By the end of 2018, the venture industry deployed $130.9 billion in US-based startups, surpassing the all-time high in 2000 and illustrating the maturation of the VC ecosystem, according to the PitchBook-NVCA Venture Monitor. The quarterly report is the authoritative source on venture capital activity in the US entrepreneurial ecosystem and is jointly produced by PitchBook and the National Venture Capital Association (NVCA), with support from Silicon Valley Bank, Perkins Coie and Solium. With $75.7 billion in VC dry powder, investors funneled capital into the startup ecosystem at a record pace in 2018, boosting deal sizes across the entire VC spectrum. Mega-deals continued to dominate the dealmaking environment, increasing in count by 91.3% over 2017. The strength of dealmaking over the last several years led to a strong exit market in 2018 with elevated exit sizes driving total value to $122.0 billion. IPOs returned greater than 50% of exit value for the second straight year as IPOs and buyouts continued to scrape away at M&A’s lead as a proportion of exit count and value. Similar to the record dealmaking environment, 2018 was also a banner year for venture fundraising as VCs raised over $55.5 billion across 256 vehicles, the highest total capital raised recorded.
To download the full report and data packs, please click here. PitchBook and NVCA will also be hosting a webinar in partnership with Silicon Valley Bank, Perkins Coie and Solium, on Tuesday, January 29, 2019 from 9:00am – 10:00am PDT. Please click here to register.
“The venture ecosystem continued to slash records in 2018, further illustrating the maturation of the venture capital asset class, but also raising questions about the sustainability and health of these activity levels moving forward. Some GPs and LPs have already expressed concern that excess capital has led to inflated round sizes and valuations,” said John Gabbert, CEO of PitchBook. “In the event of any adjustments in the global economic or political backdrop, valuations may see a correction from their currently elevated levels, but private market investment activity will likely continue unabated. VCs will still have an immense trove of capital to invest.”
“It was an exceptional 2018 for the venture industry, with nearly 9,000 companies across the country receiving funding. The rise of first-time fund managers; the growing sizes of VC funds, investments, and valuations; and heightened activity from corporate and private equity investors are all important trends that continue to transform our ecosystem,” said Bobby Franklin, President and CEO of NVCA. “Naturally, the strong exit environment has brought warranted excitement, but there is also a strong sense of caution as signs of both public and private market corrections emerge.”
The fourth quarter saw $41.8 billion invested across 2,072 deals, closing out the full year with 8,948 completed deals totaling $130.9 billion, a new all-time high. The dealmaking frenzy was fueled by last year’s robust fundraising environment, which allowed transaction sizes and valuations to rise across the entire venture investment cycle. Angel & seed and early stage dealmaking posted strong momentum in 2018, experiencing 15.0% and 22.9% increases in median deal size, respectively. Late stage deals continued to account for an outsized proportion of venture investment, making up 62.7% of total deal value. The number of mega-deals, or deals over $100 million, soared to 199 representing an 91.3% YoY increase over already historic highs. Notable mega-deals closed in 2018 included Epic Games’ $1.3 billion round and Instacart’s $871.0 million Series F. Also driving investment in the late stage was Corporate and PE involvement, which became an important source of capital for larger rounds in 2018. CVC’s were involved in 1,443 deals, while PE investors participated in 792 completed financings, representing near decade highs in terms of deal counts.
The venture-backed exit market finished strong from a value perspective, surpassing $120 billion for the first time since 2012. The increase in exit value and flat exit count (864) translated into higher average exit sizes – a healthy sign LPs can expect substantial distributions back in the near-term. With 49 exits over $500 million, 2018 saw a decade-high proportion of exits in that size range (5.7%). Despite the slight cooling of exit counts, the fourth quarter posted the highest exit value in 2018, with $37.2 billion spread across 184 exits. Several outsized exits helped drive value, including the acquisition of Github by Microsoft for $7.5 billion, Cisco’s acquisition of Duo Security for $2.35 billion, and Moderna Therapeutics’ $604 million IPO – the largest biotech IPO on record. In general, venture-backed IPOs had a strong showing in 2018, increasing in count (85) and making up more than 50% of exit value ($63.6); however, recent public market volatility could dampen new listing activity as investors increase scrutiny on concrete fundamentals.
