4Q 2016 - National Venture Capital Association - NVCA · PDF fileSource: PitchBook Source: PitchBook 2016 saw more than $6.6 billion invested across approximately 4,115 angel/seed

4Q 2016

Late-stage capital no longer easy money as activity and median deal size fall in 2016 Page 8

The definitive quarterly review of the US venture capital ecosystem and trends.

88% of VC funds close on target, near $42B is raised during 2016Pages 17-18

Expanded league tables for 4Q deals, investors, exits and morePages 19-21

Credits & ContactPitchBook Data, Inc.JOHN GABBERT Founder, CEOADLEY BOWDEN Vice President, Market Development & Analysis

ContentNIZAR TARHUNI Senior Analyst KYLE STANFORD Analyst ELIZABETH ARMON Analyst ANDY WHITE Data Analysis Manager BRYAN HANSON Data Analyst JENNIFER SAM Senior Graphic Designer

Contact PitchBook pitchbook.com

RESEARCH [email protected]

EDITORIAL [email protected]

SALES [email protected]

National Venture Capital Association (NVCA)BOBBY FRANKLIN President and CEOMARYAM HAQUE Vice President of ResearchBEN VEGHTE Vice President of Communications and Marketing

Contact [email protected]

COPYRIGHT © 2017 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

Executive Summary 3

Overview 4-5

Angel & Seed 6

Early Stage 7

Late Stage 8

Rounds by Sector 9

First Financings 10

Corporate Venture Capital 11-12

Growth Equity 13

Exits 15-16

Fundraising 17-18

4Q 2016 League Tables 19-21

Methodology 22

Contents

The PitchBook PlatformThe data in this report comes from the PitchBook Platform–our data software for VC, PE and M&A. Contact [email protected] to request a free trial.

Executive SummaryThrough the first half of 2016, venture investment activity in the US seemingly continued the frenetic pace of 2015, which was a headline year for the industry. However, a slowdown in VC investment activity began in the third quarter that continued into the fourth quarter when just $12.7 billion was deployed to 1,736 companies. Nonetheless, 2016 ended with a total of $69.1 billion invested into the US venture ecosystem, representing the second highest annual total—after 2015—in the past 11 years. More than 7,350 companies raised capital across 8,136 deals in 2016, with both measures reverting toward 2012 annual levels.

The decrease in 2016 venture investment activity was somewhat expected, given the high activity levels reached in late 2014 and 2015. Driven by an updraft in valuations, the number of deals during this period escalated, creating indigestion in the marketplace for some. As a result, 2016 represented less of a slowdown and more of a return to normalization. Venture investors are now circling back to tried and true ways of deploying capital and being much more critical of their investment options. Going into 2017, the question remains whether venture investment activity has plateaued, or if it will continue to downshift.

It was against this backdrop of a return to normalcy that the venture industry notched its best fundraising year of the past decade in 2016. Each quarter of 2016 saw strong fundraising totals, with the $13.6 billion raised during the second quarter being the standout. In the fourth quarter, venture investors raised $7.3 billion across 50 funds, bringing the annual total to $41.6 billion raised across 253 funds.

Despite the 10-year high for capital raised by venture funds, the total number of funds closed in 2016 declined slightly for the second straight year. The cyclical nature of venture capital fundraising, evidenced by a number of larger venture firms coming back to market and closing $1 billion+ funds, coincided with more capital being managed by fewer funds, leading to an increasing concentration of capital in the industry. Seven firms raised $1 billion+ venture funds in 2016, accounting for more than 23% of the total capital raised. Given how strong fundraising was in 2016, it will be telling to see how the fundraising environment shakes out in 2017, especially for smaller funds and new managers who may encounter a challenging climate.

In the face of a strong year for fundraising, the exit environment remained a challenge. Corporate acquisitions continued to account for the largest proportion of venture-backed liquidity events in 2016, and the IPO window remained narrow for venture-backed companies. In the fourth quarter, seven venture-backed companies went public, bringing the total for the year to 39, which is half the number of IPOs from 2015 and the lowest completed since 2009, when there were only 10 venture-backed IPOs in the wake of the financial crisis.

Looking to 2017, there is widespread hope that the IPO market will finally thaw. With around 20 venture-backed companies currently in IPO registration, there is optimism for a strong 2017. Though the quantity and quality of companies in the pipeline remains high, the execution of those IPOs may pose a challenge, especially for companies that have valuations that might not be easily supported in the public markets. While there is optimism for a strong year of IPO activity, M&A activity will likely remain robust with plenty of cash on corporate balance sheets and expectations of a Republican-controlled Washington fulfilling its pledge to reform the corporate tax code.

In spite of the slowdown in venture investment activity in the second half of 2016 and questions surrounding the IPO environment for venture-backed companies, there remains much to be optimistic about in 2017. Venture investors will continue to invest in and unlock new innovations that will transform our society and strengthen our economy. Many venture investors forecast 2017 being categorized as “the rise of the machine” with an increased emphasis on investment in artificial intelligence, robotics, drones and machine learning. In fact, many investors will increasingly experiment in “exploratory sectors” to determine what trends they can learn from, as they realize that to make interesting, disruptive investments, they need to look beyond what they are already doing.

