Sustained Momentum in Venture Fundraising Continued to Fuel Strong Dealmaking Across All Stages in 2018; Exit Market Showed Signs of Improvement with IPO Count on Track to Become Second Best Year since 2000
Investment in 3,912 venture-backed companies reached $57.5 billion invested across 3,997 deals in the first half of 2018, according to the PitchBook-NVCA Venture Monitor, the authoritative quarterly report on venture capital activity in the entrepreneurial ecosystem jointly produced by PitchBook and the National Venture Capital Association (NVCA).
At this pace, venture investment is expected to meet or exceed capital invested in 2017, which saw the highest amount of capital deployed to the entrepreneurial ecosystem since the dot com era (early 2000’s). Deal value was driven in part by investment in late-stage companies and unicorns, however, deal sizes increased across all stages. This is most notable in the angel and seed stage, which has been boosted by the emergence of pre-seed financings. These pre-seed rounds allowed for more mature business models by the time of initial seed rounds, naturally leading to larger deal sizes. Additionally, the venture exit market remained healthy in the first half of 2018 and is expected to continue improving with several unicorns poised for exits. Venture fundraising also remained strong, especially for first time fund managers with niche or regional strategies.
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 July 31, 2018 from 9:00 – 10:00 am PDT. Please click here to register.
“The sheer amount of capital available across the entire venture landscape is reaching unprecedented levels. Different from previous years, it’s not just unicorns or top-end companies raising large rounds – its companies at every stage,” said John Gabbert, founder and CEO of PitchBook. “Once startups are able to produce solid business metrics and establish a business model capable of scaling quickly, they see high demand from venture investors looking to put their capital to work. I expect to see continued momentum in the venture industry, especially with an improving exit market, as GPs will be able to consistently generate strong returns.”
“The first half of 2018 shows that the investment environment for venture-backed companies is just as robust as it was in 2017, and 2018 may end up even stronger than that banner year,” said Bobby Franklin, President and CEO of NVCA. “The increasing optimism around the IPO market is good news for late-stage companies looking to go public—and for the investors and LPs backing them—although the longevity and level of openness of the IPO window remain to be seen. Companies going public and staying public, particularly small cap tech companies, remains an issue, though recent regulatory discussions to enhance the 2012 JOBS Act are encouraging. This along with a strong investment and fundraising environment are positive signs for young, innovative U.S. companies that will fuel the future of our economy.”
Venture capital (VC) dealmaking in 2018 is on track to challenge 2017 for the most capital invested since the early 2000’s. Outsized investments in late-stage companies helped drive deal value as older companies continued to raise private capital and prolong exits. More than 20% of total VC financing in 2018 was invested in VC-backed unicorns ($11.8 billion). This group has secured at least 20% of total VC capital invested since 2015. Challenging traditional angel and seed investment norms, median deal size reached an all-time high for this stage at $1.4 million – up from $1 million in 2017. The increase in deal size in the angel and seed stage is partly due to the emergence of pre-seed financing as well as an increase in the median age of startups. In 2Q 2018, the median age of a company in the angel and seed stage rose to 3.11 years, up from 2.4 years in 2017, allowing for more time to develop successful business models and increase valuations. Another emerging trend was increased activity by private equity (PE) investors as a result of increased competition in PE coupled with maturing venture-backed companies. VC financings with participation from a PE firm accounted for 30% of total deal value.
In the first half of 2018, there were 419 venture-backed exits totaling $28.7 billion, on pace to match exit counts from 2017. While exit value dipped slightly from 1H 2017, exits of $500 million or more accounted for roughly 50% of capital exited. For instance, in the second quarter the acquisitions of Flatiron ($1.9 billion), Ring ($1.2 billion) and Glassdoor ($1.2 billion) were landmark deals that helped drive exit value. This trend will likely continue throughout 2018 with several unicorns poised for an exit. A closer look at exit types shows the IPO market remained healthy and is on pace for the second-best year in the past decade in terms of IPO count with 43 IPOs and $6.3 billion in exit value completed. The largest public debuts of the quarter included DocuSign ($629 million), PluralSight ($310 million) and SmartSheet ($174 million). It’s also worth noting, eight companies debuted at a valuation above $1 billion in the second quarter. Additionally, as venture-backed business models continued to mature, private equity-backed buyouts accounted for a higher proportion of exit counts. There were 27 buyouts totaling $2.0 billion in the second quarter. If this pace continues, 2018 may reach the buyout activity achieved in 2017, which saw more buyouts (154) as a venture-backed exit strategy than any year prior.
