Money is flowing into Silicon Valley to find the next big thing like never before — and there does not seem to be a bubble in sight.
In 2017, venture capital firms in the United States dished out $84 billion to 8,000 technology startups and companies, the highest amount of capital seen since the early 2000s, according to an annual industry monitor from the research firm Pitchbook and the National Venture Capital Association.
But unlike before, when many venture capital firms lost their money when the dot-com bubble burst, both organizations noted a healthier ecosystem. One reason is that most of the $84 billion went to large, high-value companies with an established customer base rather than risky, early-stage startups.
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The ride-hailing platform Lyft and the shared-office business WeWork were some of the largest venture capital deals in the United States in 2017, receiving $3 billion and $1.5 billion, respectively. Unicorns — private companies valued at more than $1 billion, like Lyft and WeWork — received $19.2 billion, or 22.8 percent of all investments.
“While the figures are comparable to the dot-com era, the VC ecosystem appears healthy and driven by different dynamics,” said PitchBook CEO John Gabbert in a statement. “Later-stage companies with strong consumer traction are commanding large rounds of financing.”
However, venture capital firms are not reaping returns as fast as they once did. More and more venture-backed companies are deciding to stay private, and the number of companies exiting has dropped to 769 — the lowest since 2011.
Exit value stayed relatively flat, thanks to the big returns seen from select IPOs such as Stitch Fix and Roku in 2017.
With companies opting to stay private longer than in the past, venture capital firms need more patience — and deeper wallets — than in the past. The Japanese conglomerate SoftBank and its $100 billion Vision fund and other corporate venture funds have emerged as key players in 2017 and “created a trickle-down effect for the entire industry,” according to Pitchbook.
Venture capital firms raised $32 billion in 209 funds, marking the fourth consecutive year the industry raised more than $30 billion. In June, New Enterprise Associates raised $3.3 billion, the largest single raised fund in the industry history. Noted venture capital firm Andreessen Horowitz also raised $450 million for companies that apply artificial intelligence to areas such as health care and food science.
“As we close the books on another banner year, 2017 will be remembered as a year of changing market dynamics for the industry, including large pools of committed capital, shifting deal sizes, rising valuations, record unicorn exits, and strong investment into life science companies and other emerging breakthrough technologies,” said NVCA President and CEO Bobby Franklin.
Illustration from Thinkstock
Tags: Andreessen Horowitz, NVCA, Pitchbook, Softbank, venture capital