What a Decade for Tech!

A Quarterly Wink and a Glance at Venture Capital

The decade of the 2010s is already in the rearview mirror, but what a decade it’s been. Thanks to the support of billions of dollars of venture capital, the tech sector has advanced tremendously. If you need an example, look no further than how far the iPhone has come in the last 10 years. It started with Apple selling their 3G phone with a 3.5 inch screen and a 480 x 320 display for the low, low price of $199. Fast forward to 2020 and Apple is selling the iPhone 11 Pro with a 5.8 inch screen, a 2,436 x 1,125 display and infrared probes. This one, however, will set you back a cool $999. Venture capital has also been a catalyst for advancements such as artificial intelligence, streaming video, digital health and much more. It’s probably no coincidence that as of this writing the Dow has hit an all-time high of 29,206.

VC Deal Value in 2019 Comes Close to 2018 Record

In 2019, U.S. VCs invested $136.5B in 10,777 deals. While this amount falls a little short of the record of $140.2B invested in 2018, it was still the second best year of the decade. Mega deals, deals of more than $100M, continue to be the norm. In 2019, 237 mega deals accounted for more than 40% of the total VC dollars invested—representing the most mega deals ever recorded in a given year.

Record-Breaking Year for VC Exit Values

Also in 2019, we saw $250B of exit value from VC-backed deals. This certainly eclipsed prior records and was also the first time that the value of VC-backed exits exceeded $200B. Almost 80% of the exit value came from VC-backed IPOs. In Q4, 13 companies went public. Of those 13 IPOs, nine were in health care. While the IPO market has been quite frothy, there have been some issues around the post-IPO performance of some of those companies. Continued losses, uncertainly surrounding the path to profitability and questionable corporate governance have caused the shares of many VC-backed IPOs to trade at valuations well below the final private rounds.

Valuations Continue to Rise

With significant amounts of capital still on the sidelines, we are still seeing increases in deal sizes and valuations at all stages. Median valuations in 2019 for angel and seed, early VC and late VC were $8M, $29.4M and $88M, respectively. This compares to $7M, $25M and $76M in 2018. Median VC deal sizes in 2019 were flat at the angel and seed stages, down slightly at the late VC stage, and up in the early VC stage. Median deal sizes in 2019 for angel and seed, early VC and late VC were $1.1M, $6.5M and $10.4M, respectively, compared to $1.1M, $6.0M and $11.5M in 2018.

Venture Funds Sit on Record Piles of Cash

VC firms continue to raise more and more billion-dollar funds and later-stage growth funds and, therefore, are sitting on record amounts of dry powder. In 2019, VCs raised $46B in new funds, which is the second highest annual total this past decade. VCs are now sitting on approximately $276B of dry powder waiting to be invested. To put that in perspective, that is almost three times the amount of dry powder held in 2012.

Outlook

With deal values continuing to rise and the recent struggles of newly public companies, we may see VC funds begin to take a more cautious approach in 2020. However, with near record fundraising levels and large amounts of dry powder on the sidelines, deal activity should continue at a relatively high level, though maybe not as high as seen in 2018 and 2019. With continued uncertainty in the global economy and the beginning of a presidential election year in the U.S., it will be interesting to follow VC metrics in Q1 of the 2020s.