venture capital

Valuations of venture backed companies and the number of unicorns are rising based on the leading nationwide surveys, but closer examination of the data reveals not all startups are seeing the effect. The median valuation for female-founded companies, for example, was lower in 2017 (approximately $11 million) than it was in 2007 (approximately $15 million), according to research from PitchBook’s Dana Olson. In comparison, the median valuation for male-founded startups has increased by approximately $8 million between 2007 (approximately $21 million) and 2017 (approximately $29 million). Olson also found that, across all industries, a much higher percentage of VC-backed, male-founded companies (35 percent) received at least one round of follow-on funding than female-founded companies (2 percent). With regard to exits, male-founded startups are acquired more than 11 percent of the time, while less than 0.5 percent of female-founded startups ever reach the same milestone. Male-founded companies also have a higher rate of IPO (nearly 1.7 percent) than female-founded startups (less than 1 percent).

With the 2017 data in the books (see our analysis of MoneyTree and useful stats from the Venture Monitor), SSTI continues our series (see part 1) highlighting trends to watch in 2018. In this installment, we review two technology areas poised for increased VC-backed investments —genetics technologies for healthcare and specialized artificial intelligence and machine learning — as well as spotlight other potential areas that might emerge as key technology areas for VC-backing.

Last week, SSTI looked at recently released data on venture capital dollars and deals by state, finding that total investment has skyrocketed but remains heavily concentrated in a few markets. This week we examine this data through two additional lenses: VC investment intensity and VC investment per technology startup.

With the 2017 data in the books (see our analysis of MoneyTree and useful stats from the Venture Monitor), we can take a more informed look at the prospects for the industry in 2018. We identify four trends — increasing exits, massive deals, accumulating capital and improved diversity — that may shape the overall VC industry in 2018 and why they could make a difference for regional innovation initiatives.

Over the ten-year period from 2007 to 2017, as total venture capital investments more than doubled, growing from $41.2 billion to 84.0 billion, the number of deals increased by just 2.7 percent according to new data from the NVCA-Pitchbook Venture Capital Monitor. In 2017, more than half of all venture capital deals and three-quarters of all venture capital dollars went to companies in California, New York, and Massachusetts in 2017. However, the share of deals going to these three states decreased slightly from 2007 to 2017 (from 56.1 to 52.4 percent), while the share of dollars increased from 62.3 percent to 75.7 percent. 

In this first part of a two-part series, SSTI will look at the common themes and trends of 2017 that were highlighted in the 2017 MoneyTree Report. In part two, SSTI will provide insights on some potential new trends observed last year that may continue to affect the investment of venture capital in 2018.

The U.S. venture capital industry’s annual funding topped $70 billion in 2017 for the second time ever, according to PricewaterhouseCoopers (PWC) and CB Insights' 2017 MoneyTree Report. The $71.9 billion invested marked a 6.8 percent increase from 2016 — the record high-water mark of $76.8 billion was achieved in 2015.  

Venture-backed startups generate nine times the knowledge spillovers (e.g., patenting activity and citations) when compared to that produced by R&D investment of established companies, according to recent research. In Measuring the Spillovers of Venture Capital, researchers from the University of Munich found that, on average, two-thirds of this increase can be traced to more patenting by other companies within the VC-backed company’s spillover pool (e.g., companies with geographic or industry proximity). The companies that most benefited from the knowledge spillover were large, established companies.

Through the third quarter of 2017, the venture capital market saw an average deal that invested more money into larger and older companies than in prior years. With fewer exits and deals occurring throughout the industry — as well as a historic $90+ billion in uninvested capital (aka “dry powder”) — a reasonable expectation might be that funds would have a difficult time raising capital. In fact, fund raising, while likely to finish behind 2016, is set for another straight year with greater than $30 billion raised, and this money is going into more funds with an overall increasing fund size.

Two 2017 Q3 venture capital market updates are not providing much clarity on the underlying state of the industry. Data on greater uninvested capital, larger deals and fewer exits, among other indicators, suggest that venture capital is in need of a market correction. At the same time, new fundraising, a move toward wider geographic distribution and the rise of alternative financial structures could speak toward the emergence of a more sophisticated market. In the absence of decisive indicators, the data allow for any number of explanations and predictions. This week, we are exploring the deals data, and next week, we will look at funds.

Bloomberg’s U.S. Startups Barometer for August 21, 2017 highlights an environment ripe for startups to attract venture capital (VC). The weekly index tracks the overall health of the business environment for private technology companies based in the U.S. Driven by the number of VC financing deals, the barometer set a new record high for the second consecutive week with a nearly 65 percent increase from last year’s index score.