The Venture Climate James Gelfer, Lead Venture Analyst - - PowerPoint PPT Presentation

The Venture Climate

James Gelfer, Lead Venture Analyst James.Gelfer@pitchbook.com

2

1.96 M

companies

284 K

investors

1.1 M

deals

46 K

funds

2 M

professionals We track and analyse the public and private markets to provide more accurate, in-depth and proprietary data than any other source. Our award-winning software provides you with access to our data and the analytical tools you need to identify the right data points, discover opportunities and more. Here’s a look at what we track (as of November 2019)

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300,000

valuations

54,000

Service Providers

29,000

LPs

VC Deal Activity

United States

4

*Data as of 6/3/2019 *Data as of 6/3/2019

Angel:

• nly individual investors or

angel syndicates; no PE or VC firms involved Seed: self-described “seed” investments, often using convertible debt or equity deals <$500k with a government filing. Early Stage: Series A or B, as indicated either by the series of stock Late Stage: Series C or later

5

The e VC VC i industry h has fundamen entally c changed over er t the l e last d t dec ecade

V C D e a l A c t i v i t y

Category (medians) Early Stage in 2009 Seed in 2019

Deal Size $3.0M $2.1M Pre-Valuation $8.3M $8.0M Company Age 2.6 years 3.1 years

Category (medians) Late Stage in 2009 Early Stage in 2019

Deal Size $6.2M $6.5M Pre-Valuation $30.0M $29.4M Company Age 7.7 years 3.5 years

Stage Typical Maturity Milestone in 2020

Seed Minimum viable product (MVP) prepared and working on product/ market fit. Have launched or are preparing to go to market Series A Achieved working product/market fit and have paying customers Series B+ Mitigated many business risks (e.g. product, market, financial, team etc.) and are focused on accelerating growth

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US US V VC deal al a activ ivit ity by y year ar

V C D e a l A c t i v i t y

*data as of Q4 2019.

$136.5

10777 4000 8000 12000 $0 $40 $80 $120 $160 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Deal value ($B) Deal count *Data as of 6/3/2019

US VC deal count and value have continued their charge into record territory.

The vast amount of available capital resources continues to drive growth in deal sizes and valuations across nearly all stages of venture capital.

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Ear arly US ly US VC b by s stag age ( (#)

V C D e a l A c t i v i t y 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Angel/Seed Early VC Later VC 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Angel/Seed Early VC Later VC

Ear arly US ly US VC b by s stag age ( ($)

8

Region ional V VC a activ ivity a as p prop

• portion

ion of n nation ional t al total

U S V C D e a l s

9

Median Distance (miles) between lead investor and target company by stage

V C D e a l A c t i v i t y

*data as of Q4 2019.

65.5 92.4 323.0 334.1 527.7 456.4 100 200 300 400 500 600 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Angel/Seed Early VC Later VC

10

Most A Active C CSAs SAs*

U S V C D e a l s

Combined Statistical Area (CSA)

is a US Office of Management and Budget (OMB) term for a combination of adjacent metropolitan (MSA) and micropolitan statistical areas (µSA)

11

VC VC e ecosystem ems w with m most/ t/lea east p t participation from l local i inves estors

U S V C D e a l s

For more information on the methodology, access the full research report here

12

US VC VC d dea eal activity f for fem emale f e founded c companies es

V C D e a l A c t i v i t y

*data as of Q4 2019.

*Data as of 6/3/2019

“The gradual rise in female-founded startups can be traced to several factors, including market awareness of the gender imbalance, stronger mentorship networks for women and more women entering the venture side of entrepreneurship.” All Raise: Women in the VC Ecosystem report

13

Femal male-founded ed c companies es as a a proporti tion of to total U US VC VC d deal acti tivity ( (# & & $)

V C D e a l A c t i v i t y

*data as of Q4 2019.

Venture Debt

United States

15

US VC VC Deb ebt

V C D e a l A c t i v i t y *Data as of 6/3/2019

Venture Debt

Venture debt is simply defined as lending to VC-backed companies, or debt financing used in lieu of VC financing. Venture debt providers have become increasingly flexible in the structure and terms of loans, with diverse constructions used for different industries and investment stages, and warrants helping mitigate the risk involved while allowing lenders to participate in the upside of a borrower’s

• growth. This includes but is not limited

to: convertible debt notes, term loans, monthly recurring revenue (MRR) lines of credit, and/or revenue-based investment products acting unlike equity-based financings due to repayment terms or claims on future equity. More information is available in our Venture Debt Overview

16

US VC VC Deb ebt

V C D e a l A c t i v i t y

*data as of Q3 2019.