3 PITCHBOOK-NVCA 4Q 2016 VENTURE MONITOR

0

500

1,000

1,500

2,000

2,500

3,000

$0

$5

$10

$15

$20

$25

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Deal Value ($B) # of Deals Closed

Angel/Seed Early VC

Late VC

$29.

1

$35.

5

$37.

2

$26.

5

$31.

2

$44.

3

$40.

6

$44.

8

$68.

9

$79.

3

$69.

1

3,3014,292

4,7074,458

5,411

6,771

7,987

9,326

10,550 10,468

8,136

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Deal Value ($B)

# of Deals Closed

The 2016 venture environment remained relatively healthy. Deal count and

aggregate transaction value for the year did decline from the numbers seen over the previous two years, but whereas the froth in 2014 and 2015 were forged by mega-rounds and new unicorns, 2016 saw investment pace return to a more manageable level, yet private valuations certainly didn’t decrease. Deal sizes grew or stayed flat across the board during the year keeping deal value high on a relative basis, however, excessive fundings were few and far between—there were 40% fewer $100 million+ rounds com-pleted in the US during 2016 (59) than in 2015 (98). Much of the dialogue throughout the year focused on investors setting higher benchmarks for startups as the search for deals went beyond simply growth metrics and back to core fundamentals. Moreover, easy capital that was available during the past couple years became much tougher to raise, resulting in even well-funded compa-nies looking to preserve their capital runway.

Venture activity declines further in 4Q as industry continues normalization US VC activity by quarter

While activity drops, VC invested remains strong US VC activity by year

Source: PitchBook. Note: Uber’s financings in the first half of 2016 were collated into one super round in 2Q 2016 according to PitchBook methodology.

Source: PitchBook

Overview


$0.8 $1.0

$4.5$5.3

$10.3

$10.0

$0

$2

$4

$6

$8

$10

$12

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Angel/Seed Early VC Late VC

US VC activity ($) by size

US VC activity (#) by size

Source: PitchBookSource: PitchBook

4Q marked the sixth consecutive quarter in which we saw completed VC fundings decline as activity continued its steady slide back to 2012 levels. While much of that decline can be traced to seed/angel deals, which have fallen by 665 deals (43%) during that time, no stage has been exempt from a fall in deal activity. Further, early-stage ac-tivity in 4Q came in at the lowest level since

2012, while late-stage deal count dropped to its lowest point since 2009. But where the number of deals has declined, the capital deployed into those deals, and that avail-able to be put to work has somewhat filled the void, as investors shift toward a focus on somewhat more sustainable investment techniques.

To be fair, the venture industry has several hurdles directly in front of it. An uncer-tain economic environment, coupled with looming change in US trade policy is sure to have an effect on venture funding and exits, though to what extent is to be determined. Until actualization of those policies, current dynamics in the venture industry will still result in a regression to the mean.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K

Median VC round size ($M) by stage

Source: PitchBook

$1.7 $1.7

$9.4

$10.8

$28.3

$26.9

$0

$5

$10

$15

$20

$25

$30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Angel/Seed Early VC

Late VC

Source: PitchBook

Average VC round size ($M) by stage



2016 saw more than $6.6 billion invested across approximately 4,115 angel/seed

funding rounds, reflecting noticeable year-over-year (YoY) declines of roughly 19% and 28%, respectively. On a quarterly basis, total capital invested throughout 2016 certainly remained strong relative to historical norms, yet total completed financings did drop to

2012 levels. In contrast to the decline we saw in funding activity, median angel and seed round sizes jumped approximately 11% and 50%, respectively, compared to 2015. In fact, more than 42% of all angel/seed rounds we tracked came in at between $1 million and $5 million, the highest proportion in more than 10 years.

For the first time in at least a decade, total angel activity declined in 2016 as just over 2,500 financings were completed, a 25% YoY decline. This figure is even more notable when considering that 2015 activity in the

stage had increased by roughly the same percentage over 2014. The median angel deal size moved up to $600,000 last year, while median valuation simultaneously dipped to $5.4 million.

As seed investment continues to shift further into the venture lifecycle, the median seed deal size reached its highest point of the past decade ($1.5 million), eclipsing the previous $1 million record we saw in 2015. Yet moving in the opposite direction of the angel market, valuations of seed deals continued to climb higher, reaching nearly $6 million.

