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Pitchbook Venture Monitor

1Q 2018 Venture Monitor

After an active 2017 for investment in US venture-backed companies, momentum in capital deployed con nued in the first quarter of 2018 while the pace of companies receiving capital continued to decelerate. A total of 1,683 venture-backed companies raised $28.2 billion in funding during 1Q 2018, marking the fourth consecutive quarter of more than $20 billion deployed to venture-backed companies and the highest amount of capital deployed in a single quarter since at least 2006.

In 1Q, 17 unicorns (i.e., companies valued at $1 billion+) attracted a combined $7.2 billion, over one-quarter of total capital deployed to venture-backed companies, the second-highest quarterly deal value share we have tracked. This new normal of sustained rise in capital deployment and fewer completed deals is a continued trend from 2017. Fewer companies receiving funding and at higher valuations has in turn corresponded with increased median deal sizes across all stages. In 1Q, the median early-stage deal reached $9.2 million and median late-stage deal reached $15 million, increases of 3.1x and 2.1x, respectively, compared to just five years ago.

Increasing deal sizes across all stages of the company growth cycle can be partly attributed to the sustained momentum in venture capital fundraising over the last several years, which has resulted in a combined $160 billion raised since 2014, including $7.9 billion raised in 1Q 2018. Norwest Venture Partners’ $1.5 billion fund XIV and General Catalyst’s $1.375 billion fund IX were the largest of the 54 venture funds holding a final close.

While the total amount of capital raised and number of funds closing in the first quarter—for both new and established firms—was light compared to recent quarters, several prominent venture firms are currently in the market raising funds with multi billion-dollar targets, suggesting a pickup in pace as 2018 unfolds. When factoring in these efforts to raise larger venture capital funds, as well as the ever- increasing role of the $100 billion SoftBank Vision Fund, some investors expect overall investment into venture-backed companies to reach—and perhaps even surpass—the post-dot-com record from 2017.

In addition to rising expectations for another year of historical investment activity, optimism is also high for a strengthening exit environment that will bring long-awaited liquidity to venture investors and LPs alike. In the first quarter, there were 144 disclosed venture-backed M&A transactions, led by Amazon’s $1.2 billion acquisition of smart security device company Ring. While venture-backed M&A activity was at compared to the end of 2017, many investors expect the repatriation provision and the lower corporate rate included in the recently passed tax reform package to provide corporations with additional capital to make strategic acquisi ons of venture-backed companies, which may boost M&A activity in the months ahead.

A strong 4Q 2017 for venture-backed IPOs signaled continued optimism for 2018, which for the most part played out in the first quarter. In 1Q 2018, there were 15 venture-backed IPOs, led by storage platform Dropbox’s NASDAQ listing on March 23, which raised $756 million at an $8.2 billion valuation. With a recent string of successful enterprise tech IPOs like Dropbox in 2018 and Okta, MongoDB and Muleso in 2017, and a healthy pipeline of venture-backed companies readying for IPOs, some investors believe that 2018 will likely be the strongest year for IPO activity in recent memory.

Beyond the exit environment, two other areas the industry will continue to closely monitor in 2018 are: 1) the SEC crackdown on initial coin offerings (ICOs), which surfaced in 2017 as a potential disruptor of the venture investment model; and 2) proposed legislation that would affect foreign investment into venture funds and startups, which could result in a costly and opaque process and a burden on the ecosystem.

Read the entire Pitchbook Venture Monitor report for 1Q 2018 here: