He further adds-
This can't go on forever. Or, maybe it can. Gamblers lose billions of dollars every year in Las Vegas...and have been happy to do so for over 50 years. VCs and Angels are big time gamblers and they love the game. One winner erases all the losers in their mind. I completely understand that because I think the same way.Now as much as I love Black Jack as the next guy, I think these numbers may not reveal the full truth. The total value of all IPO exits for VCs is reported as $28.4 billion. I suspect that this figure is based on valuation at the time of the IPO. Let me prove by contradiction. (Okay, proof is a strong term, let me illustrate by way of an example.)
Google: Now here are some numbers reported to SEC (accoding to Venture Beat).
According to Google’s filings with the SEC, Sequoia Capital owns 23,893,800 shares in Google, now worth $4.42 billion on paper, and Kleiner Perkins has 21,043,711 shares, worth $3.89 billion on paper.Now this was more than a year ago. Since then the value of the Google shares has gone up further, and the combined stake for the two VC firms in Google today would be $20,221,879,950 (at $450 a share, current prices). That is over $20 billion.
Yes, this argument is using the best case example. But I would surmise (and bet) that the same is true for other big exits. Salesforce.com investors for example 'exited' the company by way of an IPO at $11 i.e., less than $1 billion (market cap). Today the stake is worth 5 times the amount.
In that sense, an IPO exit is much more preferable than M&A because it allows further appreciation even after the exit.
At the same time, I do agree that the market value represented by the IPO price is an accurate measure. The fact that some shares appreicate in value after the IPO is supposedly reflected in the share prices.
What do you think? Are these calculations wrong? Or am I missing something very basic here?