US Venture Capital Investment Surpasses $130 Billion in 2019 for Second Consecutive Year
SEATTLE, January 14, 2020-- By the end of 2019, the venture industry deployed $136.5 billion in US-based companies, surpassing the $130 billion-mark for the second consecutive 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 and Carta. Vast amounts of capital resources available continued to drive growth in deal sizes and valuations across all stages. Although venture-backed exit activity cooled off in 4Q, 2019 recorded the annual record for US VC exit value at $256.4 billion across 882 liquidity events. This unprecedented flow of capital back to general partners (GPs) and limited partners (LPs) should drive impressive return metrics, encourage more fundraising and increase allocation to VC. Similarly, dealmaking activity should see sustained support from the newly raised funds, as well as nontraditional VC investors attracted by the substantial cash flows. Nontraditional investors, such as sovereign wealth funds and family offices, are more involved in the venture industry than ever before, participating in 85% of the 252 mega-deals (deals over $100 million) recorded in 2019. Female-founded companies saw record activity on both a capital and count basis, and their share of VC dealmaking climbed to an all-time high. On the fundraising side, robust exit activity and increased fund sizes have contributed to drive fundraising to the second-highest annual total in the past decade, with $46.3 billion raised for US venture funds.
"2019 showed that industry trends from the historic 2018 are the new normal for the venture industry, with mega-rounds and mega-funds becoming increasingly common trends in the startup ecosystem," said Bobby Franklin, President and CEO of NVCA. "While there are lingering uncertainties surrounding global macroeconomic trends, US public policies, and the 2020 election that could impact the industry, the flood of exit dollars going back to LPs, the robust fundraising environment, and large amounts of dry powder available at many venture firms should allow the industry to sustain this new level of investment activity in 2020."
"Despite uncertainties about the sustainability of the unprecedented activity seen in 2018, this year kept pace and will undoubtedly leave its mark on the venture ecosystem," said John Gabbert, founder and CEO of PitchBook. "In 2019, we saw the highest exit value ever tracked, record capital deployed to female-founded startups and the most late-stage deals ever closed, to name a few. The continued proliferation of nontraditional investors participating in VC and the need for LPs to recycle distributed capital back into new VC funds should keep venture momentum strong heading into 2020."
Venture capital deal activity in 2019 kept pace with record levels seen in 2018 for both count and value. Q4 2019 saw $34.2 billion invested across 2,215 deals, totaling $136.5 billion across 10,777 deals in 2019. One factor contributing to the record deal value seen in recent years is the increasing maturity of companies at all stages, underscored by a rise in early-stage mega deals. These transactions – 53 completed in total – represented nearly 25% of all VC mega-deals raised in the year. Another factor underpinning the strong deal value numbers is that investors still appear willing to deploy large sums when attractive opportunities are presented, despite fallout from disappointing IPOs and increased scrutiny of profitability for late-stage companies. Late-stage deal count surpassed 2,500 for the first time ever in 2019, with nearly 2,600 deals totaling more than $85 billion invested. This year also registered the new high for mega-deals at the late stage with 181 deals completed, up roughly 10% year-over-year. Investments with at least one nontraditional investor (hedge funds, sovereign wealth funds, family offices and pensions) nearly surpassed $100 billion for the second consecutive year, helping drive deal value further.
Exit activity in 4Q 2019 posted quarter-over-quarter declines for the second consecutive quarter on both a count and value basis, recording 174 exits totaling $18.8 billion. Despite the decline in activity during the back half of the year, 2019 now stands as the annual record for US VC exit value at $256.4 billion across 882 liquidity events. The largest exit in 4Q was PayPal's $4.0 billion acquisition of Honey Science, a successful exit for backers given the online shopping coupon platform raised only $37.7 million over five rounds prior. IPO activity has been the primary driver behind this record year of exit value, but this liquidity option had an especially tepid Q4. Lackluster post-IPO performance of many newly listed technology companies over the past six months likely put a damper on potential debutantes. Following the aftermarket price performance struggles from 2019 technology listings, healthcare IPOs dominated the 4Q roster. Nine of the 13 VC-backed IPOs from 4Q were healthcare IPOs, representing 69.2% of the total. Amidst scrutiny over the traditional IPO process, the direct listing option gained momentum in 2019 amongst VC investors and founders alike. Looking to 2020, many unicorns pursuing a transition to the public market will likely consider a direct listing.
US venture funds raised $46.3 billion across 259 vehicles in 2019, reaching the second highest annual total in the past decade but posting well below the $58 billion raised in 2018. Despite fund count also seeing a decline from 2018 levels, VC funds have grown larger with the annual median fund size reaching $78.5 million in 2019. Strong distributions and lackluster contributions in the first quarter of 2019 resulted in elevated net cash flows, effectively pooling cash with LPs that are likely to recommit. This pattern could then push 2020 VC fundraising totals near 2018's historic figures. As the funding environment continues to shift, micro-funds (funds under $50 million) have become less desireable given the struggle to compete or maintain equity stakes, falling to their lowest annual levels in terms of value and volume since 2011. Larger funds allow GPs to write bigger checks and ultimately remain competitive when it comes to dealmaking. There was a notable increase in the volume of funds sized between $50 million and $250 million, commanding 43% of overall fund count in 2019. Twenty mega-funds closed in 2019 with the largest fund of the year being TCV's 10th Fund, a $3.2 billion vehicle that aims to invest in IT infrastructure and consumer internet companies.
The full report will include the following components:
•NVCA policy highlights
•Angel, seed & first financings
•SVB: Resilience is the theme for 2020
•Deals by region
•Deals by sector
•SVB: Global trade tensions create stress—and opportunity
•Carta: How dual-class and single-class companies compare
To download the full report, click here.
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves over 32,500 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.
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 US 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.
Greg Becker, CEO of Silicon Valley Bank
"The public markets are increasingly more discerning about the fundamental health of unicorns. Still, for recent IPOs, top-line growth remains highly correlated to a company's valuation. In fact, the public markets have continued to be receptive to high-growth companies with operating losses. Out of 21 US VC-backed tech IPOs in 2019, seven entered the public markets with a $10B+ market cap on the first day close, compared to just 2 in the previous three years combined. Of course, share prices have tumbled for some of these IPOs, an important reminder that that those seeking to go public shouldn't ignore the importance of demonstrating a clear path to profitability."
Mischa Vaughn, Head of Editorial at Carta
"In 2019, the machinations behind venture capital went mainstream. From direct listings and IPOs to subjects like dual-class share structures or 'supervoting' shares. Our analysis of single-class and dual-class companies provides new insights to help investors and founders understand the effects of these corporate decisions."
Venture Capital Database