Angel & seed stage moving through transition Angel & seed activity in the US

US angel & seed activity by quarter

$454

$386

$381

$694

$666

$546

$517

$785

$790

$953

$952

$884

$963

$1,0

50

$1,2

82

$1,5

24

$1,2

73

$1,3

50

$2,5

61

$1,9

33

$2,0

14

$2,3

66

$2,0

88

$1,6

94

$1,7

01

$1,7

85

$1,6

74

$1,4

50

439371

409453

711

598

618676

958879855

864

1,185

1,085

1,1811,190

1,372

1,224

1,476

1,380

1,4371,537

1,4331,276

1,1821,058

1,003872

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2010 2011 2012 2013 2014 2015 2016

Deal Value ($M)

# of Deals Closed

US angel & seed activity ($) by size

US angel & seed activity (#) by size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$5M+

$1M-$5M

$500K-$1M

Under$500K

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$5M+

$1M-$5M

$500K-$1M

Under$500K


$3.2

$2.7

$2.8

$2.7

$3.5

$3.1

$3.6

$3.8

$3.2

$3.9

$3.0

$3.2

$3.4

$3.9

$3.3

$4.7

$4.6

$5.4

$4.9

$5.6

$5.1

$6.6

$6.5

$6.5

$6.7

$6.2

$6.0

$5.2

573 578

520 552

672595

647

605

713 709

644 641

694 725

699

755816 830

752 749 751

794 752716 682

670 620

524


2010 2011 2012 2013 2014 2015 2016



Following a strong early-stage dealmaking environment in 2015, just shy of 2,500

rounds closed during 2016, the lowest count since 2011, with each quarter seeing a subsequent decline in activity. Given the run up in nearly every facet of the venture industry over the last couple of years, the

early-stage decline represents a natural regression as investors look to maintain the bandwidth to continue supporting their existing portfolio. Fervent fundraising in 2016 also required considerable attention from managers, forcing them to explore fewer transactions. Further, the last few years have seen a wide range of new sectors—from VR to AI to IoT—that took an additional amount of scrutiny and understanding, lengthening the dealmaking process altogether. While investment activity declined across the early stage,

capital invested figures remained strong at $24 billion in 2016. A heavy concentration of that figure ($11.3 billion) did, however, was in rounds of $25 million+, the highest percentage we’ve recorded over the last 10 years. With capital invested certainly concentrated around fewer deals this year, the further maturation of new industries combined with likely lower fundraising efforts could help underpin transaction volume after a few quarters of declining activity.

Will 4Q be end of early-stage decline? US early-stage VC activity

US early-stage VC activity by quarter

US early-stage activity ($) by size

US early-stage activity (#) by size

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K


$4.1

$5.6

$3.8

$4.4

$9.0

$6.7

$6.7

$5.5

$5.8

$6.3

$6.2

$5.5

$6.0

$5.9

$6.7

$6.2

$7.8

$13.

1

$8.7

$11.

6

$13.

2

$11.

3

$13.

2

$8.7

$10.

1

$14.

2

$8.0

$6.1

355405

357

399 404445 421

379

438 451

416 419

453

444

466

449

488

562

451

450

518

431439

384

447

374

356

348


2010 2011 2012 2013 2014 2015 2016



Observably, the late stage has seen a substantial drop off in activity during

2016. Whereas the last couple years have been filled with unicorn fundings and so-called ‘private IPOs’, 2016 was much more subdued, especially toward the latter end. The median late-stage round fell slightly

to $10 million, and while 2Q stands above all others from the last decade in terms of capital invested, a significant amount was generated by just two completed deals for Uber and Airbnb (Uber’s financings from the first half were combined into one large-round, according to PitchBook methodology).

The seemingly easy capital that had been available to companies for several years has somewhat dried up. A sluggish exit market has kept more capital locked away than ever

before, causing some VCs to hit the pause button before making more investments. The hopeful rush of unicorns to IPO has yet to materialize, and strategic acquirers were unable to pick up the slack with acquisitions of their own, making the late stage an even more difficult arena to navigate. As growth continues to require more and more capital before an exit can be made, late-stage investors may be looking at much smaller ROIs than in the past, especially as the validity of some valuations has come under scrutiny.

Several hurdles making late-stage investors sweat US late-stage VC activity

US late-stage VC activity by quarter

US late-stage VC activity ($M) by size

US late-stage VC activity (#) by size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K

Source: PitchBook. Note: Uber’s financings in the first half of 2016 were collated into one super round in 2Q 2016 according to PitchBook methodology.



Rounds by sector

VC dollars to life sciences declines US VC activity ($B) in life sciences

Life sciences exhibits resilience US VC activity (#) in life sciences

VC invested in software sees uptick US VC activity ($B) by sector

No sector spared from decline US VC activity (#) by sector

0

2,000

4,000

6,000

8,000

10,000

12,000

2010

2011

2012

2013

2014

2015

201

6CommercialServices

Consumer Goods& Recreation

Energy

HC Devices &Supplies

HC Services &Systems

IT Hardware

Media

Other

Pharma & Biotech

Software

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2010

2011

2012

2013

2014

2015

201

6

CommercialServices


Energy



IT Hardware

Media

Other

Pharma & Biotech

Software

12.5%

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1,000

1,200

1,400

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Life Sciences Deal Count Life Sciences as % of Total US VC (#)

16.9%

0%

5%

10%

15%

20%

25%

30%

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Life Sciences Deal Value ($B) Life Sciences as % of Total US VC ($)

Source: PitchBook

Note: Life sciences is composed of pharma & biotech and healthcare devices & supplies combined together.

