Venture-backed Exit Activity Eclipsed Annual Record Surpassing $200 Billion In Only Three Quarters
SEATTLE, October 9, 2019-- Venture-backed exit activity stabilized in the third quarter of 2019 after a surge in the second quarter; however, the steady flow of exits has pushed year-to-date exit value over $200 billion for the first time, surpassing the annual record following just three quarters of the year, according to the PitchBook-NVCA Venture Monitor, the authoritative quarterly report on venture capital activity in the entrepreneurial ecosystem jointly produced by PitchBook and the National Venture Capital Association (NVCA), with support from Silicon Valley Bank, Perkins Coie and Shareworks. Outsized liquidity events continue to be a dominating trend across VC, with exits over $100 million making up 98.7% of value so far this year. Total venture capital investment has reached $96.7 billion through the first three quarters, which puts 2019 on pace to be the second-highest year for venture capital investment behind last year's record totals. Late-stage dealmaking has continued its strong momentum from the past couple years, showing no signs of slowing down. 185 mega-deals ($500+ million) have already been completed so far this year, nearly reaching 2018's full-year total and accounting for 43% of total VC investment value. Interest in female-founded startups continues to increase, with 2019 pacing to be a record year of VC activity. Investor confidence in VC continued as fundraising has shifted towards increasingly larger funds since 2012. Mega-funds continued to close at lofty levels, with 15 funds completed so far this year and nearly a dozen open funds expected to close soon, laying the foundation for large masses of capital deployment to continue in the years ahead.
"Many of the trends we've seen in the private markets over the past few years persisted through the first three quarters of 2019 as ever-growing sources of capital continue facilitating larger VC rounds and driving investment totals higher across the VC environment," said John Gabbert, founder and CEO of PitchBook. "Most notably this year, exit activity and the IPO market specifically has been squarely in the spotlight. With 67 completed VC-backed IPOs, exit value has already surpassed the annual record in only three quarters of the year."
"Venture-backed exits remain the big story of 2019, with record IPO activity sending strong signals to the industry around the opportunities and returns offered by portfolio companies entering the public markets, which is such an important part of the venture life cycle. However, challenges for venture-backed companies going public continue, some of which hit the spotlight in 3Q before and after companies listed," said Bobby Franklin, President and CEO of NVCA. "At the same time, increased CFIUS scrutiny on the startup ecosystem is likely to affect M&A (and investment) sentiment from foreign investors. Nevertheless, a robust fundraising and investment environment continues, which coupled with realized returns from large exits, means LPs will be looking to cycle capital back into the ecosystem."
3Q 2019 saw $35.4 billion exited across 189 transactions, bringing year-to-date total exit value over $200 billion for the first time, another milestone for 2019's record year in VC exits. Exit totals in 3Q fell short of prior quarters due in part to a lack of exits over $10 billion. Perhaps most notable is an exit missing from the dataset, with WeWork postponing its planned IPO following negative feedback from potential investors. Datadog's IPO was the largest exit of the quarter, valuing the app monitoring software company at $7.2 billion pre-money. Acquisition activity remained a constant factor within the VC ecosystem, serving as an important exit route for smaller and midsized exits. The largest acquisition this quarter was Merck's purchase of Peloton Therapeutics for $1.1 billion, which came the day before the company's planned IPO. The historically slower pace of high-growth IPOs in the last couple of years has allowed demand for these companies to build, leading to an open IPO window over the past few quarters where 67 VC-backed companies have exited via an IPO year-to-date. 2019 currently holds the record for IPOs as a proportion of all exit value (82.0%), sustained by a group of completed unicorn public debuts in 3Q that included Peloton Interactive, Cloudflare, 10X Genomics, Livongo and Medallia.
VC investments in 3Q 2019 totaled $28.2 billion across 2,265 deals, bringing year-to-date totals to $96.7 billion and 7,862, respectively. The trend of fewer but larger deals has not slowed, and successful public listings have proven to be a viable exit route for VC-backed unicorns, providing supporting evidence for the practicality of ultra-late-stage investment. 572 late-stage deals closed in 3Q, amassing more than $17 billion and 83 deals sized $50 million or more closed, accounting for nearly 70% of the quarter's total late-stage deal value. More than $41 billion has been invested into these larger deals year-to-date, already marking the second-highest yearly total behind only 2018. Nontraditional investors have increased overall participation in venture, with transactions involving tourist investors accounting for the largest proportion of deal value, reaching nearly 60% of total VC deal value in 2019. Corporate venture capital (CVC) has also seen a glaring rise over the past decade, realizing a 37% CAGR in deal count since 2009. Nearly 600 corporations or CVCs completed at least one US VC deal last year, the highest total to date.
Venture capital fundraising is on pace for another strong year, with $29.6 billion raised across 162 vehicles so far this year. Fundraising figures should easily surpass the $30+ billion mark achieved in each of the past five years although it is expected to come in under the $54.8 billion raised across 290 funds in 2018. VC net cash flows have been positive since 2012 which should fuel the next round of venture funds as capital is returning to LPs faster than it's being put into new vehicles. VC fund sizes are continuing to increase, with nearly half of all funds exceeding $100 million in size. Mega-funds ($500+ million) in 2019 have already exceeded 2017 activity in terms of count and capital raised, with 15 closed and $14.4 billion raised, respectively. With 25 open funds targeting $500+ million and three mega-funds expected to close in the near future, activity is not expected to slow in the coming years.
The full report will include the following components:
•Angel, seed & first financings
•SVB: Life science investors adjust to global challenges
•Deals by region
•Deals by sector
•Shareworks: Stock option lending is the fastest growing market in the private company liquidity toolbox
•Perkins Coie: Key trends shaping US venture landscape
To download the full report, click here. https://pitchbook.com/news/reports/3q-2019-pitchbook-nvca-venture-monitor
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About National Venture Capital Association
The National Venture Capital Association (NVCA) empowers the next generation of American companies that will fuel the economy of tomorrow. As the voice of the U.S. venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Serving the venture community as the preeminent trade association, NVCA arms the venture community for success, serving as the leading resource for venture capital data, practical education, peer-led initiatives, and networking. For more information about NVCA, please visit www.nvca.org.
Katherine Andersen, Head of Life Science and Healthcare Relationship Banking, Silicon Valley Bank
"Today, we're faced with increasing macroeconomic forces, slowing economies and geopolitical noise, including continued US scrutiny of foreign investors. And while the healthcare industry is experiencing slower activity now, 2019 is still on track to be the second-best year ever for venture investment, after 2018. The pace of US biopharma activity is down slightly in 2019, but by midyear we had already surpassed more than full-year 2017. So are we in a bubble? No, but it's still frothy."
Ryan Logue, Head of Business Development and Innovation, Shareworks
"Despite the recent run of negative press on a few headline issues, the private market is continuing to have a strong year. We are seeing the usual trend of deal activity ramping up as we move into Q4 and have yet to see a slowdown in fundraising across our client base. We expect to see this trend continue at least until Q1 for our private market and IPO ready clients."
Venture Capital Database