The amount of venture capital funding pouring into U.S. startups is on pace to reach levels unseen since the early 2000s.
The latest PitchBook-NVCA Venture Monitor report shows $57.5 billion invested across 3,997 deals for U.S. venture-backed companies thus far in 2018. The most recent quarter was the fifth consecutive with more than $20 billion invested.
“To say capital availability is high would be putting the true state of the U.S. VC industry lightly,” the report notes.
This follows a record 2017, when venture deal value surpassed $80 billion for the first time since the dot-com era. Pitchbook CEO John Gabbert said “the sheer amount of capital available across the entire venture landscape is reaching unprecedented levels.”
“Once startups are able to produce solid business metrics and establish a business model capable of scaling quickly, they see high demand from venture investors looking to put their capital to work,” Gabbert said in a statement. “I expect to see continued momentum in the venture industry, especially with an improving exit market, as GPs will be able to consistently generate strong returns.”
There were 94 deals of more than $100 million in the first half of 2018, accounting for 40 percent of total deal value, as a “new normal” trend continues of capital going to fewer, larger deals.
The report shows much of the increased capital going to later-stage companies and unicorns — companies valued at more than $1 billion — which are on pace for a record year with 42 deals so far in 2018 and $11.8 billion invested. The report specifically called out electric scooter company Bird, which became the fastest to reach unicorn status when the year-old startup raised its fourth round last month at a valuation of $2 billion. Another scooter startup, Lime, has raised more than $450 million in less than a year.
Angel and seed-stage financing rounds are also seeing higher deal sizes, in part due to the emergence of “pre-seed” rounds, the report noted. Median angel and seed valuations are up from $1.9 million in 2007 to $7 million in 2018 as a result of companies raising their first round of venture capital later on in their lifecycle.
Exit activity is on pace to match results from last year, with 419 venture-backed exits totaling $28.7 billion thus far in 2018. Flatiron ($1.9 billion), Ring ($1.2 billion), and Glassdoor ($1.2 billion) helped drive exit value.
Contrary to the past few years, there is now a healthy IPO market, particularly for enterprise tech, as companies like DocuSign, PluralSight, Smartsheet, and Avalara all went public in 2018.
“The increasing optimism around the IPO market is good news for late-stage companies looking to go public — and for the investors and LPs backing them — although the longevity and level of openness of the IPO window remain to be seen,” Bobby Franklin, president and CEO of NVCA, said in a statement. “Companies going public and staying public, particularly small cap tech companies, remains an issue, though recent regulatory discussions to enhance the 2012 JOBS Act are encouraging. This along with a strong investment and fundraising environment are positive signs for young, innovative U.S. companies that will fuel the future of our economy.”
Companies are staying private longer, with the average time to exit now at 6.1 years from the first VC financing a company raises. That number has increased almost every year for the past decade.
Venture capital firms are also continuing to raise large amounts themselves, with $20.2 billion raised across 157 vehicles in 2018. Median fund size ($65 million) reached the highest level since 2008. There are 300 new funds expected to close this year.
There was $1.9 billion raised across 26 first-time funds; 2018 is also on pace to become the most active for first-time micro-funds that focus on niche or regional strategies.
Regionally, Washington ranked fourth with $914 million invested, the highest quarterly investment since 2014. California topped the U.S. at $15.6 billion; Massachusetts was second at $3.2 billion; and New York was third at $2.8 billion.