VCs Spend Billions To Back Startups, But Deals Decline

Putting up numbers not seen since the early 2000s, venture capitalists shelled out $84 billion to fund U.S. startups last year.

That’s according to figures from PitchBook and the National Venture Capital Association (NVCA), which calculated that VCs invested in 8,035 up-and-coming companies.

In 2017, PitchBook and the NVCA counted 8,076 deals taking place -- which actually represents a decline compared to recent years.

The researchers attribute the incongruity to the changing nature of the VC business, with companies remaining private for longer periods of time and then commanding larger deals.

In fact, with fewer transactions yet more capital deployed into higher-valued companies, deal counts dropped to the lowest figure since 2012, the researchers found.

In 2017, “unicorns” -- VC-backed companies valued at $1 billion or more -- raised $19.2 billion in capital, more than they have in any other year on record. This elite group also received a dramatically outsized portion of capital (22.8% of total dollars), while they made up just 0.9% of deal volume.

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Last year, there were 13 unicorn exits, including IPOs by Stitch Fix, Roku and Blue Apron as well as PetSmart’s acquisition of Chewy for $3.35 billion. Overall VC exit value remained flat, despite a three-year decline in exit counts, PitchBook and the NVCA report. While exit counts continued to decline, exit value has remained relatively flat thanks to the record number of unicorn exits in 2017.

Separately, fund-raising remained strong as limited partners (LP) committed more than $32 billion to the asset class last year, which brought the four-year total to $142 billion.

Notably, the number of VC-backed exits declined for the third consecutive year in 2017, with 769 exits completed. The decline was perpetuated by the notable trend of companies raising additional private funding, rather than seeking an exit via an IPO or strategic acquirer, the researchers suggest.

Looking ahead, John Gabbert, CEO and founder of PitchBook, says the market looks stronger than ever.

 “Exciting later-stage companies with strong consumer traction are commanding large rounds of financing,” Gabbert notes in the report. “There are game-changing core verticals like VR and AR, IoT, AI and Fintech generating massive investments.”

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