VC VALUATIONS - PitchBookfiles.pitchbook.com/pdf/2015_Annual_VC_Valuations_Trends_Report.pdf · ......

VALUATIONS+ TRENDS

VC

Median Valuations set new highs at the late stage,

continuing unabated. Page 6

Amount Acquiredin Series A financings increases

across the board in 2015. Page 9

Corporate, Hedge and Mutual Funds

and the current landscape. Page 17

2015 Annual Report

Sourced from nearly 30,000 U.S. valuations in the PitchBook Platform.

Credits & ContactPitchBook Data, Inc.

JOHN GABBERT Founder, CEO

ADLEY BOWDEN Vice President,

Market Development & Analysis

Content

GARRETT JAMES BLACK Senior Analyst

BRIAN LEE Data Analyst

JENNIFER SAM Senior Graphic Designer

JESS CHAIDEZ Graphic Designer

Contact PitchBook pitchbook.com

RESEARCH

[email protected]

EDITORIAL

[email protected]

SALES

[email protected]

COPYRIGHT © 2016 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.

Introduction 3

Overview 4–5

Median Valuations 6

Series Seed 7-8

Series A 9-10

Series B 11-12

Series C 13-14

Series D and Later 15-16

Corporate, Hedge & Mutual Fund

Participation17-18

Valuation Step-Ups, Changes & Time

Between Rounds19-20

Contents

2 PITCHBOOK 2015 ANNUAL VC VALUATIONS & TRENDS REPORT

http://pitchbook.com/

mailto:[email protected]



The conversation has changedIntroduction

Since so much has changed in the venture industry since the last installment of

this report, we had to choose whether or not to use datasets from our typical

timeframe, which would have been through the end of 2015, or to include data

from last month. To achieve a balance, in the following report we’ve updated

overall U.S. venture activity and valuations through the end of February 2016.

In addition, we expanded datasets covering the impacts of corporate venture

capital, hedge and mutual funds on the venture landscape, elaborating on how

the increases in activity by each type of investor has helped transform VC trends

of the past few years.

This revamp of the report was mainly done to better reflect exactly how

the downturn in U.S. VC activity over the past several months has affected

overall valuations. It’s clear the conversation has changed, at the behest of

macroeconomic concerns and volatility in public equity markets. Especially as

things have taken a turn for the better in recent days, however, in what some are

still calling a bearish rally and others a calming of unwarranted fears, venture

investors must still identify signals from the noise. Given the tentatively positive

signs, many are forecasting a recalibration of investment levels that could

prove milder than what was originally feared. Others state that the extent of

overheating in the venture markets was severe enough that we are actually in

the early stages of a correction that is still ongoing. Continued mixed forecasts

regarding U.S. economic health, especially on a sector-by-sector basis, only

complicate matters further for VCs assessing risk levels. Regardless of your

current views, we hope the data and analysis in the following pages proves

informative and useful.

GARRETT JAMES BLACK

Senior Analyst

MAKE WAY FOR

SMARTER, ON-THE-FLY MEETING PREP

US +1 206.623.1986

UK +44 (0)207.190.9809

[email protected]

pitchbook.com

Introducing PitchBook

Mobile. The same

excellent data, technology

and service from the

PitchBook Platform, now

available on a mobile

device.

Search:

“PitchBook”

Available for




An ongoing resetOverview

Late-stage numbers have weathered the downturn the best

U.S. VC activity by quarter

Source: PitchBook

*As of 2/29/2016

2016 is looking more like 2013 or 2012, although it’s early days yet

U.S. VC activity by year

Source: PitchBook

*As of 2/29/2016

0

500

1,000

1,500

2,000

2,500

3,000

$0

$5

$10

$15

$20

$25

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*

2010 2011 2012 2013 2014 2015 2016

Capital invested ($B) # of rounds closed

Angel/Seed Early VC

Late VC

0

2,000

4,000

6,000

8,000

10,000

12,000

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90Capital invested ($B) # of rounds closed

Angel/Seed Early VC

Late VC

The term “reset” has been frequently

used to describe the VC landscape

over the past month. That is likely due

to the fact the number of completed

U.S. financings has fallen steeply—even

if a quarter-end boost occurs, the

decline is significant—while capital

invested has remained somewhat

healthy, potentially reaching a level

akin to 3Q 2014 in 1Q 2016. Investors

have clearly dialed back the pace

of investment, in light of ongoing

liquidity concerns, yet of the deals

being completed, it’s clear many are

justifying hefty sums. Hence the choice

of words to describe the shift, as the

degree of increase in caution still

places it firmly within the bounds of

wariness, rather than apprehension.


