Venture capitalists have been blinded in recent years by consumer technologies – but the real opportunity lies elsewhere.
In the consumer internet and business-to-consumer (B2C) categories, there have been some dazzlingly large acquisitions – it’s hard not to be mesmerized by deals such as the $1.65 billion dollar acquisition of YouTube less than two years after the company was founded, or the more recent acquisition of Instagram by Facebook for $1.1 billion dollars. As a result, investors have flocked to B2C deals: from 2006-2010, investment in B2B start-ups declined by 35% while investment in B2C start-ups tripled.
However, a coolheaded look at the broader numbers shows that B2B is most often a better investment.
The Numbers: B2B Outperformance
The facts are clear: B2B investment outcomes exceed B2C in both IPOs and M&A transactions.
Among the 2011-2012 IPOs with at least 60 days of trading history, the average B2B IPO is up over 37 percent while the average B2C IPO is negative nearly 25 percent as of 9/3/12. That is a whopping >50 point spread! And lest you think the numbers were temporarily skewed by the recent Facebook flop, the same analysis pre-Facebook still showed a >50 point spread. In the first half of the year, the average B2B IPO was up 50.4% while the average B2C IPO was down -6.5% from the original offering price.