VC Investment Continues at Record Levels During First Half of ‘18

A Quarterly Wink and a Glance at Venture Capital

The U.S. venture capital market continues to be quite frothy, as witnessed by capital availability. Investors pumped $57.5B in venture capital into U.S. companies during the first two quarters of 2018, which was higher than six of the past 10 full-year totals. This year could be the first to surpass $100B in deal values since the dot-com bubble of the late 1990s.

VC investment in artificial intelligence (“AI”) companies and financial technology (“fintech”) is certainly on the rise. In Q2, AI companies raised $2.3B, which represented a 37% increase from Q1; fintech companies raised $3B in Q2, a 40% increase over Q1. Venture capital firms continually look to invest in the most interesting new technologies, as evidenced by initial venture financings representing almost 35% of Q2 fundings.

Larger Deals are Becoming the New Normal

VC continues to be concentrated in fewer, larger deals. Venture-backed companies are staying private longer and raising larger rounds of capital to continue growth. For the first half of 2018, there were 94 fundings of at least $100M along with 42 unicorn financings. Eleven unicorn companies have achieved exits totaling $29B during the first six months of 2018.

Angel and Seed Deal Values Moving Up

While larger deals seem to be in vogue, the angel and seed market has remained fairly robust. For the first half of 2018, the median size of an angel deal was $830,000 and the median size of a seed deal was $2.1M, each representing the highest figure for the past decade. The median valuation was approximately $7M, which was $1M higher than the median valuation in 2017. In Q2, $1.8B was invested in angel and seed deals across 792 companies, which represented a slight decrease from Q1.

Exits

Although hold times and valuations continue to increase, we have seen some encouraging signs for the IPO market in the first half of 2018. Q2 was the fifth consecutive quarter with more than 10 venture-backed IPOs. A total of $29B of exit value was closed through the first six months of 2018, and this has primed 2018 to exceed $50B in exit value for the fifth straight year. Another liquidity path for venture-backed companies has been M&A, however, this market has had a slow year through the first half. Look for an increase in M&A activity and a more active IPO window through the remainder of the 2018.

Outlook

With an innovation economy, uptick in fundraising activity and a significant amount of dry powder looking for investments, the total capital invested into startups shows no signs of slowing down in the second half of 2018. Let’s keep a watchful eye on the market to see if it exceeds $100B of VC investment in 2018.