Average age of late-stage U.S. VC-backed startups

U.S. VC activity (#) by stage and quarter

Average age of early-stage U.S. VC-backed startups

Median % acquired by series and year in U.S.

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

0%

5%

10%

15%

20%

25%

30%

35%

2008 2009 2010 2011 2012 2013 2014 2015 2016*

Seed Series A Series B

Series C Series D+

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

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q*

2013

2014

2015

‘16

Angel/Seed Early VC Late VC

1.41.7 1.5 1.4 1.4 1.6 1.7

2.1 2.12.5 2.3

3.2 3.5 3.4 3.4 3.5 3.3 3.53.9 3.9

4.2

4.74.4

4.9 4.8 5.05.4

5.0

5.85.5 5.7 5.6 5.7

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*


6.06.3 6.4 6.5

5.9

6.7 7.1 6.9 7.2 7.3 7.17.38.1 8.3 8.4 8.5 8.2 8.6

9.2 9.38.8

10.3

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Series C Series D+

But which is more warranted?

Investors have used the reset

in order to shift terms already,

particularly at the late stage, as

evidenced below by the metric of

percentage of ownership acquired.

Why they are angling for more

downside protection is, in part, due to

the average ages of venture-backed

startups broken out below by series.

It’s no secret that companies have

been staying private for longer and

longer for a variety of reasons, ranging

from the availability of private capital

to the disincentive to go public over

the past several months. Illiquidity

requires a premium, which investors

are commanding more emphatically,

after multiple years of founder-friendly

financings. But as dollars invested

persist at a fairly high if less frequent

level, it’s clear that even in the current

environment of unease, VC firms are

willing to pay up in the right cases.

Investors are still going long, in other

words, albeit with further hedges built

into their bets. It’s all about perceived

risk for now; hence the counterintuitive

increase in proportionate late-stage

financing seen below—late-stage

fundings do possess less risk than

other venture stages, after all. The

breakdown of perceived risk at each

series will become a more important

factor moving through at least the

first half of 2016. Venture funds are

amply stocked, and consequently will

be looking for opportunities to invest,

but the correction—or recalibration—

will continue to work its way through

the financing cycle, likely resulting in

more investor-friendly terms, cooling

of valuations and round sizes, and a

sustained plateau of activity.


Only Series B valuations have seen a slide, albeit modest

Median early-stage pre-money valuations ($M) by year in U.S.

A surge that apparently continues unabated into 2016

Median late-stage pre-money valuations ($M) by year in U.S.

A peak or a plateau?Median valuations

$3 $1$4 $3 $3 $4 $4 $5 $5

$6 $7$7 $7 $7 $6 $7 $7 $8 $9$12 $14

$17$19

$21 $20$18

$19 $21 $21

$26

$33

$41$38

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*


$38 $46 $42

$30

$38$50 $50 $56 $60

$74

$96

$72 $79 $77$51

$66$84 $92 $99

$135

$180

$229

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Series C Series D+

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

On the surface, overall median

valuations seem to indicate that

nothing much has changed, across

every stage, since the last installment

of this report. Only the median of

Series B valuations has seemed to

decline, and even so, hardly by much.

Every other stage of financing is up,

with Series D and later rounds seeing

a truly mammoth $229 million median

valuation in the first two months of

2016.

However, looks can be deceiving,

which is why these numbers must

be analyzed in the context of declining

VC activity. When one considers that

the only startups to receive funding

in today’s uncertain climate are the

ones best primed in VCs’ judgment

to survive any potential economic

downturn, the level of confidence as

expressed by valuations makes sense.

