| Sky-high VC valuations: How we got here (and where we're going) | | While change in the financial markets is inevitable, the last decade in the VC ecosystem has been characterized by a massive swell of new capital available to startups.
Much of this capital flow was set up by the 2008-2009 recession and the resulting near-zero interest rates, which necessitated a move to riskier assets, especially VC, to access above-average returns.
To illustrate this jump in demand, the total capital investment into US startups in 2010 was $31.8 billion and jumped to $166 billion in 2020, representing an expansion of over 5x.
This new money has come from a variety of sources, including increased commitments from traditional venture LPs, but the most noticeable shift has been from the participation of nontraditional investors.
These entities—mutual funds, hedge funds, sovereign wealth funds, corporations and others—have become a critical piece of the overall market, especially in fueling the emergence of $100 million+ mega-deals.
It's this increase in investor demand and capital availability across the VC landscape that has been the main driver of nearly all of the recent changes, from elevating valuations to the "private-for-longer" phenomenon.
Initially, there was negative sentiment from the VC establishment around nontraditional investors, as it was assumed that they were just large, "dumb-money" players that were dislocating the market from reality.
The true experience has been drastically different, with more and more nontraditional investors leading rounds and remaining invested throughout the pandemic uncertainty.
What's more, the sky-high valuations at the late stage that the nontraditional investors helped create have been validated by a red-hot exit market over the past three years.
An open IPO window, acquisitive corporations and now the growing number of SPACs provide a plethora of options for startups looking for liquidity. The median valuation step-up at exit in Q1 hit decade highs for both public listings and acquisitions, implying that the search for growth has extended to these buyers even at historically high valuation multiples.
There are some clouds on the horizon as volatility has snuck into the public markets over the last few months, especially within the technology sector and new IPO issuances.
The public markets have become crucial for the most mature VC-backed businesses over the last few years, allowing companies to exit at valuations over $10 billion, something that has become much more common because of the prevalence of mega-deals. This reliance on public exits for the majority of VC exit value has also intensified the link between the public and private markets.
While the current shakiness in public technology businesses isn't an immediate worry, it's something we'll be monitoring closely over the coming quarters as an extended decline in public valuation multiples could trickle down to VC funding rounds: Feel free to reach out to me or our institutional research group with any feedback or questions.
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Did you know the three most recent quarters of data available have been the decade's three best quarters for VC fund performance?
Indeed, venture capital and private equity continue to shine brightest in private fund performance across all major strategies and time horizons.
Other key takeaways from our new Global Fund Performance Report: - All strategies had positive returns in our prelim Q4 data and nearly all did on a one-year horizon impacted by the pandemic.
- Recent public PE firm earnings indicate strong performance, especially from large funds, will continue in 2021.
- The two main strategies within real assets have seen very different trends: infrastructure (stable), oil & gas (volatile)
The full report features 28 pages of analysis and 43 charts of fresh data across PE, VC, real estate, real assets, private debt, funds of funds, and secondaries.
You also get free access to the underlying data: | | | | | |
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SUPPLY CHAIN TECH: Elevated demand for goods and reduced capacity in manufacturing and transportation continue to strain global supply chains.
It's perhaps little surprise, then, that VC funding and valuations in the supply chain tech sector are experiencing wild growth, reflecting the need for tech solutions to improve value chains: - Q1 investment of $7.7 billion is up 91% QoQ and 355% YoY
- The median post-valuation in Q1 was up 100%+ YoY at both the early and late stage
Consumer expectations around delivery have never been higher, and that's led to opportunities in enterprise supply chain management software to address issues like procurement, demand forecasting and risk management.
Our Q1 report on supply chain tech, exclusively for clients, identifies the latest trends across the sector, including the future of delivery and notable developments involving self-driving trucks.
Non-clients can access a preview of the report . | | | | | | AI & MACHINE LEARNING: Exit value in the AI & ML vertical surpassed $74 billion in Q1, already flying past 2020's annual record, on the strength of the $55.5 billion IPO valuation for social media giant Kuiashou.
Consider it validation that AI can indeed serve as a core building block for companies in emerging segments with massive aspirations.
Other key takeaways from our Q1 AI & ML report: - AI & ML startups set a second consecutive quarterly record in VC funding, with $20.1 billion invested across 995 deals.
- Early-stage mega-deals are picking up for companies in healthcare AI.
- We've identified other emerging opportunities in AI core software (data preparation) and industrial AI (generative design).
Exclusively available to clients, the report also features an updated market map, select company profiles and a timeline of Q1's key events.
Non-clients can access a preview of the report . | | | | | |
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The biotech and pharma industry had already been on an upward trajectory in recent years; 2020 only further accelerated the pace to the tune of $28.5 billion in capital invested—a new annual record.
Will the momentum continue? Our analysts will discuss the emerging trends shaping the future of biotech and pharma in a June 9 webinar: register here. | | | | | |
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Our insights and data featured in the press: - CNBC's Disruptor 50 list for 2021 has been released, with PitchBook data in support. The companies have collectively raised over $72 billion in VC funding. [CNBC]
- AI advances have been crucial in the growth of autonomous finance, but analyst Robert Le explains that automated solutions are far from a finished product and hybrid models could be crucial in the interim. [Tearsheet]
- "Transportation problems cannot be solved with cars alone," says analyst Asad Hussain in this look into the urban air mobility space. [Automotive News]
- Nontraditional investor activity and exit valuations are evidence that lofty VC valuations might be here to stay for a while. [Institutional Investor]
If you're a media member interested in interviewing our analysts, contact our PR team. | | | | | |
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Highlights from our other research content published this quarter:
Market updates Thematic research Emerging Technology Research (client only) Coming next week (subject to change) - European VC Valuations Report
- ETR: Agtech (sneak peek here)
- ETR: Retail Health & Wellness Tech
- Estimating the true volatility of private market returns
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| | Since yesterday, the PitchBook Platform added: | | 355 Deals | 1315 People | 394 Companies | 24 Funds | | | | | | |
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