Source: PitchBook


$1.0

$1.2

$2.0

$1.3

$1.2

$1.5

$1.6

$1.9

$1.7

$1.5

$1.5

$1.6

$1.5

$2.0

$1.8

$1.8

$2.6

$1.9

$1.9

$2.4

$2.3

$2.0

$1.6

$1.4

$2.1

$1.6

482 558

814

633

680 703

945

812 799 784

984 853 874

875

1,053

892

929

865 840

890 864

739

674 613

555 498

3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2011 2012 2013 2014 2015 2016


2010

First financings$5

.8

$6.4

$5.8

$4.0

$4.7

$6.0

$6.7

$6.6

$8.1

$8.7

$6.6

1,279

1,6781,762 1,674

2,089

2,830

3,340

3,586 3,739

3,333

2,340

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Deal Value ($B)

# of Deals Closed

1,27

9

1,67

8

1,76

2

1,67

4

2,08

9

2,83

0

3,34

0

3,58

6

3,73

9

3,33

3

2,34

0

2,02

2 2,61

4

2,94

5

2,78

4 3,32

2

3,94

1 4,64

7 5,74

0 6,81

1

7,13

5

5,79

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

First VC Follow-on VC

First financing activity takes dip US VC activity (#) in first financings

Follow-ons making up deal majority US VC activity (#) by first financing vs. follow-on rounds

Source: PitchBook

Deal count declines for sixth consecutive quarter US first financing VC activity


Note: First financings are defined as the first round of equity funding in a startup by an institutional venture investor.


Corporate venture capital

US venture activity with CVC participation

$9.1

$10.

8

$10.

3

$6.4

$7.8

$12.

5

$11.

3

$13.

5

$23.

8

$31.

2

$30.

3

537

675 677

464545

704799

1,004

1,2071,268

1,069

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Deal Value ($B)

# of Deals Closed

US VC activity with CVC participation

0

50

100

150

200

250

300

350

400

$0

$2

$4

$6

$8

$10

$12

$14


2010 2011 2012 2013 2014 2015 2016


Angel/Seed Early VC

Late VC

Source: PitchBook

Source: PitchBook

Since 2013, the number of completed VC deals involving corporate VC (CVC)

hasn’t fallen below 1,000, a barrier that had yet to be exceeded this decade. CVC has continually become a popular way for corpo-rations to invest in new technologies, either through a corporate venture arm, or simply through diverting money directly from their balance sheet. The percentage of all com-pleted VC deals to involve CVC has grown each of the past four years, hitting 13.4% during 2016. An even more telling statistic regarding the growth of CVC, however, may be the number of active corporations during any given year, which has more than doubled since 2009 to 933 in 2016, and has grown in total number each year during that time. Intel, Google and Salesforce are a few of the well-known CVCs, but new entrants into the field this year include Campbell Soup Company, low-cost airline JetBlue and children’s programming company Sesame Street, three companies one might not expect to see making VC deals.

The pace of technological advancement over recent years has pushed corporations to find new paths for innovation. With questions surrounding economic growth, in much the same respect as corporate M&A, venture in-vesting has provided an avenue that in many

ways is more cost effective than internal R&D spent toward technology growth. Be-cause the partnership between corporates and startups is so mutually beneficial, we would be remiss to think CVC won’t contin-ue to grow at a similar pace.


Overall CVC deal trends remain same US venture activity (#) with CVC participation by sector

0

200

400

600

800

1,000

1,200

1,400

2010

2011

2012

2013

2014

2015

201

6

CommercialServices


Energy



IT Hardware

Media

Other

Pharma & Biotech

Software$0

$5

$10

$15

$20

$25

$30

$35

2010

2011

2012

2013

2014

2015

2016

CommercialServices


Energy



IT Hardware

Media

Other

Pharma & Biotech

Software

Software sees highest amount of CVC US venture activity ($B) with CVC participation by sector

Source: PitchBook Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K

CVC rounds continue size growth US venture activity (#) with CVC participation by deal size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

$25M+

$10M-$25M

$5M-$10M

$1M-$5M

$500K-$1M

Under$500K

79% of CVC deals were $25M+ in size US venture activity ($) with CVC participation by deal size


Note: Above figures represent the number of venture investments with CVC participation and the total deal size (including non-CVCs) where at least one CVC participated. See Methodology on page 22 for more details.


$38 $35

$179

$141

$0

$50

$100

$150

$200

$250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Median Deal Size ($M)

Median Pre-money Valuation ($M)

$10.

1

$16.

0

$13.

9

$8.4

$12.

8

$18.

5

$17.

6

$15.

5

$28.

8

$36.

7

$28.

3

310

414 439

278

390

442

502

465

596 657

526

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


Source: PitchBook

Source: PitchBook

Growth equity dips in 2016 US growth equity activity

$200M+ deals make up 4% of deals US growth equity activity (#) by deal size

Medians drop for size and valuation US growth equity deal size metrics

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

$200M+

$100M-$200M

$75M-$100M

$50M-$75M

$30M-$50M

$15M-$30M

Note: Growth equity is not included as a subset of overall VC data, but is rather its own unique dataset. See the Methodology, page 22, for more details on this particular category.