It remains to be seen whether these

still-lofty numbers represent a peak

or a plateau at an elevated level—the

latter is more likely. Furthermore, the

datasets to the right illustrate the

twin feedback effects at both ends

of the venture financing cycle that

have characterized VC activity over

the past half-decade: the entrance

of nontraditional venture firms at the

late stage, and the broadening of the

seed financing market. The former

may have helped drive the latter in

some part, but of more import has

been the intensifying flow of limited

partner commitments into seed

investors. And, with an abundance of

both VC and nontraditional VC dollars

chasing returns—as well as public

market comparables’ surge and a slew

of massive, high-profile successes—

exuberance in valuations was bound to

occur.


Constrained by perception of riskSeed valuations and trends

The rise in seed valuations has been relatively slow and steady

Median seed valuations ($M) by sector

Source: PitchBook

2015 saw a veritable explosion in the median round

size across all sectors

Median seed round size ($M) by sector

Sector disparities are likely due to varying input costs

and attendant risk

Median % acquired at seed by sector

$0

$1

$2

$3

$4

$5

$6

$7

2010 2011 2012 2013 2014 2015

All Software Commercial services Healthcare svcs/supp./sys.

14%

16%

18%

20%

22%

24%

26%

28%

30%

32%

2010 2011 2012 2013 2014 2015

All Software

Commercial Services Healthcare Svcs/Supp./Sys.

Source: PitchBook

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

2010 2011 2012 2013 2014 2015

All Software Commercial services Healthcare svcs/supp./sys.

Source: PitchBook

Owing to multiple factors, the seed

stage has undergone a marked

shift in the past half-decade. More

micro VC funds (funds under $50

million in size) have been raised across

that time than at any other point in

the decade, while angel syndicates

have proliferated, broadening the seed

stage and helping create the pre-seed

environment. Seed investment levels

soared to a peak in 2014 by count,

while round sizes followed suit a year

later. As that surge in median round

sizes coincided with a plateau in angel/

seed financing activity in number, it’s

clear investors were exercising a bit

more caution in their investments, yet

still, when cutting checks, keeping

pace with overall venture inflation.


Median seed round size and pre-money valuation ($M)

by year in commercial services


by year in software


by year in healthcare services, supplies & systems


by year

$3.3

$4.1 $4.0

$4.7$4.9

$5.8

$0.5 $0.6 $0.5 $0.6 $0.8$1.2

2010 2011 2012 2013 2014 2015

Pre-money valuation Round size

$3.2

$3.9 $4.0

$4.7$4.9

$5.5

$0.5 $0.5 $0.5 $0.5$0.8

$1.1

2010 2011 2012 2013 2014 2015


$3.0

$5.2

$4.0

$4.7

$3.7

$6.0

$0.6 $0.5 $0.5 $0.4 $0.5

$1.4

2010 2011 2012 2013 2014 2015


$3.2

$3.6$3.4

$4.9

$5.5

$4.9

$0.5 $0.5 $0.5 $0.5$0.8

$1.2

2010 2011 2012 2013 2014 2015

Pre-money valuation

Round size

Source: PitchBook

Source: PitchBook Source: PitchBook

Source: PitchBook

What’s particularly interesting

about that surge in 2015 is how,

relative to other financing stages, the

seed stage experienced a significant

increase in median valuations relatively

quickly. After all, the respective

increases in round sizes from 2013 to

2015 were $3.4 million to $5.0 million

for Series A and $7.1 million to $12.4

million for Series B. The median seed

financing, in that same span, more than

doubled to $1.1 million. This, more than

anything else, illustrates the extent to

which the pre-seed and seed financing

market has diversified and deepened,

with a surge in competitors looking to

put money to work. This is attributable

not only to aforementioned factors

but also increased traditional VC

activity at seed, as well as a greater

number of sophisticated institutional

seed investment firms either forming

or ramping up activity. It’s a bit

difficult to forecast the extent to

which a reset in valuations will affect

seed-stage activity, given that same

preponderance of institutional seed

firms. An exodus of early-stage VCs

could occur, if Series A financings

deflate somewhat back to historical

norms, while seed investors are likely

to dial back their investment paces

more in 2016, so activity should

diminish by a fair amount. How much

valuations and round sizes may slide

accordingly will by and large be due

more to the supply of viable startups

than anything else, as available capital

remains ample.


