Metrics for Sequoia Capital

Part
01
of one
Part
01

Metrics for Sequoia Capital

Key Takeaways

  • As of December 2020, Sequoia's success rate based on investment to exit ratio is 20.71%, with 1,275 investments of which 365 were successful exits.
  • The investment firm has completed six mergers and acquisitions, or IPO exits since 2015, with valuations above $500 million at the time of exit.
  • From initial financing to initial public offering (IPO), the average exit period time (median time) was equal to 6.3 years in the United States in 2019.
  • The venture capital industry has an average exit multiple between 20%-30%.

Introduction

One performance measure monitored by venture capital firms is the investment to exit ratio. A ratio of 1 means a venture capital firm is making one investment for every exit. For a venture capital fund to be successful, it needs to achieve a rate of 3x the investment to be considered a success ($100 million funds => 3x => $300 million return). A total value to paid-in-capital multiple (TVPI) is a metric that provides an estimate of return per dollar invested as a multiple, where a multiple of 2 signifies that for every dollar invested, the investor gets $2 in return.

After an exhaustive search, we have determined the data availability for Sequoia Capital is publicly limited, and restricts our ability to provide the average investments and exits the company has achieved over three years. Therefore, we have included data for the 7-month period November 2020 to May 2021. We have also provided industry data as a proxy for the average exit period, average failure rate, and average exit multiple (where publicly available).

Sequoia Investments/Exists Over Three Years

  • Sequoia Capital has a portfolio of 371 companies and has invested in 1,676 companies, with 680 exits and one acquisition since 1972.
  • The investment firm has completed six mergers and acquisitions, or IPO exits since 2015, with valuations of more than $500 million at the time of exit- most notable were the public offerings for Square (2011), SunRun (2010), and Natera (2013), Zoom (2013), and NVIDIA (1993).
  • Using the only public data available for Sequoia Capital, we have determined the number of investments made by the company between November 2020 and May 2021 is 19, with a total investment of $2.130 billion, including diversity investments. The average investment total is calculated as follows: $2,130,000,000/19 = $112,105,263.16.
  • As of December 2020, Sequoia has a 20.71% success rate based on investment to exit ratio, with 1,275 investments of which 365 were successful exits.

Venture Capital Industry: Average Exit Period, Average Failure Rate, and Average Exit Multiple (X rate)

  • The average exit period time (median time) from the initial venture capital financing until the time of initial public offering (IPO) was equal to 6.3 years in the United States in 2019. In 2018, the average time to exit by acquisition was 6.3 years from first financing, the median was 5.4 years, the 75th percentile was 8.9 years, and the 90th percentile was 12.4 years.
  • According to the National Bureau of Economic Research, the average return for the venture capital industry is 25%. A firm will expect to make the average return but may have higher expectations, depending on the potential for the business they are seeking to fund. Consequently, the average exit multiple for the venture capital industry is between 20%-30%. Most investors seek a minimum of 10x return from their investments- on average, a VC's entire portfolio returns about 27%.
  • Interestingly, 67% of startups slow in progress during the venture capital process and do not reach an exit or raise additional (follow-on) funding. In 2018, 30% of seed-funded companies exited through an IPO or mergers and acquisitions phase- up 2% from 2017. The graph below shows what percentage of VC firms met at least a 3x return in 2017.
  • The National Venture Capital Association indicates that out of 10 start-ups, the average failure rate for the venture capital industry is three to four startup investments.
Average failure rate is calculated as FR = R/T
10/3 or 4, representing approximately 2.5% to 3.33%

Research Strategy

For this research on Sequoia Capital and the venture capital industry, we leveraged the most reputable sources of information that were available in the public domain, including Crunchbase, Pitchbook, Statista, TechCrunch, Entrepreneur Magazine, Venture Beat, Ian Hathaway, Business Insider, and company website. The limited data for Sequoia Capital's investments and exits was retrieved using the paywalled source, Crunchbase.
Sources
Sources