Here Are Your Odds Of A $1 Billion+ Exit

 
 
 

Tomasz Tunguz of Redpoint Ventures provides some useful charts, via CBInsights, showing the logic behind VC funding. Tech mergers and acquisitions, it turns out, are very similar to the American populace: lots of data in the low-end, a few obscene outliers, and some oft-ignored middle ground.

The below chart shows that 53% of tech acquisitions are for less than $50 million, but the few $1 billion+ transactions return about 19% of the industry’s total revenue.ScreenCapture at Fri Aug 2 08:14:17 PDT 2013.png

The below chart, divided into four “sizes” of M&A activity, shows that a sub-$50 million deal is about 21 times more likely to occur than a $1 billion+ deal.

ScreenCapture at Fri Aug 2 08:25:53 PDT 2013.png

You’re probably getting the point: VCs are constantly facing the trade-off between risk and return. Paul Graham has provided similar insights, noting that the total valuation of over 287 Y Combinator companies is $11.7 billion, with the top 10 companies accounting for about 74% of that total value.