To meet demand for larger deal sizes, venture fundraising reached an all-time high in 2018, with $55.5 billion raised across 256 vehicles. The median fund size jumped 64% from 2017 values to $82.0 million, further demonstrating the fundamental shift toward larger funds across all stages. By year-end, there were 11 funds raised with $1 billion+ in commitments, up from just three funds last year and representing a decade-high. Among the firms raising $1 billion+ mega-funds were Tiger Global’s $3.75 billion fund, Bessemer Partners’ $1.85 billion fund and GGV’s $1.36 billion fund. Additionally, first-time fundraising was robust in 2018 with 52 vehicles securing $5.3 billion in committed capital, a decade high for both amount raised and fund count. In fact, there were 12 first-time funds sized between $100 million and $250 million, and four vehicles sized in the $250 million to $500 million echelon. The upswing in first-time fundraising can be attributed in part to the longstanding credibility of GPs leading spin-off firms.
The full report will include the following components:
Investment activity by stage
SVB Q&A: SVB CEO Greg Becker’s view of VC ecosystem
SVB: Harvesting a decade of innovation: Will IPO trends continue in 2019?
Solium: 2018 VC Executive Compensation Survey
To download the full report, click here.
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 and London and serves more than 22,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.
About the National Venture Capital Association
The National Venture Capital Association (NVCA) empowers the next generation of American companies that will fuel the economy of tomorrow. As the voice of the U.S. venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Serving the venture community as the preeminent trade association, NVCA arms the venture community for success, serving as the leading resource for venture capital data, practical education, peer-led initiatives, and networking. For more information about NVCA, please visit www.nvca.org.
Greg Becker, CEO of Silicon Valley Bank
“Strong VC fundraising over the past few years, fueled by investor demand for growth assets, has led to war chests of capital. This bodes well for the best performers in innovation going into 2019. Additionally, nontraditional investors, including sovereign wealth and mutual funds, have healthy appetites to continue investing, supporting companies with check sizes once reserved for public companies. If they remain active, we can expect abundant capital for scaled companies in 2019.”
Conrad Lee, Head of Data at Solium
“With the continued increasing levels of investment in venture-backed companies, we are seeing the trend of employee ownership dropping at early-stage companies while cash compensation continues to rise.”
Buddy Arnheim, Partner at Perkins Coie
“The record investment level of 2018 was indicative of the torrent pace we saw our clients raising funds and investing, and we are already seeing a continuation of that pace in early 2019. That said, the recent volatility in the public markets appear to be impacting the terms and valuations of the mid to late stage rounds, and the pace at which those rounds are coming together.”
Joe Horowitz, Managing General Partner, Icon Ventures
“With over $100 billion of funding for 2018 and a record number of mega-deals, it is hard to imagine this investment pace continuing, especially in a year when financial markets are more uncertain. Some degree of cooling down is inevitable which overall will be a good thing for the health of the VC industry.”
Jan Garfinkle, Founder & Managing Partner, Arboretum Ventures
“Funding for life science companies by both deal count and capital invested hit a record high in 2018. At the same time, biotech companies, and to some extent medical device companies, continue their positive run on the public markets. The largest VC-backed IPO of 4Q was Moderna Therapeutics, and healthcare companies accounted for seven of the top ten IPOs of the quarter. LPs have taken notice, and healthcare has also seen a healthy fundraising cycle. However, we anticipate healthcare valuations will reset as the market corrects, filtering down from public companies to private companies. Nonetheless, the first half of 2019 will be a prime time to be investing.”
Patricia Nakache, General Partner, Trinity Ventures
“2018 represents a high-water mark in US venture financings with total dollars raised jumping by a whopping 58% compared to 2017. This dramatic surge has been driven not by a higher volume of deals but by larger round sizes, in particular mega-financings for later stage startups creating a class of companies I refer to as “super-haves.” Appropriately managed, this capital can give super-haves a significant competitive advantage; inappropriately managed, it can lead to lack of focus and a dysfunctional culture. These mega-financings are also enabling the rapid growth of “full stack”, vertically integrated startups that are disrupting traditional industries, such as real estate, through a technology-first approach. Traditional venture funds have gotten bigger, and private equity and corporate investors have become increasingly active in venture – and all of those dollars are pouring into these large financings.”
Rich Wong, General Partner, Accel
“2018 was one of the best years we’ve seen for M&A and IPO activity, notably some of the high profile companies including GitHub, Qualtrics, Flipkart in M&A and Dropbox, Tenable, and Spotify on IPOs. And interesting to note, and healthy for the ecosystem – there was strength in exits across consumer and enterprise companies. 2019 is also shaping up to be a big year for IPOs, despite the recent quarter of volatility.”