IPOs, Trade Sales and Liquidations: Modelling Venture Capital Exits Using Survival Analysis

Using a detailed sample made up of more than 20,000 investment rounds, we analyze the time to ‘IPO’, ‘trade sale’ and ‘liquidation’ for about 6,000 venture backed firms. We model these exit times using competing risks models. Biotech and internet firms have the fastest IPO exits. Internet firms are also the fastest to liquidate, while biotech firms are however the slowest. The conditional probability for IPOs are clearly non-monotonous with respect to time. As time flows, venture capital-backed firms first exhibit an increased likelihood of exiting to an IPO. However, after having reached a plateau, investments that have not yet exited have fewer and fewer possibilities of IPO exits as time increases. The bubble period from 1998 to 2000 was an ‘easy money’ period where venture capitalists gave much more money to firms, many of which did not offer outstanding growth potential as they tended to liquidate much faster than in normal times.