An abundance of supply is shifting termsSeries A valuations and trends

Median Series A pre-money valuations ($M) by sector

Source: PitchBook

Commercial services saw the steepest increase from

2014 to 2015

Median Series A round size ($M) by sector

Leverage in fundraising negotiations changed from

2014 to 2015, across every sector

Median % acquired at Series A by sector

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2010 2011 2012 2013 2014 2015

All Software IT hardware Commercial services

Source: PitchBook

15%

20%

25%

30%

35%

40%

2010 2011 2012 2013 2014 2015


$0

$1

$2

$3

$4

$5

$6

2010 2011 2012 2013 2014 2015


Source: PitchBook

The Series A stage has been

subject to feedback from both the

explosion in angel/seed financing

activity and the late-stage boom. The

surge in angel/seed activity has been

more consequential, for reasons of

proximate supply. With more and

more angels and seed investors

funding companies over the past

few years, the crop of startups vying

for Series A dollars has exploded in

size. Venture investors have plenty

of options to pick and choose from;

couple that overabundance of supply

with healthy demand given fundraising

levels and inflation of round sizes

and valuations at later stages, and

price increases at Series A are all but

inevitable. It’s telling, however, that


Median Series A round size and pre-money valuation

($M) by year in commercial services


($M) by year in software


($M) by year in healthcare services, supplies & systems


($M) by year

$6.5$7.3

$8.2$9.3

$12.3

$14.4

$2.5 $2.6 $3.0 $3.4$4.0

$5.0

2010 2011 2012 2013 2014 2015


Source: PitchBook

$6.7$7.6

$8.5

$10.2

$12.7

$16.1

$2.5 $2.8 $3.0$3.8 $4.0

$5.1

2010 2011 2012 2013 2014 2015


$5.0

$6.1 $6.4

$7.5

$9.3

$10.4

$2.6 $2.5 $2.6 $2.5

$3.6 $3.7

2010 2011 2012 2013 2014 2015


$6.0

$7.6 $7.9 $7.6

$11.7

$14.2

$2.0$2.5

$2.0$3.0

$3.6

$4.9

2010 2011 2012 2013 2014 2015



Source: PitchBook

at this stage, as opposed to others,

the median percentage acquired

increased from 2014 to 2015, across

every sector. Furthermore, among the

overall decline in venture activity in

the U.S. over the past several quarters,

Series A rounds have declined sizably

in number. Capital invested has

remained fairly strong, even though

round counts are down, which is

to be expected when the supply

of companies seeking funding and

capital to invest are both abundant,

yet investors are wary. Through the

end of 2015, after all, both round sizes

and valuations remained more than

healthy, particularly in software. The

extent of the reset in U.S. venture

financing conversations is yet to

be determined, but the effects are

likely to be more pronounced in

the Series A field, simply due to risk

levels. As opposed to fundings later

in companies’ development, capital

invested may fall more steeply. VCs

will still fund businesses with promise,

but as opposed to later stages where

larger sums are justified by positioning

to scale, the early stage will see more

calls for tightening of the belt, due

to the fact most companies looking

for Series A financing have yet to

demonstrate histories of key growth

and sustainability metrics. Founding

teams will have to show either

considerable promise or demonstrated

success or both.


