Record Unicorn Financings Lead to a Banner 2017 for Venture Capital

A Quarterly Wink and a Glance at Venture Capital The U.S. venture capital industry had a strong Q4, with almost $19B invested in 1,158 deals. Total venture capital investments in 2017 were $84B, which represented the largest amount since the early 2000s. Deal counts were down from prior years; however, more capital was deployed into higher valued companies. In fact, deal counts dropped to their lowest level since 2012.

Year of the Mega Round VC-backed companies continue to delay exits and continue to raise large private rounds. 2017 saw 109 financings of at least $100M. Seven of these deals were rounds of at least $500M. Larger funding rounds led to higher valuations and to 40 additional companies being designated as unicorns. Unicorn companies were certainly a big reason for the record investment numbers in 2017, as they raised $19.2B in capital, which was more than any other year on record. Unicorns represented almost 23% of the VC dollars invested in 2017, yet accounted for less than 1% of the deal volume.

Fundraising and Dry Powder VC funds continue to raise capital at a fairly robust level. Limited partners contributed more than $32B to venture capital funds in 2017, and that has brought the total raised over the last four years to approximately $142B. In addition to new capital raised, it is estimated that VCs are sitting on more than $120B of dry powder waiting to be invested. With this level of capital sitting on the sidelines, investment levels should remain strong in the near term.

Deploying Capital Is Not the Issue VCs are certainly deploying capital at record levels, but are also seeing a decline in the number of exits. These exits have declined for three years in a row. In 2017, exit values remained on par with 2016, primarily due to 13 unicorn exits. The volume of exits will have to increase over the next several years, which would allow VCs to return appropriate levels of capital to their limited partners.

Outlook VCs certainly have significant capital waiting to be invested. The pressure to invest dollars should keep valuations at a fairly high level. High levels of later-stage funding should continue, and this will provide companies with more runway to grow and achieve the scale that corporate buyers and public market investors want. Stay tuned to see if the number of VC- backed exits and IPOs increase in 2018.