SA国际传媒

Make no bones about it: 2018 was one heck of a year for the global venture capital market, and the fourth quarter closed it out on strong footing. It was a year of superlatives: the most amount of money invested in the highest number of private tech company financing events on record; the largest venture capital deals in history; the rise and rise of supergiant venture rounds; and the elephantine funds that shake the market with every deal they make.

This report from SA国际传媒 News will assess the state of the global venture capital market in the last quarter of 2018, and in the year as a whole. Like always, we鈥檒l do so primarily through the lens of data.

We will cover SA国际传媒鈥檚 projections of how鈥攁nd how much鈥攖he global venture capital ecosystem invested in Q4 2018 and throughout the year as a whole. We鈥檒l then evaluate how that result compares to both Q3 2018 and Q4 2017, giving us perspective on sequential quarter and year-over-year performance. (More about how those projections are calculated, and how rounds get classified into stages, can be found in the Methodology section at the end.)

IPOs and M&A will be covered in a separate report to be published following this one.

Before getting into the thick of SA国际传媒 News鈥檚 global investment report, here鈥檚 something to whet your appetite.

2018: Last Year In Three Charts

In 2018, venture capital got bigger and continued to expand globally.

SA国际传媒 News documented an emerging trend in VC: the tendency for some companies to raise $100 million or more in a single round of outside funding. Just like shine brightest and stretch the fabric of space and time, supergiant venture rounds of $100 million or more dominate the headlines and bend the fundraising curve for founders and investors alike.

In the chart below, we鈥檝e plotted the count of reported supergiant venture rounds in 2014 through 2018, broken out by month. It looks like the July peak of over 60 supergiant deals remains the local maximum.

It鈥檚 easy to see that supergiant rounds have become more numerous. But what might be less clear, from the above chart alone, is just how much money these companies command. Below, we plotted the share of reported venture capital raised in supergiant rounds over that same timeframe, this time aggregating by quarter. (Note: this doesn鈥檛 account for money raised in deals from 2018 that are added to SA国际传媒 after publication.)

In all of 2018, over 56 percent of the reported capital raised by private tech companies was closed in supergiant venture funding rounds. Reported data in SA国际传媒 indicates that Q4 2018 was the most concentrated in years, with 61 percent of VC funding coming from nine, ten, and eleven-figure transactions.

SA国际传媒 News previously reported on the ratio of supergiant deals closed by China-based companies, as compared to their counterparts in the U.S. Back in August, U.S. and Chinese companies were basically neck-and-neck, but it appears as though China鈥檚 Q4 economic slowdown stymied growth in this metric. Reported data shows that U.S. companies raised 64 supergiant funding rounds in Q3 and 63 in Q4. According to reported figured in SA国际传媒, Chinese companies raised 56 supergiant rounds in Q3, but just 39 in Q4. Meanwhile, companies based outside the world鈥檚 two largest economies raised 40 supergiant rounds in Q4, compared to 28 in Q3.

In the first and second quarters of 2018, Chinese VC dollar volume surpassed the United States for the first time. But international growth and a contraction in China put U.S. companies back at the top of the international ranks.

In Q4, China-based companies raised just over 21 percent of the reported funding during the quarter, relative to the 53 percent netted by U.S. companies.

It鈥檚 uncertain whether 2019 will (or even can) top 2018, but the globalization of VC is here to stay. At least for the time being, though, the status quo prevails: U.S. startups remain at the top of the global VC-raising heap.

Money In

• Bullish Key Finding. Full-year deal and dollar volume eclipsed 2017 by wide margins.
• Bearish Key Finding. On a quarter-by-quarter basis, venture funding activity appears to be leveling off or decreasing across some stages.

Pace of Dealmaking

If the last section felt like a salad course, here鈥檚 where we start the main dish.

The number of venture capital deals struck during a given period of time tells us how fast the market is moving. Q4 brought the pace down from ludicrous speed to merely insanely fast.

Note that these numbers are divided up by stage. A 鈥渟tage鈥� of funding is comprised of several types of rounds, classified according to a set of criteria defined by SA国际传媒.

For example, 鈥渆arly stage鈥� includes:

• Series A and Series B rounds (regardless of size).
• Venture rounds of unknown series, convertible notes, and rounds of undisclosed type, so long as they鈥檙e between $1,000,001 and $15,000,000 or USD equivalent (in the case of foreign currencies).
• Equity crowdfunding rounds between $5,000,001 and $15,000,000.

Collectively, those subsets are aggregated into a single stage. Similarly, seed and late-stage, as well as technology growth rounds, have their own set of classification rules. You can read more about those in the Methodology section at the end.

