Record Unicorn Financings Drove 2017 Total Venture Capital Investments to $84 Billion, the Largest Amount Since Dot-Com Era

2017 Was a Banner Year for Venture Capital, Marked by Record Fundraising and Unicorn Investment Activity and Exits, According to the PitchBook-NVCA Venture Monitor

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Jan 09, 2018, 12:01 ET

SEATTLE, Jan. 9, 2018 /PRNewswire/ -- The U.S. venture capital (VC) industry finished strong in 2017 with $84 billion invested in 8,035 companies across 8,076 deals, the highest annual amount of capital deployed to the entrepreneurial ecosystem since the early 2000's, according to the PitchBook-NVCA Venture Monitor. Over the past several years, the VC industry has evolved as VC-backed companies stay private longer and command larger deal sizes. With fewer transactions yet more capital deployed into higher valued companies, deal counts dropped to the lowest figure since 2012, while median and average deal sizes reached a decade-high in 2017. Helping to drive this trend, Unicorns (i.e., VC-backed companies valued at $1 billion or more) alone raised $19.2 billion in capital, more than they have in any other year on record. This group also received a dramatically outsized portion of capital at 22.8% of total dollars, yet made up just 0.9% of deal volume. Boosted by 13 unicorn exits in 2017, overall VC exit value remained flat, despite a three-year decline in exit counts. Meanwhile, fundraising continued at a high clip as limited partners (LP) committed more than $32 billion to the asset class in 2017, bringing the trailing four-year total to $142 billion.

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"While the figures are comparable to the dot-com era, the VC ecosystem appears healthy and driven by different dynamics," said John Gabbert, CEO and founder of PitchBook. "Exciting later-stage companies with strong consumer traction are commanding large rounds of financing. Meanwhile, there are game-changing core verticals like VR and AR, IoT, AI and Fintech generating massive investments; there will be winners and losers amongst these VC-backed companies but the technologies are here to stay and will truly change the game for companies and consumers."

"The fourth quarter bookended a busy year for the entrepreneurial ecosystem, marked by the largest amount of capital deployed to VC-backed companies since the dot-com era and a number of policy developments that will have lasting impacts on the ecosystem in 2018 and beyond," said Bobby Franklin, President and CEO of NVCA. "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."

Fundraising Activity
2017 proved to be another healthy fundraising year for VC investors, with 209 funds closed totaling $32 billion, including the largest VC fund ever raised – New Enterprise Associates' $3.3 billion vehicle raised in June 2017. Last year marked the fourth consecutive year to surpass $30 billion in total VC fundraising, and the fifth consecutive year to see more than 200 funds closed. Additionally, funds raised by first-time fund managers reached a 12-year high with $3.3 billion secured across 35 vehicles, signaling a willingness by LPs to take chances on new VC investors. As deal sizes continue to grow, many managers looked to raise larger funds at a faster clip. Last year, median fund size passed $50 million for the first time since 2009 and the average time managers took between raising funds declined from 3.5 years in 2009 to just over two years in 2017. Strong VC fundraising activity coupled with capital available from SoftBank's $100 billion Vision fund and non-traditional investors, has created a trickledown effect for the entire industry, whereby more private capital is available to companies that historically would have sought out an exit.

Investment Activity
VC investors deployed the highest annual amount of capital in 2017 ($84 billion) since the dot-com era of 2000-2001, despite ending the year with the lowest number of completed financings since 2012, with just 8,076 deals. In the fourth quarter, nearly $24 billion was deployed to 1,772 companies across 1,778 deals, marking the third consecutive quarter with more than $20 billion deployed to U.S. VC-backed companies. With large pools of available capital, fewer late-stage companies attracted a higher share of total dollars invested in 2017, contributing to the overall decline in deal counts, most notably in the angel and seed stage. As part of this shift, deals of $50 million or larger generated nearly half of total VC deal value, while deals of $1 million or smaller fell to less than 30% for the first time since the financial crisis. Further exemplifying this trend, deal value and volume for unicorns reached their highest annual totals in 2017, with $19.2 billion raised across 73 deals. This steady climb in unicorn deal sizes caused a corresponding increase in valuations. The median Series D+ pre-money valuation reached $250 million in 2017 – 3.2x larger than pre-money valuations at the same stage in 2007.

Exit Activity
The number of VC-backed exits declined for the third consecutive year in 2017, reaching the lowest total since 2011, with 769 exits completed last year, down from 857 in 2016 and 1,003 in 2015. The decline has been perpetuated by the notable trend of companies raising additional private funding rather than seeking an exit via an IPO or strategic acquirer. While exit counts have continued to decline, exit value has remained relatively flat thanks to the record number of unicorn exits in 2017. 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. PE investors have also helped to provide much-needed liquidity to VC investors. Last year, there were more PE buyouts of VC-backed companies than ever recorded, with 146 transactions – up from 110 in 2016 and 129 in 2015.

The full report will include the following components:

VC investment activity by round size
VC investment activity by stage (Angel & Seed, Early and Late)
VC investment activity by first financings, sector and median size
Exits by type, size & sector
Fundraising by size & first-time funds
League tables

About PitchBook
PitchBook is a financial data and software company that provides transparency into the private and public capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 13,500 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

About National Venture Capital Association
Venture capitalists are committed to funding America's most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. As the voice of the U.S. venture capital community, the National Venture Capital Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community's preeminent trade association, the NVCA serves as the definitive resource for venture capital data and unites its member firms through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.