A middle ground between early and late stageSeries B valuations and trends

Series B has experienced some of the most striking valuation increases

Median Series B pre-money valuations ($M) by sector

IT hardware saw its increases in financing size level off

the most, while commercial services’ boomed

Median Series B round size ($M) by sector

The environment has been trending founder-friendly

for quite some time, to plateau a bit in recent years

Median % acquired at Series B by sector

$0

$10

$20

$30

$40

$50

$60

2010 2011 2012 2013 2014 2015


Source: PitchBook

15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

2010 2011 2012 2013 2014 2015


Source: PitchBook

$0

$2

$4

$6

$8

$10

$12

$14

2010 2011 2012 2013 2014 2015


Source: PitchBook

Even as the nomenclature of venture

rounds has shifted as a result of the

venture boom, with Series B financings

in many cases usurping the role of

inflection point played by Series C,

it can still be constituted as the last

of the intermediate development

stages for a company. Consequently,

coupled with the effects of blending

Series B and C fundings, some of the

more striking inflation of round sizes

and valuations has occurred at Series

B. After all, the median valuation

more than doubled between 2010

and 2015, rising inexorably from 2013

to last year from what now seems a

modest $25 million to exceed $40

million. Companies in the final stages

of product development or already


Median Series B round size and pre-money valuation







($M) by year

$19.2$21.1 $21.1

$25.7

$33.5

$41.1

$7.0 $7.2 $7.3 $7.1$10.0

$12.4

2010 2011 2012 2013 2014 2015


Source: PitchBook

$17.6

$24.1 $22.7

$30.2

$35.1

$49.3

$6.9 $7.3 $8.0 $8.6$10.5

$12.5

2010 2011 2012 2013 2014 2015


Source: PitchBook

$18.1

$14.4$16.2

$18.0

$21.5

$29.5

$6.0 $5.5 $5.8$6.8 $7.4

$10.0

2010 2011 2012 2013 2014 2015


Source: PitchBook

$14.5

$19.5

$24.5$21.6

$32.1

$38.2

$5.5 $6.1 $6.7 $6.1$8.6

$10.8

2010 2011 2012 2013 2014 2015


Source: PitchBook

positioning to scale were able to raise

massive sums, and, of course, they did

so. Perhaps the most drastic inflation

in valuations occurred in software,

much of which can be chalked up to

the sheer rapidity with which a select

tier of companies was able to execute

on proliferating a product, as well as

the quick pervasion of SaaS models.

It’s not just software, of course; it’s

striking that each segment profiled

below has seen considerable increases

in both financing size and valuation, at

least in the past three years. But the

current reset of the venture capital

environment may affect Series B

numbers more significantly than

those of later rounds. Even if recent

Series B financings have really been of

companies that exhibit more blended

Series B and C attributes, there simply

is more risk inherent at that stage. In

today’s environment, venture firms

will simply assess opportunities more

carefully, while founders will have to

spend longer on the fundraising trail

to make their case, which—among

other factors—will contribute to a slide

in activity. Capital invested numbers

may not fall in a proportionate fashion,

skewed by investors’ faith in what

companies they do fund. But the

competition for VC dollars should only

intensify, which is more than likely to

result in a gradual shift away from how

founder-friendly terms have been back

toward a more equitable playing field.


The inflection point may shift downwardSeries C valuations and trends

Series C represents the inflection point of late-stage inflation

Median Series C pre-money valuations ($M) by sector

Software medians reach a staggering $25 million in

2015, well over 2014 numbers

Median Series C round size ($M) by sector

Is the modest increase between 2014 and 2015 due to

investor sentiment?

Median % acquired at Series C by sector

$0

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015


10%

12%

14%

16%

18%

20%

22%

24%

2010 2011 2012 2013 2014 2015


$0

$5

$10

$15

$20

$25

$30

2010 2011 2012 2013 2014 2015


Source: PitchBook


Series C financings typically

represent an inflection point of

sorts, where companies position

for scale, reallocating spending on

increasing market share, potentially

making acquisitions and more to

augment growth. Accordingly, it has

seen some of the more dramatic

increases at the late stage over the

past handful of years. The founder-

friendly climate at even this late

stage can also be evidenced by the

overall trend downward in median

percentages acquired across the same

timeframe. At least, that trend was

downward until just recently, with a

very modest uptick between 2014 and

2015. Such an occurrence goes hand

in hand with overall investor sentiment

nowadays.