Venture capital funds closed at a strong pace in the first half of the year, with $20.2 billion raised across 157 vehicles. At this pace, 2018 will likely become the second year in the past decade to see more than $40 billion committed, adding to the already high amount of VC capital available to startups. What’s more, median fund size reached the highest level since 2008 ($65 million in 2018) and the median time to close a fund decreased to 10.3 months, the lowest since 2011 (10.0 months). First-time fund managers also saw success on the fundraising trail. In the first half of 2018, there was $1.9 billion raised across 26 first-time funds, on track to exceed 2017 first-time fundraising activity in terms of fund count. Further examining this trend, 2018 is pacing to become the most active year for first-time micro funds (sub $50 million) in both fund commitments and total count, with $307.9 million raised across 15 vehicles. This can be attributed to the increased emphasis by venture investors to pursue niche strategies or regional focuses – an emerging trend observed over the last several quarters.
The full report will include the following components:
• Overview by stage
• SVB: Adapting to capital overload: Investors chart new paths
• Activity by region and sector
• Life Sciences
• Q&A: Research boom in life sciences benefitting patients and investors alike
• Corporate VC
• Perkins Coie: An evolving VC market needs evolving participants
• Growth Equity
• SVB: Nontraditional investors, family offices seek earlier-stage deals
• League Tables
UK seeks G7 consensus on digital competition after Facebook blackout
LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.
Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.
“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.
“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”
Dowden said recent events had strengthened his view that digital markets did not currently function properly.
He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.
“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.
Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.
“Nick strongly agreed with the Secretary of Stateâ€™s (Dowden’s) assertion that the governmentâ€™s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.
Britain will host a meeting of G7 leaders in June.
It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.
The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.
Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.
(Reporting by William James; Editing by Gareth Jones and John Stonestreet)
Britain to offer fast-track visas to bolster fintechs after Brexit
By Huw Jones
LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.
Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.
“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.
Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.
Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.
The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.
It also recommends more flexible listing rules for fintechs to catch up with New York.
“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.
“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)
G20 to show united front on support for global economic recovery, cash for IMF
By Michael Nienaber and Andrea Shalal
BERLIN/WASHINGTON/ROME (Reuters) – The world’s financial leaders are expected on Friday to agree to continue supportive measures for the global economy and look to boost the International Monetary Fund’s resources so it can help poorer countries fight off the effects of the pandemic.
Finance ministers and central bank governors of the world’s top 20 economies, called the G20, held a video-conference on Friday. The global response to the economic havoc wreaked by the coronavirus was at top of the agenda.
In the first comments by a participating policymaker, the European Union’s economics commissioner Paolo Gentiloni said the meeting had been “good”, with consensus on the need for a common effort on global COVID vaccinations.
“Avoid premature withdrawal of supportive fiscal policy” and “progress towards agreement on digital and minimal taxation” he said in a Tweet, signalling other areas of apparent accord.
A news conference by Italy, which holds the annual G20 presidency, is scheduled for 17.15 (1615 GMT)
The meeting comes as the United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies going despite COVID-19 lockdowns.
But despite the large sums, problems with the global rollout of vaccines and the emergence of new variants of the coronavirus mean the future of the recovery remains uncertain.
German Finance Minister Olaf Scholz warned earlier on Friday that recovery was taking longer than expected and it was too early to roll back support.
“Contrary to what had been hoped for, we cannot speak of a full recovery yet. For us in the G20 talks, the central task remains to lead our countries through the severe crisis,” Scholz told reporters ahead of the virtual meeting.
“We must not scale back the support programmes too early and too quickly. That’s what I’m also going to campaign for among my G20 colleagues today,” he said.
Hopes for constructive discussions at the meeting are high among G20 countries because it is the first since Joe Biden, who vowed to rebuild cooperation in international bodies, became U.S. president.
While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.
The recovery is fragile elsewhere too – factory activity in China grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections, and in Japan fourth quarter growth slowed from the previous quarter with new lockdowns clouding the outlook.
“The initially hoped-for V-shaped recovery is now increasingly looking rather more like a long U-shaped recovery. That is why the stabilization measures in almost all G20 states have to be maintained in order to continue supporting the economy,” a G20 official said.
But while the richest economies can afford to stimulate an economic recovery by borrowing more on the market, poorer ones would benefit from being able to tap credit lines from the IMF — the global lender of last resort.
To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by then U.S. President Donald Trump.
Scholz said the change of administration in Washington on Jan. 20 improved the prospects for more IMF resources. He pointed to a letter sent by U.S. Treasury Secretary Janet Yellen to G20 colleagues on Thursday, which he described as a positive sign also for efforts to reform global tax rules.
Civil society groups, religious leaders and some Democratic lawmakers in the U.S. Congress have called for a much larger allocation of IMF resources, of $3 trillion, but sources familiar with the matter said they viewed such a large move as unlikely for now.
The G20 may also agree to extend a suspension of debt servicing for poorest countries by another six months.
($1 = 0.8254 euros)
(Reporting by Michael Nienaber in Berlin, Jan Strupczewski in Brussels and Gavin Jones in Rome; Andrea Shalal and David Lawder in Washington; Editing by Daniel Wallis, Susan Fenton and Crispian Balmer)
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