Record National Venture Capital Investment In 2017 Nears Dot-Com Era Totals

SEATTLE – Record unicorn financings drove 2017 total Venture Capital investments to $84 billion, the largest amount since the early 2000s during the Dot-Com Era, according to the PitchBook-NVCA Venture Monitor.

Over the past several years, the VC industry has evolved as VC-backed companies stay private longer and command larger deal sizes. With fewer transactions yet more capital deployed into higher valued companies, deal counts dropped to the lowest figure since 2012, while median and average deal sizes reached a decade-high in 2017.

Helping to drive this trend, Unicorns (VC-backed companies valued at $1 billion or more) alone raised $19.2 billion in capital, more than they have in any other year on record. This group also received a dramatically outsized portion of capital at 22.8 percent of total dollars, yet made up just 0.9 percent of deal volume.

Michigan has its own Unicorn, Duo Security, which announced in October it had raised an additional $70 million in a Series D round that propelled the software-as-a-service company’s valuation to more than $1 billion – only the second Michigan Venture Backed-technology company to pass this financial milestone. Duo helps defend organizations against breaches with its two-factor authentication app. Duo’s “Trusted Access” product suite verifies the identity of users and the health of their devices before granting them access to data and applications – helping prevent breaches and account takeover.

Boosted by 13 unicorn exits in 2017, overall VC exit value remained flat, despite a three-year decline in exit counts. Meanwhile, fundraising continued at a high clip as limited partners (LP) committed more than $32 billion to the asset class in 2017, bringing the trailing four-year total to $142 billion.

“While the figures are comparable to the dot-com era, the VC ecosystem appears healthy and driven by different dynamics,” said John Gabbert, CEO and founder of PitchBook. “Exciting later-stage companies with strong consumer traction are commanding large rounds of financing. Meanwhile, there are game-changing core verticals like VR and AR, IoT, AI and Fintech generating massive investments; there will be winners and losers amongst these VC-backed companies but the technologies are here to stay and will truly change the game for companies and consumers.”

The 2017 Michigan Venture Capital report won’t be released until spring, but MVCA Chairman Mark Horne, Managing Partner of Plymouth Growth Partners, said the increased national activity raises all ships.

“Michigan continues to grow as well,” he said. “We reported $220 million invested in 54 startups in 2016. We expect those numbers to grow in 2017. VC capital under management has increased 34 percent over the past five years. We now have $4 billion under management.”

Horne said he economy remains strong. He predicts the impact of tax reform also will help contribute to the growth in Venture Capital in Michigan as well.

2017 proved to be another healthy fundraising year for VC investors, with 209 funds closed totaling $32 billion, including the largest VC fund ever raised – New Enterprise Associates’ $3.3 billion vehicle raised in June 2017. Last year marked the fourth consecutive year to surpass $30 billion in total VC fundraising, and the fifth consecutive year to see more than 200 funds closed. Additionally, funds raised by first-time fund managers reached a 12-year high with $3.3 billion secured across 35 vehicles, signaling a willingness by LPs to take chances on new VC investors. As deal sizes continue to grow, many managers looked to raise larger funds at a faster clip.

Last year, median fund size passed $50 million for the first time since 2009 and the average time managers took between raising funds declined from 3.5 years in 2009 to just over two years in 2017. Strong VC fundraising activity coupled with capital available from SoftBank’s $100 billion Vision fund and non-traditional investors, has created a trickledown effect for the entire industry, whereby more private capital is available to companies that historically would have sought out an exit.

The number of VC-backed exits declined for the third consecutive year in 2017, reaching the lowest total since 2011, with 769 exits completed last year, down from 857 in 2016 and 1,003 in 2015. The decline has been perpetuated by the notable trend of companies raising additional private funding rather than seeking an exit via an IPO or strategic acquirer.

While exit counts have continued to decline, exit value has remained relatively flat thanks to the record number of unicorn exits in 2017. Last year, there were 13 unicorn exits, including IPOs by Stitch Fix, Roku and Blue Apron as well as PetSmart’s acquisition of Chewy for $3.35 billion. PE investors have also helped to provide much-needed liquidity to VC investors. Last year, there were more PE buyouts of VC-backed companies than ever recorded, with 146 transactions – up from 110 in 2016 and 129 in 2015.