Later-Stage Deals the Story of the Q3 2017 Venture Capital Market

DP: So, what were the highlights during quarter three for VC market?
AW: Generally, it’s been another quarter with a lot of capital being invested. There’s been a lot more at the later stage of series C and beyond, with very few exits and IPOs, unfortunately. For the early stages, the smaller dollar investments are probably stabilizing.
DP: What about the later-stage deals?
AW: Later-stage deals look great. There’s so much money in the marketplace looking for a home. From the later-stage perspective, it is probably the highest amount invested in the last five quarters. A lot of large funds are still investing. I think you’re going to see that continuing into the future. There’s about $121 billion of dry powder sitting on the sidelines waiting to be invested. The later-stage is going to continue to blossom, and I think that’s good for the capital markets.
DP: What about seed and early stage funds?
AW: They’re certainly stabilizing. Third quarter of 2017 was a good quarter for seed and early stage. We’re certainly not seeing the numbers that you’re seeing at the later stage, but there’s still a number of companies that are receiving earlier-stage dollars now.
DP: How are we poised for the last quarter of this year?
AW: I think the last quarter will continue; you’ll probably see record numbers. As I said, there’s a lot of powder out there waiting to be invested. What’s really interesting for the later-stage companies is that the ability to continue to raise large pools of capital are certainly out there. They don’t have to consider going for an IPO or looking for an exit. They can continue to raise large pools of capital and continue to grow their businesses, so eventually when an IPO market does come back they’ll be able to take advantage of that. It’s all good news.
DP: Good. Are the venture capital markets reacting at all to proposed tax reform? Either the progress of it or the lack thereof?
AW: Probably very little to report as of now. I think people are waiting on the sidelines to see if anything impacts them. I think you’re seeing more in the proposed tax legislation that’s going to impact individuals rather than venture funds. I think they are sitting on the sidelines waiting.
DP: Any other tidbits of information in the VC market?
AW: Coming into the fourth quarter, there were a couple of interesting developments. VCs have invested great sums of money through Q3 and they are a little bit concerned in the lack of exits and IPOs. Companies can wait longer to look at an exit or an initial public offering because there is the availability of raising hundreds of millions of dollars from later-stage VCs that are flush with capital.

The other part of where people are waiting on the sidelines is that valuations continue to be quite frothy. For companies that have raised very large later-stage rounds of capital, how will those valuations stand up in the public markets? There’s been some concern that public valuations might be lower than the last private round of funding. A telltale sign might be Uber, which has said publically it expects to go public sometime before 2019.
DP: Yeah, Uber has had a few challenges recently.
AW: It’ll be interesting to see if that $70 billion valuation will hold up in the public markets. Nobody knows yet.
DP: Alan, thanks for your expertise and insight.
AW: Dave, thanks for your time this afternoon.
DP: 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.