The performance of venture capitalists (VCs) depends critically on the capital recovered from exits of portfolio companies, which occur primarily through initial public offerings (IPOs), or sales or acquisitions (hereafter referred to as ‘M & A exits’). Over the period 1985 to 2008, the number of M & A exits has exceeded the number of IPO exits in 21 of 24 years – with the gap widening markedly since 2001. The lack of IPO exits has become a source of growing concern, leading many observers to openly ask whether the VC model is broken and question the viability of the venture industry – at least at its present scale. Others have suggested these concerns are exaggerated in an industry prone to ups and downs. The vitality of the VC industry, which has traditionally been an important source of growth and innovation, has broad implications for the overall health of the economy.
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