Venture Capital Suffering from Low IPO Yield

If there’s one statistic that typifies the problems that the venture capital industry has faced in recent years it is IPO yield – the number of initial public offerings divided by the number of companies financed five years earlier. This figure captures the industry average share of portfolio companies that exit in the most lucrative way for investors.

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Since the end of the Internet bubble in 2001, the number of venture capital financed companies that have gone public has dropped substantially. At the same time, venture capitalists have been investing in more start-ups than they used to. As a result, the ratio of IPOs to start-ups funded five years earlier has plummeted.

From 1991 to 2000, IPOs accounted for 17.7 percent of companies financed by venture capitalists five years before. In contrast, from 2001 to 2010, the number of venture capital backed IPOs was only 1.4 percent of the number of companies that were financed a half decade earlier.

Here’s the industry’s problem in a nutshell: if only one out of 71 of their portfolio companies goes public, venture capitalists are going to have a hard time making money.

About the Author

Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

 

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€10,000 to Test a Social Venture in Naples, Italy

Unsure how to spend this summer weekend? Brainstorm startup ideas to remedy dysfunction in Naples, Italy, the famous port city known for its vibrancy, history, and cuisine--as well as its lawlessness and litter.
A London nonprofit called Euclid Network is seeking individuals from around the globe to solve societal problems in Naples. The group wants entrepreneurs to move to the city this fall and create business ventures that will improve locals' lives.
To find the best ideas for the six challenges it has already identified, Euclid is holding Naples 2.0, a competition soliciting proposals in English through this Monday, Aug. 15. The challenges range from converting a villa confiscated from the mafia into a business to improving operations at a textile recycling cooperative.
On Sept. 23, a jury that includes the U.S. consul general in Naples and a vice-president of the European Parliament will award six winners €10,000 each to get their ventures off the ground with local partners. By Jan., Euclid, which is funded in part by the European Commission, will assess participants' progress to determine whether to continue supporting them. Wanda Halbert, a Euclid coordinator, says the group is still determining how to help with foreign participants' costs related to visas, travel expenses, and lodging.
Euclid chose Naples because it wanted to put social innovators to work in a place where public institutions have proven "ineffective," the group's executive director, Filippo Addarii, explains in a video. "We want to do it not in a fancy, cool, hyper-tech, wealthy environment, but it in a place which is the symbol of state and market failures," says Addarii. "I think that is the right place for social innovators, to show that they can provide solutions where the traditional remedies failed."
Catch his complete explanation in the short video below.

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