SA国际传媒 projects that a total of 8,607 venture deals were struck in Q4 2018 worldwide, down 3.55 percent from last quarter鈥檚 total of 8,924 deals.1 That鈥檚 off about 6 percent from Q2鈥檚 highs, which isn鈥檛 much by standards of this venture market, where bigger moves happen regularly. For example, total deal volume surged up 24 percent between the first and second quarters of the year.

It was, in part, that explosion in projected deal volume, led by angel and seed-stage, that propelled venture deal volume to such great heights in 2018.

With just over 34,000 deals projected for all of 2018, last year was the most active on record. Overall deal volume jumped by over 32 percent since 2017.

There鈥檚 an important note to make about these projections. When SA国际传媒 News pulled data for this report on January 1, 2019, SA国际传媒 had recorded a total of 21,865 deals for all of 2018. Based on historic patterns of venture deal reporting, SA国际传媒鈥檚 projections try to compensate for the deals that have likely been struck but haven鈥檛 yet been publicly disclosed or added to SA国际传媒. These projections are applied to the most recent SA国际传媒鈥檚 projections indicate that slightly over 12,000 deals will be back-filled into 2018 over time. A lot of those will be angel and seed-stage deals, with are typically the slowest to be reported. More information about reported versus projected data can be found at the end of this report.

It鈥檚 easy to see that growth in deal volume was largely driven by angel and seed-stage deals. You鈥檒l see why in a later section when we approach the market stage by stage.

Projected VC Dollar Volume

If deal volume is like a speedometer, dollar volume is better thought of as a pressure gauge. This measure of capital throughput tells us how companies (and their backers) view the market.

A market awash in cash points to both optimism (after all, investors believe their capital will earn a good return even at this late stage of the market cycle) but, also, a more competitive business climate. As industries develop and established players dig their trenches, it takes increasingly large amounts of money to get a leg up on the competition.

SA国际传媒 projects that overall dollar volume is up, once again, in the final quarter of the year. Data in the chart below is subdivided by stage.

Note that SA国际传媒 doesn鈥檛 incorporate the 鈥淐orporate Round鈥� type into its projections. Accordingly, in November 2018, which SA国际传媒 classifies as a corporate round, is not counted in the chart below.

A resurgence in late-stage venture funding drove the global market鈥檚 dollar volume totals higher in the final quarter of 2018. SA国际传媒 projects that roughly $91.4 billion was invested in Q4, up about 2.4 percent from Q3.

This rounds out two solid years of quarter-over-quarter growth. According to SA国际传媒 data, global dollar volume figures increased every quarter since Q4 2016. Zooming out to annual numbers for a moment, the results of that consistent growth become readily apparent.

In 2018, private companies raised over three times as much capital as they did just four years prior. Data in the chart below is broken out by stage.

On an annual timescale, all three main stages of venture funding saw major growth in dollar volume. (Money shifted out of technology growth-stage deals for reasons we鈥檒l highlight later.) Growth in early and late-stage dollar volume drove most of the overall gains.

Here too we鈥檇 like to explain a bit how the projections were calculated. As of January 1, 2019, SA国际传媒 had recorded $293 billion in venture funding. However, SA国际传媒 projects that $48.56 billion worth of venture investment deals that occurred in 2018 will be added over time.

Recall that this is subdivided by 鈥渟tage,鈥� which includes more than neatly-labeled rounds following the typical 鈥淪eries [sequential letter]鈥� naming convention. Because they include rounds of unknown round series and unknown funding types, this 鈥渟tage鈥� definition is quite expansive.2 SA国际传媒 recorded $293 billion worth of deals in 2018 when aggregated by stage. By comparison, SA国际传媒 captured roughly $205 billion worth of neatly-labeled seed, angel, and rounds from Series A onward during the year. We report projections based on stage as it provides a broader look at the global venture market than what can be readily apportioned into neat buckets.

Most Active Lead Investors In 2018

In venture funding rounds with more than one investor involved, typically there will be one (but sometimes more) firm that invests the bulk of the capital and steers most of the negotiations in a given deal. Let鈥檚 take a look at which firms were the most active throughout 2018.

The chart below shows the investors which are reported to have led the most rounds. For most deals in SA国际传媒 with investor information included, the data designates which investors led a round, versus those which just participated or followed-on.

In the set of 2018 venture rounds, we identified nearly 6,800 unique investors which led a deal last year. Of these, here are the firms which led the most rounds.