Median Series C round size and pre-money valuation







($M) by year

$38.1

$49.7 $50.0

$56.3$60.0

$74.0

$10.0$12.5 $12.0 $12.3

$15.0$20.0

2010 2011 2012 2013 2014 2015


$26.5

$53.0$56.2

$67.7

$89.2

$104.0

$8.0 $10.0 $12.0 $15.0 $17.0$25.0

2010 2011 2012 2013 2014 2015


$36.1

$28.1

$35.3

$45.6

$29.7

$61.0

$11.6 $11.7 $12.5$10.2 $9.1

$18.0

2010 2011 2012 2013 2014 2015



Source: PitchBook

$54.7

$79.5

$40.6

$70.2

$50.4

$75.9

$10.3 $9.5 $8.3$12.3 $12.5

$17.5

2010 2011 2012 2013 2014 2015


Source: PitchBook

As noted earlier, the sheer amount

of venture capital raised has

rendered perceptions of what is a

more reasonable level of investment

all the more important. Hence, we’ve

observed a pullback if not a dramatic

decline, as firms still can justify

writing sizable checks, just on a less

frequent, more protected basis. The

size of the checks will likely decline

somewhat, particularly at Series C or

later stages. The types of numbers

seen for 2015 below will be viewed as

more of a high-water mark borne of an

overexuberant financing environment,

rather than a necessary new normal,

with investors and founders alike

exercising more discipline in spend.

As may be supposed by inspecting

the sector breakdown below, median

valuations may shift considerably for

specific niches with more complicated,

costly avenues to scaling. There’s

a difference between joining an IT

hardware startup’s Series B financing

in anticipation of an exit in a couple

years than subscribing to its Series C

financing as it positions to take away

market share from incumbents, for

example. Consequently, overall Series

C median valuations could decline

somewhat in tandem with overall

late-stage activity, as part of a general

reset, not a cataclysm.


Winnowing, not abandoning, the fieldSeries D and later valuations and trends

2015 recorded a peak in valuations across nearly all sectors

Median Series D+ pre-money valuations ($M) by sector

Software has been driving median round size inflation

for a few years now

Median Series D+ round size ($M) by sector

Sector-specific changes may well be skewed, but also

could be indicative of investor caution

Median % acquired at Series D+ by sector

$0

$50

$100

$150

$200

$250

$300

2010 2011 2012 2013 2014 2015


Source: PitchBook

4%

6%

8%

10%

12%

14%

16%

18%

2010 2011 2012 2013 2014 2015


Source: PitchBook

$0

$5

$10

$15

$20

$25

$30

$35

$40

2010 2011 2012 2013 2014 2015


Source: PitchBook

The Series D or later round of

financing represents the typical

apex of a company’s venture funding

lifecycle—or at least it is a serviceable

approximation. At this end of the

venture feedback cycle, the inflation of

round sizes and valuations is clearest,

with the median pre-money valuation

across all sectors rising from $99

million in 2013 to $180 million last

year. Round sizes kept pace, nearly

doubling across the same timeframe,

from $16 million to $31 million. In a way,

continued huge late-stage rounds even

in 2016 has been artificially propping

up numbers: Mature companies that

have been financed multiple times

have only so much equity to offer, yet

still need plenty of cash. Consequently,

financings that are still occurring


Median Series D+ round size and pre-money valuation







($M) by year

Source: PitchBook

Source: PitchBook

Source: PitchBook

Source: PitchBook

$65.8

$83.5$92.1

$99.0

$135.0

$180.0

$12.5 $15.1 $16.2 $16.0$25.0

$31.0

2010 2011 2012 2013 2014 2015


$51.0

$92.0 $95.2

$141.5

$217.5

$242.8

$10.0 $12.0 $15.3 $19.9$31.5 $35.0

2010 2011 2012 2013 2014 2015


$44.9

$54.9 $57.8

$79.2 $82.1

$110.5

$15.0 $14.1 $16.2 $17.5 $18.7$15.0

2010 2011 2012 2013 2014 2015


$91.2

$57.0

$85.3

$131.0$139.5 $137.4

$10.0 $8.7 $7.5$16.4 $17.5

$25.0

2010 2011 2012 2013 2014 2015

Pre-money valuation

Round size

Median Nasdaq price vs. median U.S. Series D+ valuation by year

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Nasdaq composite

Series D+ median pre-money valuation

Source: PitchBook

*As of 2/29/2016

This dataset calculates the annual percentage change in median Nasdaq close prices as well as median Series D or later pre-money valuations, using 2005 values as a base set at 1.00.

are heightened. Investors are only

willing to invest at these levels if the

businesses are robust and liquidity can

be anticipated to be available relatively

soon. Hence the flight to quality, as

the only companies still even raising

at that level are the ones that enjoy

the most investor confidence—even

with an extra dose of downside

protection. Consequently, we’ve seen

an unceasing march of median Series

D+ valuations even into 2016, as the

relative Nasdaq composite has slid.

