Venture Capital Activity in 2019

By January 16, 2020 Commentary

The venture capital/private equity community is worth tracking because it has become an increasing source of funding for companies and driver of job growth.  This is true for health care as for other industries.  According to a report from the National Venture Capital Association 2019 was another fairly robust year for the sector.   (NVCA Report)   There were 10,777 financings in 2019 with a total value of $136.5 billion, down slightly from the $140.2 billion raised in 10,542 deals in 2018.  The average angel and seed round was about $1.1 million, the average early stage round was $6.5 million and the average for a later stage round was $10.4 million.  Pre-funding valuations have crept up; with early stage ones rising from a median of $7 million in 2018 to $8 million in 2019, while early stage valuation went from $25 million to $29.4 million and later stage rounds from $76 million median valuation to $88 million in 2019.  The number of very large funding rounds continued to increase dramatically, as highly-valued private companies continued to attract, and apparently need, large amounts of new capital.  Angel, seed and first financing activity was flat with 2018, at around 4,550 deals with a value of $9.1 billion.  This is arguably the most important stage, as it allows companies to get started, begin hiring and move towards commercialization.  Early stage funding was also flat to slightly down, with 3,600 transactions worth $42.3 billion.  Late stage financings are fewer in number but with a much higher total value, 2600 transactions at $85 billion.  Nearly $50 billion of that was accounted for by 181 deals of over $100 million each.  The West and East Coast regions got the vast majority of both transactions and deal value.

There were 659 healthtech transactions worth $7.6 billion.  There was slightly less early stage funding in this sector and the average pre-money valuation increased slightly to $21 million.  As you might expect, given its need for capital, the pharma and biotech sector had 866 fundings worth $16.6 billion.  There was a slight uptick in early stage funding in that sector and average deal sizes stayed relatively high.  Corporations continued to be involved in a substantial number of transactions, participating in 2746 of the financings.  Exit activity focused on a few high-profile IPOs, but in general it was a massive year for return of capital, with $256 billion being delivered by 880 exits.  The exit value was almost double last year’s.  In terms of number of exits, acquisition continues to dominate but 2019 saw a continuation of a trend of increased buyouts by large PE funds.  In terms of dollars, the IPO route generated almost 80% of exit value.  Health care IPOs were particularly important in the latter half of the year.  The venture funding cycle remained robust at the front end too, as funds reported raising $46.3 billion in new investment vehicles.  Given the amount returned to investors through exits, it is not surprising that much of that is being reinvested.  Funds are sitting on large amounts of capital, which should continue to support both wise and unwise investments.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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