It appears that venture capital spending will reach the highest levels of the last decade. According to PitchBook-NVCA Venture Monitor, several key trends have emerged in the industry.

Larger amounts of capital into fewer companies

Total investments have totaled $61.4 billion year to date. Venture investors put to work $21.5 billion to more than 1,699 venture-backed companies, or just above $12.5 mm per company. Additionally, it looks like we will see more $100mm+ investments than in any other year during the last decade. “The trends of fewer companies receiving investment and the concentration of dollars into unicorns and later-stage rounds signal a new normal for the venture industry,” said Bobby Franklin, president and CEO of NVCA. “Sitting on record-levels of dry powder, venture investors will continue to deploy capital into innovative companies, albeit at a likely slower pace.”

 

VC investors are more focused on late-stage companies

By the end of 3Q 2017, these types of transactions accounted for more than 20% of total deal count for the first time in five years. SoftBank recently invested $3 billion in WeWork, a company with roughly $1 billion in annual run rate revenue and a $20 billion valuation. There has even been a move towards favoring later stage companies with angel and seed investors – the median age of angel/seed investments in companies increased to 2.4 years from about 1.4 years six years ago. For the first time since 2012, we are seeing angel and seed investments fall below the 50% mark of completed financings.

 

Venture-backed companies are delaying exits
Several of the most well known start ups including unicorns like WeWork, Uber and Airbnb, are good examples of this trend, as they’ve continued to raise record levels of capital, further boosting their valuations and delaying exits. The number of VC exits is estimated to fall to 707 for 2017 from 839 for 2016. The exits are increasing through sales to private equity firms rather than through the IPO market – PE buyouts have accounted for more than 18% of the 2017 exits as IPOs have decreased.

 

Fundraising activity

Q3 fundraising was a little sluggish with $5.3 billion raised across 34 funds compared to $10.9 billion raised across 60 funds from the previous quarter. That said funds are trending towards larger sizes. The largest funds raised this year are $1.5 billion for IVP, over $900 million for Clarus Ventures and $800 million for Canaan Partners.

 

 

Castle Placement is an investment bank (founded in 2009) that raises raise equity and debt capital for companies in a variety of industries from our institutional investor network (>27,000 investors – PE/VC firms, hedge funds, family offices, asset managers, lenders, etc.).

www.castleplacement.com

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Thanks, Ken

Ken Margolis | Managing Partner Castle Placement, LLC
1460 Broadway Street, Rte 400
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kmargolis@castleplacement.com

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