$20.6 $14.5 $13.8 $9.7 4097 3145

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Debt value estimate $B (high) Debt value estimate $B (low) Debt financing count estimate

Estimates of the total size of the venture debt market run around 10% to 15% of the total VC capital invested during a given year

Angel & Seed Deal Activity

United States

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Angel & & Seed ed U US VC VC dea eal a activity by y yea ear

V C D e a l A c t i v i t y

*data as of Q4 2019.

$6.8 $9.2 $9.1

5743 4541 4556 2000 4000 6000 8000 $0 $2 $4 $6 $8 $10 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Deal value ($B) Deal count

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Angel & & Seed ed U US VC VC quarti tile b e brea eakdowns ( (dea eal size & pre-valuati tion)

V C D e a l A c t i v i t y

*data as of Q4 2019.

$2.6 $2.9 $1.1 $1.1 $0.3 $0.3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 75th Percentile Median 25th Percentile

Deal size ($M)

$10.0 $12.0 $7.0 $8.0 $4.2 $5.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 75th Percentile Median 25th Percentile

Pre-valuation ($M)

20

Median angel & & seed ed U US dea eal s size ( e ($M) ) by e entrep epreneu eur c class

V C D e a l A c t i v i t y

*data as of 11/14/2019.

*Data as of 6/3/2019 Our research has found that the prior experience of a founder has a material impact on VC fundraising. Specifically, serial entrepreneurs can raise more capital, more quickly and on better terms. We classify founding teams as follows:

• Serial Entrepreneurs: have successfully

exited at least one business and have subsequently launched another business

• Unproven Serials: have founded at

least two businesses but have not yet seen a successful exit

• Novice: first-time founders

More information and analysis can be found on our note, Serial Entrepreneurs: Does Lightning Strike Twice?

Serial Entrepreneurs

$0.9 $1.0 $1.5 $2.0 $2.5 $2.5 $0 $1 $2 $3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Novice Unproven Serial

21

Quartile d e distribution o

• f a

angel el & seed ed y yea ears s since f e founding

V C D e a l A c t i v i t y

*data as of Q4 2019.

*Data as of 6/3/2019

As the seed stage has matured, the “pre-seed” stage has emerged to provide capital at the pre-product stage or even before a company is incorporated. Self-described pre-seed investors have generally classified deals at this stage as sized under $1 million, with pre-money valuations ranging from $3 million to $5 million. More information on the pre-seed strategy can be found in our full research note, The Emergence of Pre- Seed

Pre-Seed

1 2 3 4 5 6 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 75th Percentile Median 25th Percentile

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Angel & & Seed ed U US VC VC by s sec ector ( (# a and $)

V C D e a l A c t i v i t y

0% 20% 40% 60% 80% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0% 20% 40% 60% 80% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

23

Quarterly A Angel el & & S Seed eed U US VC VC deal c count ( t (#) b ) by ver erticals

V C D e a l A c t i v i t y 20 40 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 2014 2015 2016 2017 2018 2019 AI/ML FinTech HealthTech Life Sciences E-Commerce CleanTech

Early Deal Activity

United States

25

Ear arly US ly US VC d deal al activ ivit ity b y by y year ar

V C D e a l A c t i v i t y

*data as of Q4 2019.

$25.7 $43.3 $42.3

3240 3722 3624 1000 2000 3000 4000 $0 $10 $20 $30 $40 $50 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Deal value ($B) Deal count

26

Ear arly US ly US VC q quar artile ile b break akdowns ( (deal l size & pre-valu aluatio ion)

V C D e a l A c t i v i t y

*data as of Q4 2019.

