The Boom of U.S. Venture Capital 2018
2018 was a year of U.S. VC funding not seen since the dotcom boom of the late 1990s through early 2000s. Spurred on by a sharp rise in mega funding rounds (+$100 million), U.S. VC investment reached a record $130.9 billion in 2018, according to a Pitchbook and National Venture Capital Association report. This amount is the largest in a year ever, surpassing the previous record of $105 billion set in 2000. What’s most notable about this funding, however, is that the number of U.S-based VC deals actually fell to approximately 8,948 deals in 2018 from 9,489 deals in 2017. This further points to funds favoring larger, yet fewer, VC deals.
When broken down by industry, software continued its dominance in VC funding, with a total of 3,700 deals receiving $46.8 billion in funding. In a distant second were the pharmaceutical and biotech industries, which saw a deal count of around 720 in 2018. However, these pharmaceutical and biotech deals accumulated roughly $35 billion in funding, much closer in value to software than their deal count would suggest. The largest growth in funding came within the life sciences industry, which saw 1,308 deals exceed $20 billion for the first time in the previous ten years. The life sciences industry also serves a great indicator for the “large but few” VC mentality, with 60% of deals in this industry receiving $50 million or more in funding.
Regionally, Silicon Valley and the West Coast continued their reign over the VC industry, accounting for 39% of the total count and 61% of the value of all U.S. VC deals. This is a strong indicator that Silicon Valley is not going to cede its control over VC funding anytime soon. Looking elsewhere, the Great Lakes area and New England were the only two regions to see an increase in deal count, with the Great Lakes growing 3% and New England growing 1.7% YoY.
On an individual company level, the largest U.S. funding round goes to video game maker Epic Games, whose success with Fortnite Battle Royale helped it receive $1.25 billion in funding. Following right behind them are SoftBank’s $1.2 billion investment in Uber and e-cigarette maker Juul Lab’s $1.2 billion round, which was raised from a consortium of funds. It is also worth noting that, after their venture round, Juul raised $12.8 billion in funding from tobacco giant Altria, who also owns Philip Morris International and Marlboro, in exchange for 35% in the company. This $12.8 billion is the largest single investment in a U.S. company ever.
In addition to these funding rounds, 2018 was also a busy year for VC exits, with 37 startup unicorns either being acquired or filing for an IPO. In total, there were a total of 864 exits. These exits amounted to a total of $120 billion dollars, a 33% increase in total value from 2017. Amongst these startup giants includes Dropbox, Ring, and Sonos, who all filed for IPO. While 2018 was no doubt a successful year for VC exits, 2019 is set to be even bigger, with giants such as Uber, Lyft, Slack, and Pinterest all set to make their own IPOs this coming year.
In terms of VC fundraising, 2018 showed a rise in billion-dollar funds, as 11 VC funds crossed over the $1 billion mark. In total, U.S. VC funds raised $55.5 billion, a 63% growth from 2017. In addition, billion-dollar funds accounted for 43% of this fundraising, depicting a trend of the largest funds becoming even larger. Amongst these is SoftBank, who had a very active 2018 with enormous investments in Uber, Katerra, and OpenDoor. With their recent fundraising in 2018, expect SoftBank to continue their presence in some major deals in 2019.
So what’s in store for this year? While 2018 was an exceptional year for the VC community, 2019 is set to be a strong year as well, particularly on the exit side. Expect software and biotech to remain the highest funded industries, as this has been the norm for the past five years. The same goes for Silicon Valley, as other regions have shown that they will not be catching the West Coast startup hub anytime soon. With the increasing dominance of billion-dollar funds making up the majority of U.S. VC funding, it would be safe to assume that the trend of fewer, larger deals will continue in 2019. In addition, the recent emergence of multiple billion-dollar funds shows the potential for mega deals (+$100 million) becoming a much more normal occurrence amongst startups. It will be interesting to see how the VC world shapes up in 2019 after an incredible year in 2018. Should 2019 match or even beat 2018’s numbers, then one may start to expect a sharp growth in startup numbers across the U.S. as funding continues to grow to astronomical numbers.
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