Venture Funding Keeps Momentum Amid IPO Wave; Plus Q2’s Top 10 Deals

[Updated 7/12/18, 9:24 am. See below.] Last year, U.S. venture capital investments swelled to a level not seen since the dot-com era of the early 2000s. This year could be even bigger.

Investors funneled $57.5 billion into U.S. companies through the first six months of 2018, according to the latest Venture Monitor report produced quarterly by Seattle-based PitchBook and the National Venture Capital Association (NVCA). At this pace, 2018 venture investment is well on its way to surpassing last year’s $81.9 billion total. In fact, more venture capital dollars have already been invested in the first half of 2018 than the full-year totals of six of the past 10 years, according to the report.

“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, NVCA president and CEO, in a prepared statement.

The $27.3 billion invested in the second quarter was down nearly 10 percent from the $30.2 billion that venture capitalists deployed during the previous three months, but it was more than 30 percent higher than the $20.9 billion invested in the second quarter of 2017, according to Venture Monitor data.

[Updated with MoneyTree data.—Eds.] A rival study from PricewaterhouseCoopers and CB Insights found that nearly $23 billion was invested in U.S. companies in the second quarter, the highest quarterly total since 2000, according to data from the two firms’ MoneyTree Report. Last quarter, MoneyTree tracked $22.4 billion in U.S. venture capital investments. (The numbers from the Venture Monitor and MoneyTree reports don’t match because each survey uses its own sources and methodologies to track VC activity.)

While the total value of venture deals remains high, the number of deals has declined, according to Venture Monitor data. PitchBook and NVCA tracked 1,859 venture deals in April, May, and June, the lowest quarterly total since 2012. (PitchBook and NVCA reported in April that there were 1,683 venture deals during the first quarter, but revised that number to 2,138 in their most recent report. The groups also revised last year’s venture funding total lower. A spokesperson says the report’s data are updated as more information is received.)

Meanwhile, the MoneyTree report found that the number of U.S. venture deals increased to 1,416 in the second quarter, compared with 1,297 in the first three months of the year. The report’s quarterly deal count hadn’t surpassed 1,400 since the first quarter of 2017.

This juxtaposition of high deal value and (relatively) low deal count has been the trend for a while now, as investors place big bets on a small number of companies. More than 20 percent of the VC deployed this year (about $11.8 billion) has been invested in so-called “unicorns,” the privately held companies valued at more than $1 billion by their investors, according to the Venture Monitor report. Unicorns have pulled in at least 20 percent of all venture capital dollars invested in the U.S. since 2015, the report noted. The MoneyTree report counted 45 funding rounds of at least $100 million in the second quarter of this year, the third consecutive period with at least 30 such deals.

Deal size increased across all stages in the second quarter, according to Venture Monitor data—including the “angel” and “seed” stages, which the report said has been driven in part by the emergence of “pre-seed financings.” Still, the number of angel and seed deals declined in the second quarter from the previous one, a trend that has been ongoing for almost a year.

The exit environment remains a mixed bag, although the Venture Monitor report found some reasons for optimism. The total value of the acquisitions, initial public offerings, and other exits that occurred during the first half of 2018 reached $28.7 billion, putting this year on pace to surpass $50 billion in total exit value for the fifth straight year. The total quarterly value of exits has exceeded $10 billion in 12 of the past 13 quarters. But the 419 exits in the first half of this year put 2018 on track for the lowest number of exits since 2011, when there were 738, according to Venture Monitor data.

The widening of the IPO window, particularly for tech companies, has been one of the biggest storylines this year. The Venture Monitor report said 43 venture-backed companies have gone public so far in 2018, representing $6.3 billion in exit value. The IPO count is on pace for the second-highest annual total in the past decade, according to Venture Monitor.

“The increasing optimism around the IPO market is good news for late-stage companies looking to go public—and for the investors and [limited partners] backing them—although the longevity and level of openness of the IPO window remain to be seen,” Franklin said in the prepared statement.

VCs continue to have little trouble raising new funds. They raised $20.2 billion across 157 funds in the first half of 2018, on pace to challenge 2016 levels ($41.1 billion raised across 322 funds), which represented the high water mark of the past decade. Venture firms are raising more money, faster: the median fund size this year is $65 million (the largest amount since 2008), and the median time to close a fund shrank to 10.3 months, the fastest rate since 2011, according to Venture Monitor.

Although $1 billion-plus mega-funds, such as General Catalyst Partners and Norwest Venture Partners, have driven much of the VC fundraising activity in recent quarters, small venture firms are making more noise. “Micro-funds,” which Venture Monitor defines as funds with less than $50 million in their pot, are on pace to raise $2.2 billion across the board, which would be the largest amount raised by this category of investor in the past 10 years. Micro-funds closing their debut funds are also on pace to have a record year of fundraising, which the report attributed to these firms successfully pitching “niche strategies or regional focuses.”

Here are the top 10 venture deals in the second quarter, per Venture Monitor:

1. Faraday Future$2 billionLos AngelesConsumer
2. Lyft$600 millionSan FranciscoInformation Technology
3. Allogene Therapeutics$411.8 millionSouth San FranciscoHealthcare
4. Robinhood$362.9 millionMenlo Park, CAInformation Technology
5. Instacart$350 millionSan FranciscoInformation Technology
6. Opendoor$325 millionSan FranciscoInformation Technology
7. Grail$300 millionMenlo ParkHealthcare
8. Tradeshift$250 millionSan FranciscoInformation Technology
9. Cohesity$250 millionSan Jose, CAInformation Technology
10. Dataminr$221.1 millionNew YorkInformation Technology

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