Note that the above data is subject to change as more rounds get added to SA国际传媒 over time. There鈥檚 strong representation from the U.S. and China, and some representation for Chile (via ) and the United Kingdom (by way of the ). There is a very long tail of investors which led fewer than 33 deals in 2018, and that鈥檚 where more of the geographic diversity can be found.

Stage-By-Stage Analysis of Q4 2018 VC Funding Trends

In this section, we鈥檒l take a look at each stage in turn, getting into the nitty-gritty details. As usual, we start 鈥渃lose to the metal鈥� with angel and seed-stage deals.

For more about how SA国际传媒 classifies rounds by stage, check out the Methodology section at the end.

Angel And Seed-Stage Deals

What angel and seed-stage deals lack in size, they make up for in number. In Q4 2018, angel and seed-stage activity accounted for approximately 59 percent of all deal volume, but just five percent of total dollar volume. Those ratios are representative of 2018 as a whole. (More information about what types of rounds get counted in this stage can be found in the Methodology section at the end.)

Although 2018 as a whole was a year of phenomenal growth, SA国际传媒 projections indicate that things cooled down a bit in Q4.

Between Q3 and Q4, both deal and dollar volume declined somewhat. A pull-back is inevitable after a period of consistent growth. But, this being said, a contraction here may indicate increased caution on behalf of investors on the riskiest end of the capital pool.

But an end-of-year slowdown doesn鈥檛 do much to dent the annual numbers. According to projections from SA国际传媒, approximately 20,250 angel and seed-stage transactions took place in 2018, a significant jump from 2014-2017鈥攄uring which time aggregate seed-stage deal volume ranged between roughly 14,100 and 15,700 deals. Yearly totals for angel and seed-stage dollar volume also rose markedly. For the entirety of 2018, SA国际传媒 projections indicate that $14.94 billion was invested in seed-stage deals. That鈥檚 an over 50 percent increase from 2017鈥檚 total of $9.717 billion.

A good chunk of that growth can be attributed to increasingly large sums raised by angel and seed-stage ventures.

It鈥檚 not just deal and dollar volume that grew so significantly. Seed-stage rounds鈥攚hich also include angel funding, pre-seed deals, and other funding types鈥攇rew larger over the course of 2018.

SA国际传媒 data included over 7,500 unique investors which led or participated in angel or seed-stage rounds last year. Here are most active among them.

There aren鈥檛 many surprises here in the overall makeup of this list, and it includes many different types of investors, all of which seek stakes in seed-stage startups.

Accelerator programs take most of the top spots; after all, it鈥檚 a model designed to deploy capital at scale. For example, 鈥檚 鈥渄emo day鈥� for its Summer 2018 batch , and its Winter 2018 batch . and run multiple sessions around the world every year. bills itself as 鈥渢he accelerator VC.鈥�

In addition to these, though, there are government-backed programs intended to kickstart innovation. Hungarian , for example, continued investing much of the it raised across funds in 2017. , which offers international entrepreneurs work visas and equity-free funding, in 2018, after several quiet years. Add in university-based initiatives like the , an equity crowdfunding platform like , a few seed-focused funds, and that rounds out the basic set of institutional investors involved at this stage.

Of course, there鈥檚 also the largely incalculable amount of money solo founders and fledgling companies raised from individual angel investors and through informal 鈥渇riends and family [and fools]鈥� rounds. Those small but numerous transactions are difficult to track, but they no doubt add up.

Early-Stage Deals

Early-stage companies raise more money than their seed-stage counterparts. In Q4 2018, early-stage deal volume accounted for approximately 33 percent of all deal volume and 32 percent of total dollar volume. Those ratios are at the low end of 2018 as a whole. For example, a Q3 pullback in late-stage investment meant early-stage deals accounted for an even third of deal volume but 39 percent of dollar volume.

And like with seed-stage deals, there was a quarterly decline in dollar volume.

That鈥檚 because Q3 was extraordinary. Notice how dollar volume grew steadily by $2-4 billion, per quarter, over most of the past year鈥攚ith the exception of the $7.2 billion jump from Q2 to Q3. Q4鈥檚 dollar volume results are a reversion to the mean. Deal volume is projected to be basically flat after a down quarter in Q3 but is still near historically high levels.

2018 was a record-setting year in early-stage venture. According to projections from SA国际传媒, approximately 11,250 early-stage transactions took place in 2018, worldwide, another significant jump from 2014-2017. Yearly totals for early-stage dollar volume also went up. SA国际传媒 projections indicate that $117.65 billion was invested in early-stage deals over the course of 2018. That鈥檚 an over 57 percent upswing from 2017鈥檚 total of $74.9 billion.

