VC Activity Leveling Off; VC-Backed IPOs Surging

DP: Good. So it doesn't look like we're going to break the record for VC investment this year, will we?
AW: I don't think so. Barring a miracle in the fourth quarter, probably not. But with all that being said, it’s still becoming quite a year, about $97 billion of VC dollars invested in the first three quarters. We probably won't get to the $138 billion invested in all of 2018, but still a pretty good year in its own right.
DP: But there is one record that we smashed this year, correct? Tell us about it.
AW: VC-backed exits are really happening with great frequency. You know, the VC-backed IPO market is still pretty hot, but through the first three quarters of 2019 there'd been $227 billion of VC exits. It's actually the first year that there had been more than $200 billion of VC exits in a single year, and we still have another quarter to go. And the VC-backed IPO market still remains pretty hot. I'm not sure it's going to slow down a little bit in the fourth quarter, but it's been relatively hot through the first three quarters of 2019.
DP: Okay, now we're still seeing a good number of what we call the mega deals. Tell us why these are so important to the overall VC ecosystem.
AW: Well, as everyone knows, mega deals are deals of greater than $100 million. VCs are still sitting on a lot of money, a lot of dry powder. They continue to raise relatively large funds. You're also seeing limited partners who are getting distributions from existing funds, are turning around and reinvesting that money in the venture capital in the venture capital asset class. So VCs continue to write large checks because they have the capital to do that.
DP: Now WeWork has been in the news quite a bit lately. Their IPO was on, it was off. It seems like a lot of disruption there regarding WeWork. How important is that one IPO to the landscape?
AW:Well, I think it's pretty important and we'll actually know the importance of this maybe six or eight months down the line. WeWork ran into problems with corporate governance issues, continuing to lose tremendous sums of money, along with media attention surrounding their CEO, Adam Newman. The last private round WeWork was valued at upwards of $47 billion, as the IPO was taken off the market several times people were talking about the valuation being in the $10 to $15 billion market.
There is talk now of SoftBank investing in other rounds of private capital in WeWork, but it's going to be at a much lower valuation. WeWork was one of SoftBank's largest investments, so having to write down their investment, especially as they're trying to raise a second fund, is not a great thing for SoftBank. But I think the impact of WeWork on the market, you're going to see probably beyond Q4 and probably the first two quarters of 2020. It’s something to keep our eye on.
DP: So looking into your crystal ball, how are we going to put a bow on 2019?
AW: I still think it's been a great year for VC investment. For the second year in a row there's been over a $100 billion dollars invested. You haven't seen a dramatic impact on valuations yet. The impact of WeWork might change that. I think listeners should keep an eye on the valuations in the private markets and then keep an eye on the IPO market for VC-backed companies in the near future.
DP: Alan, thanks for your expertise and your insight, as always. And thank you for listening to EisnerAmper’s podcast series. Visit EisnerAmper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.