Technology & Entrepreneurship
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Technology & Entrepreneurship

The Case for an Early Exit: Average Price Increases Between Rounds

March 26, 2012

I have long had a theory that (for companies with up rounds) the greatest valuation increases occurs between the A and B rounds. So, I recently had occasion to do some data mining in our database of New England transactions. Below is a table of the results:

  Industry    Round  
  Price Increase as a Percent  
of the Prior Round
  Technology 




B
C
D
E
F
95.56%
15.20%
51.02%
55.87%
1.37%
  Biopharma



B
C
D
E
29.13%
5.82%
4.38%
50.00%
  Cleantech


B
C
D
55.07%
-79.7%
8.6%

  All

  (including transactions
  unclassified by industry)

B
C
D
E
F
55.36%
18.66%
16.00%
6.59%
10.38%

My hypothesis that the greatest increase is between the A and B rounds bears out very clearly in the technology sector. You can also see it in the biopharma data. The cleantech data may be unreliable because the sample size is small.

The reason I have been looking at this data is that I have a couple of clients that are debating internally whether to raise a B round or try for an early exit. While I think there are many factors to weigh in this type of decision (obviously valuation is one issue, expected size of exit is another and time to the eventual exit is yet another), these statistics are, I think, the first step in an analysis that could well lead to the conclusion that, in most cases, the best return for the entrepreneur is going to be in an early exit.