Software sees lowest total in 3 years US growth equity activity (#) by sector

0

100

200

300

400

500

600

2010

2011

2012

2013

2014

2015

201

6Commercial Services

Consumer Goods &RecreationEnergy

HC Devices & Supplies

HC Services & Systems

IT Hardware

Media

Other

Pharma & Biotech

Software

Source: PitchBook

Growth equity


See how the PitchBook Platform can

help VCs invest smarter.

Learn more at

pitchbook.com/venture-capital.

We do pre-money valuations, cap tables, series terms, custom search, growth metrics.

You invest in the next big thing.

Source: PitchBook

Despite deal flow retracting a significant amount over the past year, investments

outpaced exits by an 11.2x multiple, the highest we’ve seen in a decade. This metric clearly exemplifies the sluggish VC-backed exit market we’ve seen play out over the past year, as that figure came in higher than both 2014 and 2015, two years during which we saw much heavier deal flow and would expect to have a higher investment to exit ratio. Further, with just 726 VC-backed exits completed during the year, 2016 saw the lowest exit count since 2010, leaving a significant amount of VC value yet to be realized.

Of the $46.8 billion exited in 2016, roughly 59% ($27.6 billion) was exited via $500 million+ transactions, the largest percentage of capital produced from the size bucket in over a decade. Median exit sizes scaled 30% higher YoY to a new recent high of $84.5

ExitsExit value nearly equals 2015 US venture-backed exit activity

$24

$41

$18

$16

$30

$37

$54

$36

$82

$50

$47

510

602

465 482

693 733

859885

1040

961

726

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Exit Value ($B)

# of Exits Closed

Exit activity continues dramatic slide US venture-backed exit activity

$8.4

$4.8 $7.9

$9.2

$8.8

$11.

3

$7.9

$8.9

$6.8

$23.

9

$11.

1

$12.

1

$4.2 $8

.1

$10.

7

$13.

3

$13.

9

$11.

7

$18.

1

$38.

0

$8.4

$10.

3

$15.

6

$16.

0

$9.3

$15.

3

$15.

4

$6.8

150

207

162

181200

236

201

240

274 256

231220

194

142


2010 2011 2012 2013 2014 2015 2016

Exit Value ($B) # of Exits Closed

Source: PitchBook


million, reflecting a combination of both the bump in valuations that have continued to creep higher, as well as an increasing number of aging companies that have been able to grow and complete exits further along in their lifecycles.

Corporate acquisitions have continued to account for the largest portion of VC-backed exits, accounting for 82% overall, followed by PE buyouts at 13%. Strategics outside of tech have been able to turn to the venture market to locate companies to

serve for purposes of both technological innovation and operational finetuning, helping streamline various back-end processes and harness new/innovative business models. Walmart and Unilever can serve as examples with their massive respective purchases of Jet and Dollar Shave Club.

Moving forward, strategics will likely continue to serve as the primary exit route, and depending on how the public markets continue to perform, investors will

need to be patient before embarking on expensive IPO processes. Further, we’ve seen major players in the PE world such as Vista Equity Partners and KKR raise rather large, multibillion-dollar funds to focus on tech investments. While some of these transactions could come in the form of growth rounds, or take-privates, aging venture companies should serve as enticing opportunities as PE can help them become increasingly efficient operators, and ultimately sponsor a future exit.

US venture-backed exits ($) by type

US venture-backed exits (#) by type

Source: PitchBookNote: M&A value is based on disclosed/reported figures.

Source: PitchBook

US venture-backed exits (#) by sector

Median US venture-backed exit size ($M) by type

0

200

400

600

800

1,000

1,200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Acquisition IPO

Buyout

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Acquisition IPO

Buyout

$50.0

$90.0

$74.8

$70.5

$0

$20

$40

$60

$80

$100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Acquisition/Buyout IPO0

200

400

600

800

1,000

1,200

2010

2011

2012

2013

2014

2015

2016

CommercialServices


Energy



IT Hardware

Media

Other

Pharma & Biotech

Software



2016 saw the highest amount of venture capital raised for funds in at least a

decade, and by a decent margin. Nearly $42 billion was raised across 253 vehicles during the year, well above the $35 billion raised over 255 funds in 2015. The increase in deal sizes over the past several years could have been a major driver for the record haul. Oversized VC funds will allow investors to continue investing at these elevated sums when the right opportunity presents itself, while also allowing for follow-on invest-ments where needed. In many cases when comparing quarterly or yearly numbers, a few outlying amounts could easily skew the ratio, but the growth of capital raised in 2016 came from a well-rounded field of funds, albeit with a concentration toward the top. Seven vehicles closed on at least $1 billion in commitments, but the median fund size grew to $75 million in 2016, more than $35 million higher than in 2015 and the highest median since 2008.

