VC Industry - lost the plot

So I'm looking at the latest VC investment numbers, 3 months to June 09 and I'm thinking the VC world has lost the plot!

Let me share with you some very simple numbers. My arms will not leave my body at anytime during this presentation.

2009 figures (3 months to June) show that on average $8.7m was invested in 309 companies. Let us assume that the VC on average held 60% of the equity. Let us assume they are aiming at 10 times their investment. That would mean that all 309 companies would have to sell out on average at a valuation of $145m or $45 Bn in total!

You see I think that logic is broken. There are so few companies that sell out for $145m, never mind 309 of them!

Now let us suppose instead of investing $8.7m on a huge bet we invested $500,000. To achieve the exact same return over 5 years the target company would have to exit at $8.3m. This seems so much more believable. I know so many great start up companies that would benefit from $500,000 and they would blow away an exit valuation of $8.7 million in 5 years time.

Just a thought.

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