Venture Capital Spending In 2018 Hits All-Time High
For the past decade, many prominent companies and startups from Silicon Valley, nationwide and overseas had seen their budgets being augmented by millions and billions of funding from venture capitalists and venture capital firms alike. Venture capital firms such as Tencent Holdings and Sequoia Capital, as well as prominent figures like Jeff Jordan from Andreessen Horowitz and Bill Gurley from Benchmark, have played a huge role in making 2018 a record year for venture capital spending.
For the first time in 18 years, the venture capital industry achieved a new record in spending as venture capital investors across the U.S. spent nearly $131 billion across 8,949 deals with private companies, beating the previous record of $120 billion which was set in 2000. Ellie Wheeler, a partner at Greytech, discussed with CNBC Live that 2018 will be a hard year to be in terms of venture capital spending in the future.
PitchBook mentioned that the record had eclipsed last year’s totals of $61.1 billion which were spent across 198 transactions. 2017 also saw the highest figure for fundraising as $55.5 billion were raised across 256 funds, which might lead to a future where venture capital investors will have more capital to spend on funds that support noteworthy causes.
The dollar amount jumped by 57 percent from $87 billion in 2017 but the number of deals decreased by 5 percent since the same year saw a total of 9,400 deals made. At the end of 2018, more than 61 percent of total capital was invested from deals that are valued at $50 million or larger but companies and startups may stumble on a difficult task in attaining profits from the deals since many venture investors are now paying up front.
The China-United States economic rivalry in 2018 also reached new heights regarding gains in the venture capital industry as China spent $105 billion in venture investments compared to $111 billion spent by the United States. The close gap between the U.S. and China in the venture capital industry is getting smaller for the past eight years given that in 2010, China’s venture spending was only $5.6 billion compared to $30.8 billion that was spent by the United States, not to mention that China’s share of global investments rose from 12% of $46.4 billion globally in 2010 to 38% of $275 billion globally in 2018.
China’s contributions to the worldwide venture capital industry also enhanced the VC ecosystem in Asia-Pacific as there were a total of $138.1 billion invested and 5,169 deals conducted in the whole region for 2018. The figures for 2018 rose significantly compared to 2017 as the money invested in 2018 is more than a 100 percent increase from 2017 (the total amount of money invested that year was $66.2 billion) and when it comes to deals being made, 2018 saw a nearly 50 percent increase (there were only 3,431 deals made in 2017).
Bobby Franklin, President and CEO of NVCA, exclaimed in a press release about the U.S. venture capital industry that nearly 9,000 companies nationwide had received funding in 2018, especially when it comes to the rise of upcoming fund managers, growing sizes of VC funds, and heightened activity initiated by corporate and private equity investors. The actions accomplished in the U.S. venture capital industry had lead Franklin to believe that although the VC ecosystem in this country is continuing to grow and would attract excitement, investors should still be cautious in being aware for signs of both public and private market corrections.
Venture funds in 2018 had raised around $55.5 billion compared to a 2013-2017 5-year average of $33.6 billion. When it comes to capital spent by VC funds that rose over $1 billion, there were 11 venture funds with notable examples include Sequoia Capital, which raised $8 billion, and TigerGlobal, which raised $3.8 billion.
Some of the biggest venture capital deals of 2018 include $1.3 billion funding round by Epic Games — the maker of the hit video game “Fortnite — and grocery delivery service app Instacart’s $871 million Series F deal. There are also fears that follow these mega-deals too as the record level of VC investment could lead to a significant drop in investments in the near future.
According to Bloomberg’s Sarah McBride, the urgency of VC investors to pour money into private companies is because more startups are waiting longer to go through an IPO, which could mean that public investors can miss out on years of growth. Venture investors who decide to invest before public markets start to decline are likely to reap financial gains as potential economic downturns can increase attention from insinuations such as overseas VC firms, universities, nonprofits, and prominent wealthy families.
The state of the venture capital industry in the U.S. and worldwide is the biggest since the beginning of the dot-com boom and 2019 is expecting the rise of companies going public such as Uber, Slack, and Airbnb despite rumors of a potential recession. Some of the companies like those aforementioned can be valued at $100 billion and more if the stock market continues to be stable, as well as being able to submit large deals to valuable companies and get market validation.