There were certainly more deals in 2018, but they weren鈥檛 necessarily that much bigger than they have been in the immediate past.

Early-stage rounds are larger than they were a year ago, but by a narrower margin than seed-stage deals.

Over 8,500 unique investors contributed to early-stage funding rounds in 2018. And here are the most active early-stage investors, worldwide, in the last year.

It鈥檚 in these ranks that we start to see the increasingly dominant role China-based investors are occupying on the world stage. Many of the institutional investors listed above are either headquartered in China, or are investing capital from Chinese limited partners. Beijing-based 鈥攚hich this year saw portfolio companies , , and (among ) exit鈥攖ops out the annual ranks. China-based offshoots of U.S. venture capital franchises, like and , struck more deals than their American counterparts. This is a material shift from 2017, when the only China-connected firm to crack the top ten rankings was , a cross-border firm with offices in the U.S. and China.

Late-Stage Deals

Late-stage reigned. In Q4 2018, late-stage deal volume accounted for just 7 percent of all deal volume, but 55 percent of total dollar volume. As previously mentioned, due to variation in market conditions this year, late-stage deal volume accounted for as much as 61 percent of dollar volume in Q2, and as little as 51 percent in Q3.

At least part of that quarterly variability can be accounted for by the enormity of the largest rounds at this stage. For example, raised by China-based in June remains the largest-ever venture capital transaction to date. That boosted Q2鈥檚 numbers significantly. Not all rounds need to be that gigantic to shift dollar volume results; a cluster of merely huge nine and ten-figure rounds can change the shape of the market. Q4 appears to carry on a steady upward trend in both late-stage deal and dollar volume.

Now let鈥檚 look at 2018 as a whole. According to projections from SA国际传媒, approximately 2,330 late-stage transactions took place in 2018. That鈥檚 an over 40 percent jump from 2017鈥檚 projected total of just over 1,600 deals. Yearly totals for late-stage dollar volume rose. For the entirety of 2018, SA国际传媒 projections indicate that a staggering $192.2 billion was invested in late-stage deals, worldwide. Jumping over 80 percent, 2018鈥檚 late-stage deals hauled in nearly twice 2017鈥檚 total of $104.9 billion.

In 2018, more money was invested in late-stage ventures than the entire global VC market invested in 2016 (approximately $168 billion, total). Late-stage rounds are bigger now than a couple of years ago, but on the whole they haven鈥檛 grown much over the past several quarters.

Despite some movement on a quarterly basis, late-stage venture rounds are roughly the same size as they were during the same period in 2017 before the supergiant round phenomenon came to a head in the late summer of 2018.

More than 3,200 unique investors participated in late-stage venture deals in 2018. Here are the most active among them.

As with ranks of early-stage investors, international representation is strong here.

There are U.S. and Chinese funds, as well as , which is backed by the government of Singapore. The is nominally led by , CEO of Japan-based . Its main office is in London, but it鈥檚 legally domiciled in Jersey (that鈥檚 Old Jersey, a small island off Great Britain with convenient tax structuring). The nearly $100 billion Vision Fund invests capital from global technology giants like , , , and , as well as sovereign wealth from Abu Dhabi and, perhaps problematically, Saudi Arabia.

Many of the U.S.-based firms listed above have country-specific offshoots, expanding the scope of the global venture capital industry. Take , for example, which has subsidiary investment firms in and (each of which manages billions of dollars), on top of a possibly $8 billion global growth fund that Sequoia Capital is raising itself.

Also notable is all the corporate investors, which isn鈥檛 surprising considering how much corporate venture capital (CVC) grew over the past couple of years. SA国际传媒 News has covered several of these investors this year. We profiled Tencent and Alibaba鈥檚 investment efforts back in January. And in a profile of corporate venture capital (CVC) investments, SA国际传媒 News plotted out Goldman Sachs鈥檚 rise to the top of the most-active CVC charts.

Technology Growth Deals

Since Q4 2017, SA国际传媒 has defined technology growth rounds as the set of private equity deals raised by companies with prior venture backing. from November is a great example of a 鈥渢echnology growth鈥� deal. (To learn more about the old definition of technology growth and why SA国际传媒 changed it, check out the Q4 2017 Global Report.)

Because technology growth deals are relatively few and far between and vary so much in size, sussing out trends from deal and dollar volume is difficult. However, in general, the same market forces driving fundraising at the latter end of the late-stage spectrum apply here.