Another contributing factor to the amount raised this year may simply be timing. Both

Source: PitchBook

Fundraising2016 a banner year for VC fundraising US VC fundraising by year

$36

$35

$36

$12

$20

$23

$24

$21

$35

$35

$42

193183

198

122

153 141

190204

268

255

253

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Capital Raised ($B) # of Funds Closed

Fundraising tailed off toward year’s end US VC fundraising by quarter

Source: PitchBook

$8.4

$3.4

$4.0

$3.7

$7.0

$6.2

$2.0

$8.1

$8.6

$4.8

$8.0

$3.0

$6.5

$4.3

$4.3

$5.6

$9.0

$10.

5

$7.2

$8.7

$7.9

$11.

7

$3.9

$11.

7

$10.

5

$13.

6

$10.

3

$7.3

50

28

42

33

3629 32

44

5751

49

33

48

47

5257 59

72 70 6772 71

50

62

6875

60

50


2010 2011 2012 2013 2014 2015 2016

Capital Raised ($B) # of Funds Closed


13.9

18.616.1

18.5

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Median Average

the median and average time to close for VC funds in 2016 came in at roughly 18 months, which would put the inception of even the most recently closed funds back into the VC boom-time of mid-2015. From the begin-ning of the fundraising process, GPs would have been able to provide LPs with either solid cash returns (2014 and 2015 saw a combined $132 billion in exit value), or have the data to show that the previous funds are doing well and sitting on large paper gains (the median VC fund IRR for 2013 vintage is more than 16%). The venture industry’s ex-ploits of the past few years weren’t cornered by established GPs, either: First-time funds raised more than $2.2 billion in commit-ments during 2016, the largest amount by first-time managers since 2008.

The current fundraising cycle could for the most part be over, given that so much has been committed and much less has made its way back to LPs through exits in 2016. With that said, LPs could look to adjust their manager selection processes and consolidate the number of VCs they spread their money to. Thus, while fewer managers might be on the fundraising trail in 2017, the $112 billion that has been committed to US VC funds over the past three years should be able to sustain the current dealmaking environment and provide ample capital opportunities for worthy companies.

Source: PitchBook

Source: PitchBook

Source: PitchBook

US VC fundraising (#) by size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

$1B+

$500M-$1B

$250M-$500M

$100M-$250M

$50M-$100M

Under $50M

US VC funds’ time to close (months)

US VC funds (#) hitting target

0%

20%

40%

60%

80%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

201

6

Hit Target Missed Target

$3.0

$2.9

$3.0

$1.1

$0.9

$1.9

$1.5

$1.4

$1.8

$1.6

$2.2

46

32 32

25

34

18

26

21

36

23 22

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Capital Raised ($B)

