Dow Jones just released their Q2 2018 venture capital funding report showing trends in venture investing. Below are the trends we found most pertinent as well as our commentary.
VC invested $99bln. VC are investing more than ever. Over the past 12 months through Q2 2018, VC have invested $99bln in US startups, which is a 31% increase over the same 12 months ended Q2 2017. The number of deals hasn’t increased nearly as fast though, growing only 3% to 5381. As such, the average deal size is much larger, averaging $18mm. In our view, the increase in venture investing and larger deal size is not because VC are seeing more high quality deals, rather it’s a function of VC raising record levels of capital in a proliferation of mega funds. These megafunds need to put money out the door so they are, and they’re doing so in larger deals.
|VC FUNDS DEPLOYED||LTM Q2 2015||LTM Q2 2016||LTM Q2 2017||LTM Q2 2018|
|Deals Done ($mm)||$73,310||$84,000||$75,400||$98,900|
|Number of Deals||4,868||5,147||5,212||5,381|
|Avg Deal Size||$15||$16||$14||$18|
Late stage continues to attract the most capital. Later stage rounds (Series C and beyond) attracted 67% of the capital in Q2 whereas Series B and Series A attracted 16% and 15% respectively. That left only 3% for seed stage rounds ($611mm). There are more megafunds than ever ($1bln or more to deploy), so the weighting towards later rounds and larger will likely continue.
Four cities attracted 86% of investment. San Francisco based companies attracted 41% of venture dollars invested in the US while NYC attracted 18% and Los Angeles attracted 14%. Since we can remember, Boston has always ranked 3rd, but now they’re 4th at 13%. Notably, that means companies outside these metros attracted only 14% of venture dollars combined. The Midwest and Southeast are more overlooked than ever.
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