Investors are winnowing the field of

late-stage venture-backed companies

to finance, not abandoning it entirely.


Is the VC vacation over?Corporate, hedge & mutual fund participation

Hedge funds’ participation is considerably off in 2016 so far

U.S. VC rounds with hedge fund participation

A flight to quality has helped keep median financing sizes elevated

Median U.S. round size ($M) with hedge fund participation

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

$1.3

$1.7

$2.0

$1.0

$0.7

$2.4

$1.1

$2.1

$7.0

$10.

8

43

66 61

27 30

42 42

63

117127

13

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Overall value of rounds ($B)

# of rounds closed with hedge fund participation

$0.5

$46

$35

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

One of the more pressing questions

is the extent to which “tourist”

VCs—nontraditional venture investors—

will dial back activity. The primary

reason why mutual fund markdowns

have been so publicized, after all,

is that their involvement has been

one of the more unprecedented

characteristics of the recent venture

boom. Mutual funds haven’t been

alone; the role of hedge funds has also

been key in much the same way. Take

the case of hedge fund Tiger Global

Management, whose torrid pace of

investment in venture rounds has been

one of the primary drivers behind the

stark increases in the charts to the left.

Tiger Global operates multiple private

equity strategies, but has garnered

the most headlines in the past couple

of years for its focus in backing

international startups such as Didi

Kuaidi, Flipkart and others. But the U.S.

has not escaped its attention, with its

more high-profile fundings including

those of Postmates and Avant. This

push to finance high-growth, private

companies—even paying premiums for

relatively illiquid holdings—has been

well documented, as has the ensuing

effect on the venture landscape as a

whole.

What hasn’t been well established,

however, is whether those

same players will keep investing in

the event of a general downturn

in venture valuations that could hit

even the sturdiest of players. The

first two months of 2016 have seen

a considerable drop in the pace of

hedge and mutual fund participation,

although it’s worth noting the value

of the rounds mutual funds are still

involved in remains sizable. On the

face of it, it seems likeliest that hedge

and mutual funds will cut back their

participation considerably, primarily

due to a scarcity of companies with

growth potential robust enough to

withstand a significant degree of

volatility both economic and financial.

Liquidity also remains a pressing issue.


Median U.S. round size ($M) with mutual fund

participation

Median pre-money valuation ($M) of U.S. late-stage VC

rounds with corporate VC participation

U.S. VC activity with mutual fund participation

Median pre-money valuation ($M) of U.S. early-stage

VC rounds with corporate VC participation

$29

$39

$18$19

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

CVC Investor No CVC Investor

$167$174

$102

$122

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

CVC Investor No CVC Investor

$1.5

$2.0

$1.9

$1.3

$0.7

$5.8

$2.0

$2.1

$11.

3

$13.

8

$3.5

6672 67

42

29

5056

61

113 117

16

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Overall value of rounds ($B)

# of rounds closed with mutual fund participation

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

$60$56

$0

$10

$20

$30

$40

$50

$60

$70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*Source: PitchBook

*As of 2/29/2016

Until markets stabilize somewhat,

ameliorating investor fears, hedge and

mutual funds, even more so than other

late-stage VC investors, will flock to

quality. That should decrease the level

of activity, if not overall dollar value of

rounds, considerably.

The venture investment arms of

corporations, on the other hand, are

unlikely to pull back nearly as much,

as their investment theses are very

different. They may pull back a little, as

corporate VCs looking to join rounds

will be subject to similar pressures

as typical venture firms, but median

valuations produced by fundings with

corporate VC participation may not

decline to the same extent as those of

the general population. Corporations’

investment rationales are typically

based more on potential synergies

and R&D at scale than returns alone,

and accordingly will depend more on

general economic trends and parent

company performance and overall

business strategies. Hence the recent

announcement by Intel Capital that

it is seeking to sell about a quarter

of its portfolio companies; that

decision owes more to a reshuffling of

resources to cohere with Intel’s overall

strategies than anything else. In a

similar vein, corporate venture arms

will continue investing in the most

robust of startups whose focuses align

best with their parents; as a result, the

valuations of those companies are

likely to remain high, as illustrated

below.