# of Funds Closed

US first-time VC funds by year

Source: PitchBook


Investor Deals

500 Startups 10

Keiretsu Forum 10

Founder Collective 6

Index Ventures 6

First Round Capital 5

Innovation Works 5

M25 Group 5

SV Angel 5

Y Combinator 5

Alliance of Angels 4

Bessemer Venture Partners 4

BoxGroup 4

Data Collective 4

Eniac Ventures 4

General Catalyst Partners 4

Greycroft Partners 4

Initialized Capital 4

Presence Capital 4

Rough Draft Ventures 4

Techstars 4

True Ventures 4

Investor Deals

Andreessen Horowitz 6

Bessemer Venture Partners 5

Intel Capital 5

Khosla Ventures 5

Lightspeed Venture Partners 5

Menlo Ventures 5

Canaan Partners 4


InterWest Partners 4

New Enterprise Associates 4

Sequoia Capital 4

SharesPost 4

Spark Capital 4

Most active investorsAngel/seed

Most active investorsLate stage

Source: PitchBook

Source: PitchBook

Source: PitchBook

4Q 2016 League Tables

Investor Deals

GV 10

Union Square Ventures 9

Index Ventures 8

Andreessen Horowitz 7

ARCH Venture Partners 7

Kleiner Perkins Caufield & Byers 7

SV Angel 7

True Ventures 7

Canaan Partners 6

Lightspeed Venture Partners 6

Third Wave Digital 6

Keiretsu Capital 6

Accel Partners 5

Bloomberg Beta 5

Chicago Ventures 5


Hyde Park Venture Partners 5

Intel Capital 5

New Enterprise Associates 5

Sequoia Capital 5

Most active investorsEarly stage


Top 10 largest US venture financings in 4Q 2016

Source: PitchBook

Company Deal size ($M) Series/Stage Date HQ City State Industry

Opendoor $210 Series D 11/28/2016 San Francisco CA Software

Payoneer $180 Series E 10/3/2016 New York NY Financial Software

Stripe $150 Series D 11/25/2016 San Francisco CA Software

Postmates $141 Serie E 10/24/2016 San Francisco CA Software

OfferUp $130 Series C1 11/16/2016 Bellevue WA Software

Zymergen $130 Series B 10/11/2016 Emeryville CA Business Products

Memebox $125,95 Series C 12/15/2016 San Francisco CA Retail

Unity Biotechnology $116 Series B 10/27/2016 San Francisco CA Pharma & Biotech

JetSmarter $105 Series C 12/12/2016 Fort Lauderdale FL Software

Zibby $103 Early Stage 12/15/2016 New York NY Software

Top 10 largest US venture funds closed in 4Q 2016

Investor Fund Fund size ($M) Close date State

Greylock Partners Greylock XIV $1,105 10/11/2016 CA

Sofinnova Ventures Sofinnova Venture Partners X $650 10/17/2016 CA

Third Rock Ventures Third Rock Ventures IV $616 10/31/2016 MA

Spark Capital Spark Capital Growth Fund II $600 11/15/2016 MA

Spark Capital Spark Capital V $400 11/15/2016 MA

Tola Capital Tola Capital Partners I $295 11/14/2016 WA

Flagship Ventures Flagship Ventures Opportunities Fund I $285 12/15/2016 IL

Ascension Ventures CHV IV $255 11/23/2016 MO

Wing Venture Capital Wing Two $250 12/7/2016 CA

Data Collective Data Collevtive IV $212 12/29/2016 CA

Top five largest IPOs of US-based companies in 4Q 2016

Company Total raised ($M) Post-valuation ($M) Date HQ City State Industry

Coupa Software $133.2 $732.8 10/6/2016 San Mateo CA Software

AquaVenture Holdings $117 $340.4 10/6/2016 Tampa FL Utilities

Quantenna Communications $107 $417.3 10/28/2016 Fremont CA Semiconductors

iRhythm Technologies $107 $252.1 10/20/2016 San Francisco CA Healthcare Devices & Supplies

Ra Pharmaceuticals $91.6 $187.7 10/26/2016 Cambridge CA Pharma & Biotech

Top five largest mergers and acquisitions of US-based companies in 4Q 2016

Company Deal size ($M) Date HQ City State Industry

Chase Pharmaceuticals $1,000 11/22/2016 Washington DC Pharma & Biotech

Krux Digital $800 12/15/2016 San Francisco CA Software

Seventh Generation $700 10/1/2016 Burlington VT Consumer Products

Selexys $665 11/21/2016 Oklahoma City OK Pharma & Biotech

Dyn $650 11/22/2016 Manchester NH Software

Source: PitchBook

Source: PitchBook

Source: PitchBook


MSA Deal Count

San Francisco-Oakland-Fremont, CA 303

New York-Northern New Jersey-Long Island, NY-NJ-PA 199

Boston-Cambridge-Quincy, MA-NH 132

Los Angeles-Long Beach-Santa Ana, CA 105

San Jose-Sunnyvale-Santa Clara, CA 97

Seattle-Tacoma-Bellevue, WA 77

San Diego-Carlsbad-San Marcos, CA 46

Austin-Round Rock, TX 46

Chicago-Naperville-Joliet, IL-IN-WI 45

Washington-Arlington-Alexandria, DC-VA-MD-WV 35

Top 10 Metropolitan Statistical Area (MSA) activity in 4Q 2016

Source: PitchBook

Source: PitchBook

State Congressional District

Deal count

California 12 140

New York 12 80

California 18 71

California 14 58

New York 10 48

Washington 7 43

Massachusetts 7 41

California 17 36

California 52 31

Massachusetts 5 28

California 33 26

Illinois 7 25

Texas 21 24

North Carolina 4 22

California 13 21

Colorado 2 21

Massachusetts 8 17

California 49 14

Washington 1 12

California 34 11

Colorado 1 11

California 37 10

California 45 10

Pennsylvania 14 10

Tennessee 5 10

Utah 3 10

District of Columbia N/A 10

States & territories by VC activity in 4Q 2016

State Deal count

California 587

New York 192

Massachusetts 131

Texas 106

Washington 81

Colorado 58

Illinois 47

North Carolina 40

Florida 40

Ohio 39

Pennsylvania 35

Utah 28

Georgia 27

Maryland 26

Arizona 26

Virginia 26

Tennessee 21

New Jersey 20

Indiana 19

Oregon 18

Minnesota 17

Connecticut 14

Wisconsin 14

Michigan 14

Nevada 11

Washington DC 11

Missouri 10

Rhode Island 7

Alabama 7

South Carolina 7

Kentucky 6

New Hampshire 6

Montana 6

Delaware 5

Top Congressional districts by VC activity in 4Q 2016

State Deal count

Arkansas 5

North Dakota 4

Idaho 4

Vermont 3

Iowa 3

Oklahoma 3

Nebraska 3

Kansas 2

Puerto Rico 2

New Mexico 2

Maine 2

Mississippi 2

Hawaii 2

South Dakota 2

West Virginia 1

Wyoming 1

Louisiana 1

States & territories by VC activity in 4Q 2016, ctd.

Source: PitchBook


MethodologyFundraising We define venture capital funds as pools of capital raised for the purpose of investing in the equity of startup companies. In addition to funds raised by traditional venture capital firms, PitchBook also includes funds raised by any institution with the primary intent stated above. Funds identifying as growth-stage vehicles are classified as PE funds and are not included in this report. A fund’s location is determined by the country in which the fund is domiciled, if that information is not explicitly known, the HQ country of the fund’s general partner is used. Only funds based in the United States that have held their final close are included in the fundraising numbers. The entirety of a fund’s committed capital is attributed to the year of the final close of the fund. Interim close amounts are not recorded in the year of the interim close.

