3rd Quarter VC Report

By October 16, 2018 Commentary

Time for another quick update on the lifeblood of innovation (or it is the bloodsuckers), our friends in the venture and private equity world.   (VC Report)   One major trend evident through three quarters of 2018 is the number of larger investments, which are dominating much of the investing.  There have been 378 transactions of more than $50 million so far in 2018, more than the 292 in all of 2017.  Some companies are choosing to stay private longer and some funds may perceive these large deals as less risky.  Whether or not all this money pouring into large transactions is diverting funding from earlier stage companies is unclear.  While there are more IPO exits, the pace still is not high, indicating reluctance or barriers to use of this avenue for liquidity.  $27.9 billion was invested in the third quarter of 2018, pushing the year to over $84 billion, already a record.  Around 2000 transactions were closed, down slightly from earlier quarters, and indicating larger average deal size.  The continued expansion of VC and PE funding has pushed exit times out to an average of 6.4 years in 2018.  About $21 billion in capital exited in the third quarter, with most occurring via acquisition or buyouts, and exits are occurring at elevated valuations.  The front end of the funnel is healthy, with over $30 billion in new commitments to new funds.

Corporate investors have continued be strong participants, taking part in $39 billion of financings so far in 2018.  Participation by corporations indicates both healthy balance sheets, but also can prime companies for acquisition by the investing company.  For health care, activity is also strong.  Pharma and biotech had strong quarters both in terms of deal number and deal value.  Health care devices, health care services and health care software have been stable on both metrics for several quarters.  Life sciences companies had about 1000 fundings closed so far in 2018, with a value of around $18 billion.  Average transaction size has risen as well, with many rounds of $50 million or more.  This likely reflects the excitement about new cell and gene therapies.  For health care and across all industries, funding to develop new products and companies remains strong, which is good for the economy, and exit opportunities have been good, which provides capital for new funds.  All part of a virtuous (maybe) cycle that contributes to hopefully more income for citizens and better products and services.

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