The following stats show exit values as a multiple of the amount of venture capital invested.  I got the data from Andrew Romans of the Founders Club.

Due to liquidation preferences you can expect that if the exit is less than or equal to the amount of capital invested the founders won’t have made much money.  It is common practice in these downside scenarios to do a deal which incentivises management to execute on a low value exit, so the founders will typically get something, but it will certainly be below early expectations.  Clearly the VC hasn’t done very well here either.

If the exit is in the 1-4x capital invested range then the founders can expect to receive cash in the neighbourhood of the paper value of their shares when the VC invested.  This follows from the very rough rule of thumb that in a typical VC round the investor gets one third of the company for her money.  In this scenario the VC has probably made a small profit, but not enough to get excited by.

Then when the exits get to be 4x+ the money invested the founders start to do very nicely.

The upshot of all this is that with the benefit of hindsight we can see that in 2007 of the deals that exited the decision to raise venture capital was a good one 41% of the time and in 2008 the figure was 45%61% of the time and in 2008 that figure dropped to 40% (updated, first time round I erroneously added the numbers of deals instead of the percentages).

If you take the standard venture capital model which looks for one third of the portfolio to be winners and you factor in the fact that a good portion of companies never really exit this figure feels about right.  If it was much higher it would suggest that VCs weren’t taking enough risk, and if it was much lower there would be legitimate questions as to whether the venture capital industry was delivering any benefit to entrepreneurs, and we probably wouldn’t be making acceptable returns for our investors.