Deals We include equity investments into startup companies from an outside source. Investment does not necessarily have to be taken from an institutional investor. This can include investment from individual angel investors, angel groups, seed funds, venture capital firms, corporate venture firms, and corporate investors. Investments received as part of an accelerator program are not included, however, if the accelerator continues to invest in follow-on rounds, those further financings are included. All financings are of companies headquartered in the US. Angel/seed: We define financings as angel rounds if there are no PE or VC firms involved in the company to date and we cannot determine if any PE or VC firms are participating. In addition, if there is a press release that states the round is an angel round, it is classified as such. Finally, if a news story or press release only mentions individuals making investments in a financing, it is also classified as angel. As for seed, when the investors and/or press release state that a round is a seed financing, or it is for less than $500,000 and is the first round as reported by a government filing, it is classified as such. If angels are the only investors, then a round is only marked as seed if it is explicitly stated. Early-stage: Rounds are generally classified as Series A or B (which we typically aggregate together as early stage) either by the series of stock issued in the financing or, if that information is unavailable, by a series of factors including: the age of the company, prior financing history, company status, participating investors, and more. Late-stage: Rounds are generally classified as Series C or D or later (which we typically aggregate together as late stage) either by the series of stock issued in the financing or, if that information is unavailable, by a series of factors including: the age of the company, prior financing history, company status, participating investors, and more. Growth equity: Rounds must include at least one investor tagged as growth/expansion, while deal size must either be $15 million or more (although rounds of undisclosed size that meet all other criteria are included). In addition, the deal must be classified as growth/expansion or later-stage VC in the PitchBook Platform. If the financing is tagged as late-stage VC it is included regardless of industry. Also, if a company is tagged with any PitchBook vertical, excepting manufacturing and infrastructure, it is kept. Otherwise, the following industries are excluded from growth equity financing calculations: buildings and property, thrifts and mortgage finance, real estate investment trusts, and oil & gas equipment, utilities, exploration, production and refining. Lastly, the company in question must not have had an M&A event, buyout, or IPO completed prior to the round in question. Corporate venture capital: Financings classified as corporate venture capital include rounds that saw both firms investing via established CVC arms or corporations making equity investments off balance sheets or whatever other non-CVC method actually employed.

Exits We include the first majority liquidity event for holders of equity securities of venture-backed companies. This includes events where there is a public market for the shares (IPO) or the acquisition of majority of the equity by another entity (corporate or financial acquisition). This does not include secondary sales, further sales after the initial liquidity event, or bankruptcies. M&A value is based on reported or disclosed figures, with no estimation used to assess the value of transactions for which the actual deal size is unknown.


Why we teamed up Meet the PitchBook-NVCA Venture MonitorNVCA is recognized as the go-to organization for

venture capital advocacy, and the statistics we

release are the industry standard. PitchBook is

the leading data software provider for venture

capital professionals, serving more than 1,800

clients across the private market. Our partnership

with PitchBook empowers us to unlock more

insights on the venture ecosystem and better

advocate for an ever-evolving industry.

A brand-new, quarterly report that

details venture capital activity

and delivers insights to inform your

investment strategy. PitchBook’s

data will also bolster our

year-in-review publication.

The PitchBook Platform

Help us help you

More data. Less dough.

T H E P E R K S O F P A R T N E R S H I P

As an NVCA member, your free access to the

PitchBook Platform includes five advanced

searches and five profile views per month.

We will email quarterly surveys to each

member firm, which will give you the

opportunity to report your activity to

PitchBook. The data you provide will

not only power PitchBook-NVCA reports,

but also ensure your firm is represented

accurately in the PitchBook Platform. If

you’d like to send your quarterly activity

report directly to PitchBook, email

[email protected].

Our members get 10% off a new subscription

to the PitchBook Platform (up to a

$10,000 value) or one free, additional seat.

If your firm was a PitchBook client prior

to September 14, 2016, you’re eligible for

one of these discounts the next time you

renew your contract.

The 411 on the PitchBook and National Venture Capital Association (NVCA) partnership

Fundraise faster with targeted searches for limited partners who will likely be interested in your fund.

Conduct better due diligence by diving deep into a company’s round-by-round financing history, executive team and market traction.

Price deals with confidence using pre- and post-money valuations, public and private comps, cap tables and series terms.

Find promising investors quickly by zeroing in on other firms or strategic acquirers whose investment preferences match your portfolio company.

PitchBook Data, Inc. | 206.623.1986 | pitchbook.com/nvca National Venture Capital Association | 202.864.5920 | nvca.org

Ready to get started with the PitchBook Platform? Go to pitchbook.com/nvca

Documents

4Q 2016 - National Venture Capital Association - NVCA · PDF fileSource: PitchBook Source: PitchBook 2016 saw more than $6.6 billion invested across approximately 4,115 angel/seed