After reaching a record high of USD56.4B spent in 2014, the US is on track to smash that record and break USD70 billion in Venture Capital (VC) spending by the end of 2015, according to a new report from KPMG and CB Insights.
Venture Pulse Q2 '15, the first in a global quarterly VC report series, reveals that with USD36.9 billion already invested in the first half of the year, the final total money spent by VCs in 2015 could mark a five-year high for the US
According to the report, the US has collectively seen more than USD15B invested in four of the last five quarters, including more than USD18B in both quarters of 2015 (which contained large deals to airbnb, Zenefits, and Wish, among others). In addition, Q2'15 was a banner quarter for Unicorns – VC-backed companies with valuations in excess of USD1 billion. During Q2'15, 24 VC-backed companies achieved Unicorn status (up from just 11 in Q1), including 12 in the US and nine in Asia. Much of the growth in the number of Unicorns can be linked to the availability of late-stage funding.
"Activity is high and should remain so, with 2015 shaping up to be a record year," says Brian Hughes (pictured), National Co-Lead Partner, KPMG LLP's Venture Capital Practice. "This is driven by a number of factors, including low interest rates, strong participation by corporate investors, and new capital sources such as hedge and mutual funds. Companies are staying private longer and growing to an immense size as a result of access to investment and stronger investor interest, combined with a trend toward late stage mega-rounds.
"While many analysts are predicting a slight decrease in VC investment in the months ahead, we believe the strength of such fundamental growth drivers have created strong conditions for continued investment."
In the past year, Internet companies have dominated the marketplace of VC-backed deals, and, in Q2 '15, they have continued to trump all other sectors with 45 per cent of the share, followed by Mobile & Telecommunications (16 per cent), Healthcare (14 per cent), Non-Internet/Mobile Software (6 per cent), Consumer Products & Services (3 per cent) and all other sectors (15 per cent).
According to the report, Internet companies also topped other sectors based on dollar shares, jumping from 34 per cent in Q1 '15 to 51 per cent in Q2 '15. This increase was primarily led by airbnb's USD1.5B financing in late June. Mobile companies' dollar share followed with 14 per cent in Q2 '15 (a decrease of 13 per cent from Q1 '15). This decrease can be attributed to Uber's multiple billion dollar financings in Q1 '15 compared to the largest Mobile financing of Q2 '15 (Snapchat at USD337M).
"Numerous disruptive technologies and applications are also spurring interest and investment from the VC community," says Conor Moore, National Co-Lead Partner, KPMG LLP's Venture Capital Practice. "The growth of new on-demand platforms continues to be particularly robust. This trend, which escalated with Uber and airbnb, is now expanding into new verticals and well beyond North America."
The analysis by KPMG and CB Insights also found that early-stage deals into VC-backed companies remained steady at 49 per cent in Q2'15, while seed deal share dropped to a five-quarter low of 24 per cent. Average early-stage deals were USD5.3M in Q2'15, breaking USD5M for the first time in five quarters.
Additionally, mid-stage (Series B – Series C) deal share reached a five-quarter high, accounting for 26 per cent of all deals to US-based VC-backed companies. Interestingly, average late-stage
(Series D+) deals in North America rose for the third consecutive quarter, with an average late-stage deal size of USD56.3M in Q2'15. This can be partially attributed to the rise of mutual funds, hedge funds, private equity firms and corporations in recent mega-financings.
Moore added that "the availability of these late-stage mega-deals continues to delay potential IPO exits. If companies can raise similar amounts of money through private financing, many companies will opt for it."
