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 $18mm. In our view, the increase in venture investing and larger deal size is not because VC are seeing more high quality deals, rather it’s a function of VC raising record levels of capital in a proliferation of mega funds. These megafunds need to put money out the door so they are, and they’re doing so in larger deals.VC FUNDS DEPLOYEDLTM Q2 2016LTM Q2 2018Deals Done ($mm)$73,310$84,000$75,400$98,900YOY Change---15%-11%27%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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