Shifts in the late-stage market may finally be having an effect. SA国际传媒 projections indicate that throughout the whole of 2018, roughly $16.76 billion was invested in technology growth deals, down by 78 percent from 2017鈥檚 total of $29.86 billion. This being said, projected technology growth-stage deal volume is up 24 percent, from 147 transactions in 2017 to 194 transactions in 2018.

Previously venture-backed companies raised less in pre-IPO private equity rounds, but mostly because VCs are increasingly raising growth-stage funds to fuel companies further into the business lifecycle. In other words, dollar volume shifted away from tech growth rounds to late-stage as better-capitalized VCs now have the financial wherewithal to invest at a scale previously accessible to big-dollar PE firms.

As mentioned earlier, it鈥檚 tough to tell too much from the numbers, because there aren鈥檛 a lot of these deals. Nonetheless, it鈥檚 worth noting that the median deal size has now crept into supergiant territory.

Though SA国际传媒 News doesn鈥檛 typically cover a lot of private equity transactions, which are rarely cut-and-dry. Our coverage of a two-part $35 million PE deal with Tango Card (itself a tech growth deal) highlights that. This being said, we did cover some other technology growth deals in 2018. We profiled WP Engine, which raised a $250 million private equity round at the beginning of the year, and we also touched on Tanium鈥檚 $175 million PE deal back in May.

And with that, we close out the Money In. Now the challenge will be getting that money out. That鈥檚 what we鈥檒l cover in a follow-up companion report focused on liquidity.

Conclusion

It鈥檚 going to be difficult to top 2018. And there鈥檚 a lot to suggest that the best times may be in the rearview mirror. After close to a decade of post-Great Recession boom times, some sort of serious slowdown is all but guaranteed sometime in the next few years. Will 2019 be that year? Maybe.

The Federal Reserve is signaling intent to hike interest rates in 2019, and public stock market volatility is spiking on global uncertainty. A lot of how the global economy will proceed depends on some key political decisions: the Brexit negotiations in the U.K., how the U.S. and China move past the detente in the ongoing trade war, and what, if any, consequences members of the U.S. executive branch may face for prior actions.

As global growth is , some of the biggest winners of this past market cycle are expected to graduate to public markets. Though, the question of what鈥檚 going to be left to fund after a lot of folks try to find an exit is probably more of a 2020 challenge, barring calamity.

Methodology

The data contained in this report comes directly from SA国际传媒, and in two varieties: projected data and reported data.

SA国际传媒 uses projections for global and U.S. trend analysis. Projections are based on historical patterns in late reporting, which are most pronounced at the earliest stages of venture activity. Using projected data helps prevent undercounting or reporting skewed trends that only correct over time. All projected values are noted accordingly.

Certain metrics, like mean and median reported round sizes, were generated using only reported data. Unlike with projected data, SA国际传媒 calculates these kinds of metrics based only on the data it currently has. Just like with projected data, reported data will be properly indicated.

Please note that all funding values are given in U.S. dollars unless otherwise noted. SA国际传媒 converts foreign currencies to US dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs, and other financial events as reported. Even if those events were added to SA国际传媒 long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of Funding Terms

For reporting purposes, SA国际传媒 aggregates its funding data into “stages,” reflecting the different phases of private company development. Rounds are classified by stage according to the following sets of rules.

• Angel & Seed-stage is comprised of seed, pre-seed, and angel rounds. SA国际传媒 also includes venture rounds of unknown series, transactions of undisclosed type, and convertible notes totaling $1 million (USD or as-converted USD equivalent) or less. Equity crowdfunding rounds with no listed dollar value, as well as those totaling less than $5 million, are also counted as seed-stage.
• Early stage is comprised of Series A and Series B rounds, as well as other round types. SA国际传媒 includes venture rounds of unknown series, transactions of undisclosed type, and convertible notes totaling between $1,000,001 and $15,000,000. Convertible note rounds with missing dollar values are also counted as early-stage.
• Late stage is comprised of Series C, Series D, Series E, and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, transactions of undisclosed type, and convertible notes of $15,000,001 or more.
• Technology growth is a private equity round raised by a company that has previously raised a “venture” round. (So, basically, any round from the previously-defined stages.)

Note: Fundings denoted by SA国际传媒 as corporate rounds are not included in SA国际传媒 stage classification metrics and therefore do not get included in annual and quarterly startup investment totals. In some instances, this will impact totals to a significant degree. (In Q4 of 2018, for instance, SA国际传媒 did not include the $13 billion Altria investment in e-cigarette maker Juul as a venture round.)

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