Ed Sim in his latest post about venture investing, writes about the average valuations of startups. The original source of his data - National Venture Capital Association has very interesting data about venture-backed mergers and acquisitions for Q3’04 . As compared to pre-bubble 1999, when average size of disclosed deal values was close to USD 231 million, the same parameter was USD 91 million for year ending Q3’04 .
In an earlier post, Ed Sim says that software companies need an average of USD 50 mn to create meaningful value and ripe for exit. At current exit valuations, that is an ROI multiple of 2. I think that Ed needs to come to terms with the fact that ROI multiples of >4 will only be possibly in Fast Growing Developing Economies (FGDE). For example according to this presentation[ppt] of the Indian Venture Capital Association, average investment in an Indian startup amounted to approximately USD 18 mn. This year, IPO’s of companies like TCS touched a high of USD 1.2 bn. The Indian IT market grew by 30 % in FY 2004 [source:Equitymaster], while China grew 45 %[source: China Daily].
If VC’s expect a ROI anywhere close to the pre-bubble figures, then they should look up the next flights to Beijing or New Delhi.