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PitchBook Predicts VC-Backed Exits

March 20, 2023

Powered by Machine-Learning, PitchBook’s VC Exit Predictor Enables Clients to
Forecast the Trajectory of VC-backed Companies with Greater Accuracy and

Seattle, March 20, 2023 -- PitchBook, the premier data provider for the private and public equity markets, today released PitchBook’s VC Exit Predictor, a new tool and scoring methodology that objectively assesses a startup’s prospect of a successful exit. The tool leverages machine learning and PitchBook’s database of information on VC companies, financing rounds and investors. The primary component underpinning the tool is a classification model developed by PitchBook’s Institutional Research Group that predicts the probability a VC-backed startup will ultimately be acquired, go public, or not exit due to failure or becoming self-sustaining. PitchBook’s VC Exit Predictor is accessible within the PitchBook Platform and can be found on company profiles and in advanced search.

The release comes at a time when the liquidity available for VC-backed exits has fallen sharply in recent quarters, and the outlook for improvement remains bleak. What’s more, the downstream effects of the depressed exit environment will weigh heavy on the VC industry in the form of longer hold times, weakened IRRs and reduced distributions to LPs – all of which, will decrease demand for new fundraising. To mitigate these affects and achieve liquidity, VC investors need to understand the quality of their assets and evaluate their appetite for taking on more risk. Meanwhile, startups need to showcase their path to profitability and justify their valuations to maximize shareholder value. 

PitchBook’s Institutional Research Group published a research piece alongside today’s launch, titled Gaining an Edge in VC Investment Selection. The report delves into how PitchBook’s VC Exit Predictor can be used to improve the investment selection process. To download the report, click here

The new tool empowers investors and founders to prioritize and advocate for the right opportunities, while streamlining decision-making and due diligence processes. For a company to have an exit prediction, it must be currently VC-backed with at least two rounds of venture financing. The tool uses PitchBook’s robust dataset to generate exit predictions and the following areas are examples of data points leveraged: 
•    Company details: Patents, industry, employee count, news coverage, number of acquisitions.
•    Deal activity: Maturity, fundraising frequency, average deal size.
•    Active investors: Investor track record, number of crossover investors, number of investors.  

After training the model on 46,000 observations from startups with known outcomes, PitchBook tested the algorithm on more than 11,000 out-of-sample observations and accurately predicted success (M&A and IPO) versus no exit outcomes at a rate of 75%. 

“In the last 10 years, an influx of capital and institutional investor interest has led to an explosion in the number of VC-backed companies, which has made sifting through the data to identify investment opportunities more challenging and time consuming,” said McKinley McGinn, Product Manager at PitchBook. “With PitchBook’s VC Exit Predictor, investors will be able to understand a company's trajectory better and engage in a more rigorous decision-making process by eliminating biases and improving how they evaluate risks associated to investments. Users can digest a large sum of data on these companies in a much faster timeframe, enabling smarter dealmaking.” 

For more information about PitchBook’s VC Exit Predictor and its methodology, click here.

About PitchBook
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York, London, Hong Kong and Singapore and serves more than 90,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.
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