$14.0 $15.0 $6.0 $6.5 $1.8 $1.8

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

75th Percentile Median 25th Percentile

Deal size ($M)

$50.0 $60.0 $25.0 $29.4 $12.5 $15.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

75th Percentile Median 25th Percentile

Pre-valuation ($M)

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Early US VC VC by sector ( (# a and $ $)

V C D e a l A c t i v i t y 0% 20% 40% 60% 80% 100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0% 20% 40% 60% 80% 100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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Qu Quar arterly ly Ear arly ly US US V VC deal al c cou

• unt (

(#) b by vertic icals als

V C D e a l A c t i v i t y

40 80 120 160 200

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 2014 2015 2016 2017 2018 2019

AI/ML FinTech HealthTech Life Sciences E-Commerce CleanTech

Late Deal Activity

United States

30

Late US US V VC d deal al activ ivit ity b by year

V C D e a l A c t i v i t y

*data as of Q4 2019.

$24.3 $51.3 $46.3 $48.8 $87.7 $85.1 2279

2597 1000 2000 3000 $0 $20 $40 $60 $80 $100 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Deal value ($B) Deal count

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Late s stage e US VC VC quartile b e brea eakdown wns ( (dea eal size e & p pre-val aluation

• n)

V C D e a l A c t i v i t y

*data as of Q4 2019.

$35.0 $32.0 $11.5 $10.4 $3.6 $3.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

75th Percentile Median 25th Percentile $220.0 $260.0 $76.0 $88.0 $25.0 $30.4

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

75th Percentile Median 25th Percentile

32

Late U US VC VC by s sec ector ( (# a and $)

V C D e a l A c t i v i t y 0% 20% 40% 60% 80% 100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0% 20% 40% 60% 80% 100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

33

Quarterly L Late e US VC VC deal c count ( t (#) b ) by ver erti ticals

V C D e a l A c t i v i t y 20 40 60 80 100

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 2014 2015 2016 2017 2018 2019

AI/ML FinTech HealthTech Life Sciences E-Commerce CleanTech

Growth and PE Activity

United States

35

Growth th & & PE U US dea eal a activity ty by y yea ear

G r o w t h & P E A c t i v i t y

*data as of Q4 2019.

$96.3 $109.5 $95.1

3,080 3,275 2,492 500 1,000 1,500 2,000 2,500 3,000 3,500 $0 $20 $40 $60 $80 $100 $120 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Deal value ($B) *Data as of 6/3/2019

Growth Equity

Growth equity is defined as non-VC-backed businesses receiving minority investments from financial

• sponsors. Companies

receiving growth equity tend to be more mature, often with significant revenue (if not profits

PE

Private equity (PE) here is defined as buyout transactions with a valuation

• f $100 million or less

36

Growth th & & PE U US VC VC b by sec ector (# and $ $)

G r o w t h & P E A c t i v i t y 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

VC Fundraising

United States

38

US VC VC f fundraising a activity by y yea ear

V C F u n d r a i s i n g

Notable UK deals closed in 2019:

*data as of Q4 2019.

$41.9 $58.0 $46.3

321 299 259 50 100 150 200 250 300 350 $0 $10 $20 $30 $40 $50 $60 $70 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Capital raised ($B) Fund count *Data as of 6/3/2019

Public Pension Exposure

Average “Private Equity” allocation (of which VC is a subset) is: ~6% for private pensions ~20% for public pensions The average fund commitment is ~$25M, and pensions have made fewer commitments to VC funds in recent years Exposure varies greatly between different pensions systems, with California pensions having large relative & absolute allocations

39

US US V VC cap apit ital l ov

• verhang (

($B)

V C F u n d r a i s i n g

Notable UK deals closed in 2019:

*data as of Q1 2019.

$77 $77 $86 $86 $63 $63 $87 $87 $98 $98 $118 $118 $0 $20 $40 $60 $80 $100 $120 $140 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* *Data as of 6/3/2019

Dry Powder

Dry powder is defined as capital committed to VC funds that has yet to be called down and invested by the GP. Dry powder is not tantamount to total capital available to invest in startup companies, as much of the capital invested via VC comes from nontraditional investors that do not

• perate VC funds

VC Activity with Non-traditional investors

United States

Enti tity ty D Definiti tions

Corporate V e Ven enture Cap apit ital al Private E e Equity investor Asse sset Man anag ager Gover ernmen ent/ SW SWF

“private equity” investors have a primary classification is PE/buyout, growth, mezzanine or “other private equity” fund managers not operating closed-end investment vehicles. This category primarily comprises mutual funds and hedge funds any entity financed exclusively through the public sector, including sovereign wealth funds and economic development agencies corporate venture capital (CVC) includes rounds executed by established CVC arms as well as equity investments by corporations into VC-backed companies

42

Non

• n-traditional i

inves estors p participate i e in VC VC d deal v value ( e ($)

V C D e a l A c t i v i t y

*data as of Q4 2019.

55.7% 50.1% 34.1% 33.9% 27.0% 28.1% 7.1% 6.1% 20.3% 15.5% 0% 10% 20% 30% 40% 50% 60% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CVC investor PE investor Asset manager Government/SWF Other tourist investor

43

V C D e a l A c t i v i t y

Non

• n-traditional i

inves estors p participate i e in VC VC d deal c count ( t (#)

*data as of Q4 2019.

25.4% 24.8% 13.3% 12.8% 7.8% 7.9% 1.1% 1.0% 8.1% 7.0%

0% 5% 10% 15% 20% 25% 30% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CVC investor PE investor Asset manager Government/SWF Other tourist investor

VC Exits

United States

45

US V VC exit f flow

• w b

by ye year ar

V C E x i t A c t i v i t y

Notable UK deals closed in 2019:

$111.3 $72.8 $130.2 $256.4

1,081 906 1,015

882

200 400 600 800 1,000 1,200 $0 $50 $100 $150 $200 $250 $300 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Exit value ($B) Exit count

*data as of Q4 2019.

*Data as of 6/3/2019

2019 sets new record for exit value

In recent years, IPOs have accounted for most

• f the capital exited from

VC-backed companies. However, IPOs represent less than 10% of VC exits annually, with most companies being sold to either a strategic acquirer or a financial sponsor.

46

US VC VC exits b by type e ($)

U S V C E x i t s 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2013 2015 2017 2019 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 2015 2016 2017 2018 2019

US VC VC exits b by type e (#)

The Secondary Market & Direct Listings

United States

48

Most st V VC-backed ed c companies es r raise $ e $100M+ before e an IPO

M e d i a n V C r a i s e d ( $ M ) a t t i m e o f U . S . V C - b a c k e d I P O s

$93. $93.0 $135. $135.3 $160. $160.4 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

*as of 10/30/2019

49

Companie ies ar are r rais aisin ing le less c cap apit ital in l in IPOs rela lative t to t

• their

ir valu aluation

M e d i a n U . S . I P O o f f e r s i z e / p r e - m o n e y v a l u a t i o n 23.4% 21.5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

*as of 10/30/2019

50

Es Esti timated d dea eal volume i in the d e direct s t sec econdary m market

U S V C e x i t s ( $ ) b y t y p e

Source: NYYPEX. 2019 value is estimated

$19 $24 $21 $24 $29 $39 $- $5 $10 $15 $20 $25 $30 $35 $40 $45 2014 2015 2016 2017 2018 2019*

As of 12/3/2019

Direct Secondaries

Direct secondary transactions are when existing investors in private companies sell their shares to another investor (as opposed to traditional VC, where the company issues new shares. Due to the illiquid nature of private company shares, the direct secondary market serves as a mechanism to provide liquidity for those who own individual private company shares. One of the main populations to utilize the direct secondary market are the employees of privately held companies. Several exchanges are looking to serve this growing market:

51

Spot

• tif

ify & y & Slac ack a are the o

• nly t

ly two d

• direct l

listings s so f far ar

C o m p a r i s o n o f p r e - I P O p r e - m o n e y v a l u a t i o n s ( $ B )

$1.6 $29.5 $23.3 $0.4 Median Average VC-backed IPOs in 2018-2019 Slack Spotify

As of 12/3/2019

“Spotify is not raising capital, and

• ur shareholders and employees

have been free to buy and sell our stock for years.”

• -Spotify CEO Daniel Ek, commenting on the

company’s direct listing

Direct Listing

As private markets have evolved to better meet more-mature companies’ liquidity and capital needs, many industry professionals have called into question the traditional IPO process. Direct listings are an alternative IPOs for companies going public without formal underwriting

• support. These listings are uniqu

in that that company does not raise new capital

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