There’s a refrain I’ve heard several times from venture-backed entrepreneurs: successful startups will command an even greater premium at time of sale if the company is venture-backed, everything else being equal. Some might argue that it’s self-serving for the venture community to promulgate the idea but it makes sense considering an entrepreneur might do one or two transactions in their lifetime whereas a successful VC will be a part of dozens of exits in their career.
Here are a few exit value premium examples:
- A VC has a relationship with a strategic acquirer whereby the VC is able to build a case for a larger valuation than otherwise expected
- The startup closed a round with a VC, a strategic acquirer comes along shortly thereafter, finds out where the VC is in their fund lifecycle, and offers a valuation that meets the VC’s desired returns, while being significantly higher than what other acquirers would pay
- Raising money from a high profile, top tier VC increases the startup’s awareness with corporate development teams at potential acquirers, helping their exit valuation
Venture capitalists work hard to add value to their investments and one of the direct benefits is an exit premium.
What else? Do you think venture-backed startups get an exit value premium?