Record Exit Value for VC-Backed Startups Could Fuel Investment

More than a third of the companies that went public in the first half of this year were backed by venture capital.

That, plus robust merger and acquisition activity, set a record for venture-backed exit value—$165.2 billion in money returned to investors—that’s already topped all other full-year totals, according to the latest VentureMonitor, the quarterly report on venture capital investment complied by the National Venture Capital Association and PitchBook.

The second quarter alone saw more than $100 billion in exit value, a new quarterly record, although the IPO of Uber (NASDAQ: UBER) accounted for a whopping 58.8 percent.

Those returns could spur an increase in investment in startups if those who back the firms recycle the capital into new VC funds, the report says.

“With so many VC-backed companies staying private for longer and with gains consequently staying primarily on paper, some LPs (limited partners) tapped out their allocation to venture,” the report said. “Recent gains flowing back to LPs will allow them to reinvest in venture, so the dip in venture fundraising observed early in 2019 is likely transient and not indicative of declining LP interest in the asset class.”

VC investment in 2018 set a high bar, topping $100 billion for the first time since 2000, the midst of the dot-com boom. In the first half of 2019, VCs invested just shy of $66 billion in 4,868 deals. That’s nearly on pace to match 2018’s numbers, which totaled $134.7 billion over 9,845 deals, according to Venture Monitor.

And, while 123 mega-deals ($100 million in funding or more) closed in the first half of 2019, average deal size and valuation were flat. That could signal some “stabilization” ahead, the report says—those mega-deals have played a significant factor in running up total VC investment in recent years. Still, 2019 is on pace to surpass 2018 when it comes to mega-deals; last year, there were 208, close to double the previous record of 109, set in 2015, according to Venture Monitor data.

Money continues to shift from angel and seed stage deals into later-stage VC, the data show: Though 42.3 percent of funding so far in 2019 went to those early rounds, that percentage has been declining since its peak of 53 percent in 2015. The volume of money going to late-stage VC, on the other hand, is at 25.1 percent so far this year. That percentage has been climbing since 2015, when it was 18.5 percent. The amount of money invested in Series A and B rounds has also been rising, albeit at a slower rate, over that time, from 28.4 percent to 32.6 percent in the first half of this year.

All of the biggest deals over the past quarter took place in California—all except one in the Bay Area—and New York.

Here are the top funding deals of the second quarter, according to the Venture Monitor report:

1. Flexport (San Francisco): $1B
2. DoorDash (San Francisco): $600M
3. UiPath (New York): $568M
4. SpaceX (Hawthorne, CA): $535.74M
5. SoFi (San Francisco): $500M
6. PAX Labs (San Francisco): $420M
7. Lemonade (New York): $300M
8. Carta (Palo Alto): $300M
9. Affirm (San Francisco): $300M
10. Gympass (New York): $300M
11. Impossible Foods (Redwood City, CA): $300M

Sarah de Crescenzo is the editor of Xconomy San Diego. You can reach her at sdecrescenzo@xconomy.com. Follow @sarahdc

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