The biggest story in the venture industry from 2Q was the exit market, fueled by 34 venture-backed IPOs that pushed exit value to a record $138.3 billion. The high-profile nature and aftermarket success of most of these newly public companies should also imbue confidence in the 14 VC-backed companies currently in IPO registration. Including M&A activity, total venture-backed exit value for the first half of 2019 reached $188.5 billion, eclipsing every full-year total on record.
A crucial aspect of the flood of big VC-backed exits is the liquidity they bring not only for the companies and their employees but also for venture funds and LPs. With so many VC-backed companies staying private for longer and with gains consequently staying primarily on paper, some LPs tapped out their allocation to venture. 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.
The IPOs of companies such as Uber, Zoom and Pinterest stole headlines in 2Q, but VC-backed life science companies, particularly biotech, continued to see robust IPO activity. The insatiable public market appetite for life sciences companies has resulted in an active M&A market as well. This is particularly important for medical device and supply companies, which have experienced a healthy M&A environment in 2019. On the investment front, life sciences trends have mirrored those seen across the venture industry: fewer, larger deals and rising valuations. If current trends continue, life science companies as a proportion of total VC investment could reach the highest level since 2011, indicating the growing strength of the sector within the venture industry.
While overall venture investment in the first half of 2019 is unlikely to surpass the record levels reached in 2018, full-year 2019 capital investment is still on track to post the second-highest year on record. Investment into female-founded companies, an important and closely watched aspect of the industry, trended positively through the first half of 2019. This coincides with a perception among some VCs that there are more high-profile companies with female founders, especially among tech startups, as well as more female investment partners writing checks. A recent survey conducted by NVCA and Deloitte found that women comprised 14% of investment partners in the venture industry in 2018, compared with 11% in 2016.
On the policy front, the expanded authority of the Committee on Foreign Investment in the United States (CFIUS) on foreign investment into the startup ecosystem continues to be an area of policy focus. Many investors from trading partners in Europe and elsewhere are now getting pulled into the CFIUS process, which convolutes dealmaking and poses a variety of major hurdles according to NVCA, especially for life sciences companies. While the new CFIUS regulations are still in the early days, the trend lines to this point do not appear promising, in the opinion of NVCA. In fact, NVCA convened policymakers and about 100 VC investors in Washington, DC for VCs-to-DC in early June to discuss CFIUS—and other important issues impacting the startup ecosystem--with members of Congress and regulators Tariffs and the trade war do not yet seem to have had much of an impact on the venture industry, but there could be a damaging effect on IPOs if there is a negative reaction in public markets. More than ever before, global market forces have an impact on the US VC industry. Should global markets take a turn for the worse, the bull venture market in the US could see negative effects.