Marked by cautionValuation step-ups, changes and time between rounds

Median early-stage round step-ups by year in U.S.

Source: PitchBook

*As of 2/29/2016

Median late-stage round step-ups by year in U.S.

Source: PitchBook

*As of 2/29/2016

1.6x 1.6x 1.6x

1.1x

1.4x

1.7x 1.7x1.5x

1.7x 1.8x1.6x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

1.3x 1.2x 1.3x

1.0x1.1x

1.3x1.3x

1.2x1.3x 1.4x

1.3x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Median time (years) between rounds in U.S. by series

0.9 1.0

1.21.31.3

1.5

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*


1.4

1.5

1.3 1.3

1.1

1.2

1.3

1.4

1.5

1.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Series C Series D+

Source: PitchBook

*As of 2/29/2016

Source: PitchBook

*As of 2/29/2016

After two consecutive annual

increases, median round step-ups

declined through the end of February

2016. Across both the early and late

stages, 2015 saw the highest median

step-ups in the U.S. of the decade, with

the early stage alone seeing a hefty

1.8x. That same metric still remains on

the elevated side in 2016 so far, but

the decrease is telling in conjunction

with the uptick in time between rounds.

The fact there hasn’t been a distinct

plummet, but rather a modest slide

in financing step-ups paired with an

increase in time taken to raise speaks

to a fundraising atmosphere pervaded

with a higher concentration of caution

than in previous years. Series B and

C financings have seen the starkest

increases in time between rounds,

likely as the companies still receiving

Series D or later funding are still

attractive enough to investors that

they can fill their coffers relatively

quickly. On the opposite end of

that spectrum, the sheer level of

competition in the seed fundraising

market—especially in the current

environment—is what has pushed the

time to Series A to an all-time high in

the first two months of 2016.

Note: time between rounds is calculated by the time between the date of

the last financing completed and the financing prior to that.


As financing flow sputters, the percentage of down rounds is up

U.S. venture up, flat or down rounds by year

Source: PitchBook

Source: PitchBook

*As of 2/29/2016

2012 2013 2014 2015 2016* 2012 2013 2014 2015 2016* 2012 2013 2014 2015 2016*

Software Commercial Services Healthcare Svcs/Supp./Sys.

Up Flat Down

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*Up Flat Down

As suspected given the diminishing

step-ups, the relative proportion

of down rounds through February

2016 was greater than either 2014

or 2015. The simultaneous increase

in up rounds makes more sense in

light of decreased venture activity

overall: The companies getting

funded in the current environment are

either demonstrating robust enough

numbers to quell investor qualms or

they are settling for down rounds. It’s

more of a make-or-break environment

than we’ve seen in some time, as

further evidenced by the smallest

proportion of companies eking out

flat financings in years. Investors are

either being persuaded to re-up in

order to recoup later, even in a down

round, or don’t need to be, essentially.

Commercial services companies

saw by far the largest uptick in the

proportion of down rounds, due more

to the scarcity of venture financing

activity within that space more than

anything else.

Investors are either willing to be persuaded to re-up even in a down round—in order to recoup later—or don’t need to be.

*As of 2/29/2016

Note: Up, flat or down rounds are calculated based on share price, e.g. if the price per share in the most

recent round of financing was lower than in the prior financing, that would be classified as a down round.

Many of the companies still robust enough to garner up financings are in software

U.S. venture up, flat or down rounds by year and sector

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%


Contact PitchBook

pitchbook.com

RESEARCH [email protected]

EDITORIAL [email protected]

SALES [email protected]





Date post:	10-Apr-2018
Category:	Documents
Upload:	truongnhu
View:	217 times
Download:	3 times

VC VALUATIONS - PitchBookfiles.pitchbook.com/pdf/2015_Annual_VC_Valuations_Trends_Report.pdf · ......

Documents