

Photo of ROI concept on laptop courtesy of milindri/iStock/Getty Images