Why corporate funds can earn more on investment than consumer?

    Sometimes it’s useful to take a step back and look at the big picture. For example, if you represent venture capital, it is useful to ask yourself if you can provide a greater return on capital by investing only in corporations or consumer companies, or is it better to invest in both? How should the experience of investing and the trends of exits from investment projects over the past five years affect the size of your fund and your chosen strategy?

    In general, venture capital should increase the value of the company and ensure the distribution of profits for investors. You can’t handle it, and go broke. Therefore, we thought it was important to investigate the stability of the investment market over the recent past, collecting data through Pitchbook and Capital IQ. Some of the results of our research are presented below.

    Since 1995, the number of exits from investment projects in corporations has significantly exceeded the number of exits from investments in consumer companies (compare the blue line with the green one). Over the past five years, the value of transactions in the consumer sector has regularly exceeded the value of exit transactions in the corporate sector per year. Note that the initial value of the initial public offering is based on the total market capitalization at the time of listing.

    • Technical corporations funded by venture capital funds have increased their value to $ 825 billion since 1995: 410 billion due to mergers, and 414 billion after the placement of shares.

    • The value of consumer companies has grown to 582 billion since 1995: 168 billion due to mergers, and 414 billion after the placement of shares.

    • In total, more than 4600 exit transactions were conducted with the support of venture funds in corporations and more than 2600 in consumer companies.

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    Corporations vs. Consumer Companies:

    Yields Per Year (1995-2016) Data from 1995 indicate that the increase in the value of tech corporations over the years is often caused by several exit deals, while in the consumer sector, the value rises after one major exit deal. This concentration of increasing value of consumer companies becomes apparent when comparing corporations and consumer companies on a graph. Does this trend mean that it is much more difficult to rely on return on investment in the consumer sector, given that there are fewer peaks?

    • The five largest corporations with the largest increase in net worth - 90 billion, representing 11% of the mentioned 825 billion - have appeared on the market since 1995.


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    Largest exit deals in corporations (1995-2016)

    • The five largest consumer companies with the largest increase in net worth - 211 billion, representing 36% of the mentioned 582 billion - have appeared on the market since 1995.


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    Largest exit transactions in consumer companies (1995–2016)

    The trend of surges in the value of consumer companies is clearly evident in the study of transactions over the past five years. The return on investment in large consumer companies such as Facebook, Twitter or WhatsApp is often greater than the amount of return on deposits in many corporations for any year.

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    Corporations vs. Consumer Companies: Releases per Year (2011 — present)

    Many thanks to Eugene Chau (Sapphire Ventures) , who helped to collect data for this project.

    Confirmation disclosure:

    The information presented above is not investment advice and under no circumstances can the information presented be used as an offer or be considered an offer to buy a share in any investment fund managed by Sapphire Ventures. Sapphire Ventures does not provide advice or services, and its funds do not currently attract new investors. Historical data is not indicative of future forecasts.

    None of the portfolio companies mentioned above is necessarily an investment project recommended by Sapphire Ventures, and was not selected on the basis of profits made by Sapphire Ventures. The information provided does not confirm that these investments were or will be profitable. Not all Sapphire Ventures fund investments will be profitable or will be similar to the companies indicated in the article.


    Original: Why Enterprise Funds May Return More Capital Than Consumer Funds

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