Investors deployed USD21.78 billion to 1,958 US venture-backed companies during the second quarter, marking a significant uptick from the first quarter in capital invested while the number of companies receiving investment was stable, according to the PitchBook-NVCA Venture Monitor.
Through the first six months of the year, 3,876 companies received USD37.76 billion in financing, setting a pace to near or surpass the USD71 billion invested last year, and confirming that the industry has levelled off after peaking in 2015. Looking to the second half of the year, venture investors will continue to deploy capital to high-growth startups, having raised more than USD130 billion since 2014, including USD11.4 billion raised in the second quarter of 2017 across 58 funds.
“Venture investment activity the last few quarters supports evidence from the field that the industry is in the middle of a self-correction as valuations come down and the marketplace cools off,” says Bobby Franklin (pictured), President and CEO of NVCA. “That’s not to say investors are retrenching, but rather returning to a steadier pace of investing. With USD130 billion in capital raised since 2014 and the IPO market for venture-backed companies strengthening, the dynamics of the industry are healthy and venture investors are in a strong position to support the growth of the next generation of innovative companies.”
“As venture capital returns to normal, strong fundraising levels indicate a continued belief in the asset class, further evidenced by first-time venture fund managers on pace to receive the highest dollar amount in a decade,” says John Gabbert, Founder and CEO of PitchBook. “On the exit side, as we enter the second half, the exit environment looks promising; we have already seen five so-called unicorn companies go public – a record – with more filings on deck to bring much needed liquidity.”
Following three consecutive years of strong fundraising activity, including a ten-year high of USD41 billion raised in 2016, venture capital continues to draw strong interest from Limited Partners seeking outsized returns by supporting the growth of innovative companies. In the second quarter, venture investors raised USD11.4 billion across 58 funds, including the notable fundraise of USD3.3 billion by NEA, the biggest venture fund on record. While the pace of the number of funds closing is down from recent years, it is still high relative to the past decade, with a total of 119 funds closing year to date to raise a total of USD19.14 billion through the first half of the year. First-time funds continue to find success, with 15 funds closing on USD1.5 billion in the first half of the year, a pace that could see the highest level of capital raised for first-time funds in the last decade.
In the first half of 2017, 3,876 venture-backed companies raised USD37.76 billion, after USD21.78 billion was deployed to 1,958 companies in the second quarter alone. On a quarter-over-quarter basis, capital invested in venture-backed companies is up by 36 per cent, while the number of companies receiving investment is stable. The upswing in total capital deployed alongside a stable number of companies receiving funding can be attributed, in part, to a concentration of capital into a handful of late-stage companies. Collectively, the top ten deals of the quarter accounted for USD4.3 billion, representing 20 per cent of all dollars invested for the quarter. Another reason for this trend is the decline in the number of angel and seed stage investments witnessed over the last several quarters.
While Q1 IPO activity got off to a slow start with just eight companies listing publicly, the second quarter showed the IPO window opening with 19 companies going public, including five Unicorns. However, there are some cautionary notes amidst the more robust second quarter activity. The IPO market was led by San Francisco-based Okta and Palo Alto-based Cloudera – which went public at a significant discount to its last private round of financing. Between Cloudera’s valuation discount and the post-IPO performance of another unicorn, Blue Apron, private companies waiting in the wings may think twice about rushing to a public listing.
