US venture capital industry enjoys solid, but slower start to 2019

Following on from a record-breaking 2018, the venture capital market has managed to maintain some of the momentum from last year, despite fundraising cooling and US government policy "likely delaying" a number of VC-backed IPOs


VC investment in the US has maintained some of the momentum of 2018's record high in the first quarter of 2019, according to a quarterly report on venture capital activity in the US entrepreneurial ecosystem.

Despite a slowdown in fundraising activities, the PitchBook-NVCA Venture Monitor, which is jointly produced by PitchBook and the National Venture Capital Association (NVCA), found that by the end of 1Q19, investors had deployed $32.6bn in VC funding across 1,853 deals, marking a 10.5% increase in volume and a 22.5% decrease in count compared to 1Q18.

The report also included a section on venture investment in US-female founded companies for the first time.

"Despite uncertainties around the sustainability of 2018's record VC activity levels, the first quarter of 2019 bolstered healthy figures and is on track for another strong year," said John Gabbert, founder and CEO of PitchBook.

"Investors continue writing larger checks to more developed startups, allowing late-stage companies the choice of operating in either the public or private market after weighing liquidity against transparency.

"When it comes to liquidity, there are several highly anticipated technology IPOs around the corner, and it will be vital to watch how private market valuations translate to the public markets," Gabbert remarked.

Fundraising activity slowed during the quarter, with the joint PitchBook and NVCA report finding that VC funds raised $9.6bn across 37 vehicles in 1Q19. Fund count in the first quarter remained relatively flat YoY, despite larger funds being raised, while 31.4% fewer funds were raised in 1Q19 than in 1Q18. The five VC mega-funds that closed in 1Q19 were led by Technology Crossover Ventures' $3bn TCV X.

The developments of the past few years, however, continued with larger deals driving elevated total capital investment across fewer transactions. Lyft's IPO and six VC-backed acquisitions of more than $650m helped to carry exit value in 1Q19. A number of upcoming outsized IPOs appear set to sustain exit value throughout the year.

Bobby Franklin, president and CEO of NVCA, noted: "The industry naturally has a close watch on the big tech IPOs this year. However, much of the focus remains on investing in the new wave of successful companies – across many sectors and across the country –building the next big thing, whether that's in areas like cybersecurity, robotics, applications of AI & ML, cancer treatments, neuroscience or medtech."

Franklin noted that US government policy was continued to affect the industry, citing the early-2019 government shutdown as "likely delaying" a string of expected VC-backed IPOs.

"Other policy areas like foreign investment rules implemented via the FIRRMA legislation pose a challenge to fundraising from foreign LPs and capital from foreign co-investors into startups, and the administration's immigration policy continues to push away the best and brightest entrepreneurs to more welcoming countries," Franklin added.

Early-stage startups saw $9.3bn invested across 487 deals in 1Q, bringing the median size of early-stage financings up 36% YoY to $8.2m. Late-stage investments totaled $21.4bn across 538 deals in 1Q19, marking the second consecutive quarter where late-stage capital investment surpassed $20bn.

Acquisitions experienced their highest quarterly value since 4Q14, with six deals worth more than $650m closing in 1Q19, including SAP's $8bn purchase of Qualtrics.

Corporate VC (CVC) investors took part in 316 venture deals in 1Q19, totaling $19.4bn, while the venture-backed exit market retained some of its momentum from 2018, as exit value for 1Q19 reached $46.7bn across 137 deals.

Angel and seed deal value reached $1.9bn in the first quarter, with the largest deal of the quarter being a $37m investment in bikesharing company Wheels.

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