Expectations Rise on Q1 Surge in Venture Funding; and Top 10 Deals

[Updated 4/11/18 10:13 am. See below.] Venture capital investors poured more than $28.2 billion into U.S. companies during the first three months of 2018—marking the strongest single quarter in at least a dozen years, according to the Venture Monitor Report released today by Seattle-based PitchBook and the National Venture Capital Association (NVCA).

The $28.2 billion that PitchBook counted in the first quarter was a third higher than the $21.3 billion that VCs deployed in the previous quarter and two-thirds more than the $16.9 billion that VCs invested in the first quarter of 2017.

The venture deal count, however, is another matter altogether. The 1,683 venture deals that closed during the first quarter of 2018 was the lowest number in five years, according to PitchBook data. The deal count was down 19 percent from the 2,076 deals in the previous quarter and off 26 percent from the 2,271 deals in the first quarter of 2017.

[Updated to include data from MoneyTree Report.] A rival report on first-quarter VC activity showed a more modest increase in funding growth— up 4 percent over the previous quarter with $21.1B invested across 1,206 deals. The number of deals declined for the second consecutive quarter by about 2 percent, according to the MoneyTree Report from PricewaterhouseCoopers and CB Insights. (The numbers don’t match because each survey uses its own sources and methodologies to track VC activity.)

The MoneyTree Report also highlighted a high number of “mega-rounds,” counting 34 rounds of $100 million or more during the quarter—accounting for just over a third of its total U.S. funding.

“A lot of the money flowing into venture-backed companies is from large corporates or sovereigns who need to put a lot of money to work at once,” CB Insights co-founder and CEO Anand Sanwal said in prepared remarks. “This diversion of attention away from early-stage venture is something worth watching.”

More money in fewer deals has become an overarching trend for the venture industry in recent years, exemplified by huge investments in unicorns—venture-backed companies valued at $1 billion or more. Bigger funds and bigger deals are spurring outsized effects by skewing some industry trends.

In the first quarter, for example, Venture Monitor reported that three unicorns raised over $1 billion from VC investors: Lyft raised $1.7 billion; Faraday Future raised $1.5 billion, and Uber closed a $1.25 billion round. (Our list of top 10 deals is below.) Altogether, the report noted that 17 unicorns attracted a total of $5.2 billion in venture capital—accounting for over 18 percent of all venture investments during the quarter.

Q1 2018 VC Activity

Quarterly VC Activity (PitchBook-NVCA Venture Monitor chart used with permission)

Venture Monitor said another recent industry trend also was evident during the first quarter, as venture-backed exits remained sluggish. The report found 188 exits raising a total of $8.1 billion. That was the lowest exit count since the end of 2011, and the lowest total value since 2013, according to Venture Monitor.

Amazon’s $1.2 billion acquisition of the smart security device company Ring ranked as the biggest of 144 M&A transactions that were disclosed. Venture Monitor counted another 29 private equity buyouts of venture-backed companies separately, and reported just 15 venture-backed IPOs—led by the $756 million public debut of the data storage platform Dropbox.

Venture insiders remain optimistic, though, and voiced high expectations for the remainder of 2018.

For one thing, if venture firms continue to invest at this rate, the Venture Monitor Report suggests that the total capital deployed by the end of 2018 could top $112 billion, in the heady realm near the peaks of the dot-com era. Industry analysts also are heartened by freshening IPO activity. They say recent federal tax reforms may produce an influx of corporate capital—brought home from overseas accounts or saved due to lower corporate tax rates—that could trigger a corporate buying spree, resulting in a surge in M&A exits for venture-backed companies later this year.

“The first quarter of 2018 picked up right where 2017 left off,” NVCA president and CEO Bobby Franklin said in prepared remarks. “As we look ahead to the rest of the year, 1Q appears to be indicating a strengthening exit environment,” Franklin added. That would bring liquidity to the limited partners that invest in venture funds, he said, “and could lead to an uptick in fund-raising, and in turn lead to even higher levels of investment activity.”

Although fund-raising by venture firms dipped during the first quarter, with $7.9 billion raised by 54 funds, analysts said fund-raising is expected to gain momentum after several firms raised over $1 billion in the first quarter. Norwest Venture Partners raised the most, $1.5 billion, followed by General Catalyst Partners at $1.37 billion, and Battery Ventures at $1.25 billion across two complementary funds. According to Venture Monitor, Khosla Ventures, Sequoia, Lightspeed Venture Partners, and Social Capital have all disclosed plans to raise at least $1 billion in coming months.

PitchBook Map Q1 2018 VC Activity

Top 10 Regions for VC funding (PitchBook-NVCA Venture Monitor map used with permission)

PitchBook CEO John Gabbert said the venture industry is “poised to continue its healthy pace of deal-making, especially when combined with the increased participation of non-traditional investors and the boost in pre-seed capital.”

Here’s the list of top 10 deals, according to Venture Monitor:

Lyft $1.7 billion San Francisco Information Technology
Faraday Future $1.5 billion Los Angeles Consumer
Uber $1.25 billion San Francisco Information Technology
Magic Leap $963 million Plantation, FL Consumer
Katerra $865 million Menlo Park, CA Information Technology
Door Dash $535 million San Francisco Consumer
Moderna Therapeutics $500 million Cambridge, MA Healthcare
Wag $300 million Los Angeles Information Technology
Harmony Biosciences $295 million Plymouth Meeting, PA Healthcare
Viela Bio $282 million Gaithersburg, MD Healthcare


Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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