Venture Capital Deal And Exit Activity Suffers Drop-Off In Q3 by Preqin

Quarterly aggregate deal value drops from $42bn in Q2 2016 to $26bn in Q3, while the combined exit value also declines by $15bn

Preqin’s Q3 update on the venture capital industry finds that deal activity suffered its slowest quarter since Q4 2011, while the aggregate exit value was well down on levels seen in the past three quarters. Globally, 2,050 venture capital deals were announced worth a combined $26bn, the lowest number of deals and aggregate deal value seen so far in 2016. Q1 and Q2 saw 2,607 and 2,335 deals with aggregate transaction values of $39bn and $42bn respectively, as fund managers sought to deploy the increasing levels of dry powder at their disposal. Although Preqin expects Q3 figures to rise by 5-10% as more information becomes available, the level of activity in the quarter looks set to fall considerably short of these totals.

Venture Capital Deal And Exit Activity

The exit environment has also proved difficult for venture capital fund managers to navigate in Q3, with firms making 225 exits for a combined value of $12bn. This represents less than half the total value seen the previous quarter, when 273 venture capital-backed exits generated $27bn. Quarterly exit activity is comparable with the levels seen in Q3 2015, when 259 venture-capital backed exits were recorded worth a combined $11bn. However, including this, in the past five years only four quarters have seen lower aggregate exit values than Q3 2016.

Venture Capital Deal And Exit Activity

Other Key Venture Capital Deals and Exits Facts:

  • Deals by Region: With global deal value falling sharply, it is unsurprising that all regions saw declines in deal flow in Q3. North America saw the greatest level of activity, with 784 deals worth a combined $13bn, while Greater China recorded 476 deals, worth an aggregate $7bn.
  • Deal by Industry: Internet-related deals attracted the greatest level of capital through Q3, representing 23% of total deal value. The telecoms industry was the second most prominent industry through the quarter, representing 17% of aggregate value.
  • Investment Stages: A third (33%) of VC deals were made at the angel or seed stage in Q3, with an average value of $1.8mn, 18% higher than the average seen in 2015. A further 28% of deals were made at the series A stage, with the average value of these deals rising by 10% compared to last year.
  • Exit Types: Trade sales generated the majority of both the number of exits (76%) and total exit value in Q3 (78%); 172 exits of this type were made for an aggregate $9bn. There were just 22 venture-capital backed IPOs in the quarter, worth an aggregate $1.6bn.
  • Exits by Region: North America saw by far the most active exit environment through Q3, with 134 exits made for a combined $10bn, 84% of the aggregate global exit value. Europe accounted for a fifth of the number of exits made through Q3, despite seeing a total exit value of just $0.9bn.
  • Largest Deal and Exit: Uber Technologies, Inc. represented the largest deal announced in Q3, with a $1bn financing from Didi Chuxing. The largest venture capital-backed exit in the quarter was the $3.3bn sale of Jet.com to Walmart.

Venture Capital Deal And Exit Activity

Comment:

“The venture capital industry has experienced a period of rapid growth in global deal flow through the past few years, and 2016 remains on track to be a record-breaking year. As such, one relatively quiet quarter of deal activity will not be overly concerning for industry participants, with investors maintaining their appetite for venture capital and fund managers looking to capitalize on the rapidly developing Asian market.

However, deal valuations and the exit environment remain long-standing concerns in the venture capital space. The influx of capital into the asset class has seen competition in the deal-side landscape intensify, so fund managers are having to work harder than ever to find attractive investment opportunities and make their exits. As the year comes to a close, participants will be hoping that activity rebounds to rival the levels of activity seen in the latter stages of 2015.”

Felice Egidio – Head of Venture Capital Products, Preqin