Source: http://www.businessinsider.com/chart-of-the-day-vc-exits-2011-6

The environment for early stage startup investing is very “challenging” right now because big exits are still rare, but Series A round valuations have grown larger and larger, according to Fred Wilson, one of the best known early stage investors in the world.

On his blog, Wilson highlights the chart below which comes from Mark Suster. It shows the number of exits over $100 million on an annual basis is relatively small. There are 1,000 early stage fundings annually, according to the NVCA, which means just 5%-10% are producing big exits.

“At at time when the average Series A round is now north of $20mm (based on very anecdotal evidence and not at all scientific), this poses challenges for the VC industry,” says Wilson.

Wilson simplifies the math to prove his point, but says assume a fund can get one company to exit at a $250 million valuation. If it invested in 20 companies at an average valuation of $20 million, then it has committed $400 million.

The one big exit isn’t going to provide enough of a return to cover the portfolio, which is how the VC business has traditionally worked.

So, either the VC model needs to evolve, or valuations need to come down.

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Source: http://www.businessinsider.com/chart-of-the-day-ben-horowitz-tech-valuations-2011-6

The valuations of internet-based companies have significant room for growth in the next decade, argues venture capitalist Ben Horowitz for the Economist.

To understand why, Horowitz produced the three charts below. As you can see, the “Internet Cycle” is due for a massive explosion in the next ten years based on historical trends. 

He says that major technology cycles generally last 25 years, with the “bulk of the purchases” happening the last 5-10 years as late adopters sign on. Using this as a frame of reference he says we are “poised to hit the major adoption wave for the Internet technology platform over the next 8 years.”

This isn’t just idle chatter from Horowitz, either. His VC firm Andreessen Horowitz raised almost $1 billion to invest in this next wave.

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