Inside the September 2017 edition of the PitchBook PlayBook—our second-ever magazine—is a collection of our most popular reports, original datagraphics, feature articles and more that paint a portrait of the most important trends in VC, PE and M&A.
- Fund of funds Business Keeps Dying
- Baupost Letter Points To Concern Over Risk Parity, Systematic Strategies During Crisis
- AI Hedge Fund Robots Beating Their Human Masters
Key topics include unicorns, the decline of brick-and-mortar retail, Amazon's unstoppable growth and the rise, fall and rise again of private markets over the past decade:
10 years of highs, lows and everything in between
A letter from the CEO John Gabbert
"The private markets have since regained their momentum and are now much larger, more global and substantially more sophisticated than they were when we first started building PitchBook ten years ago."
A decade ago, while working at a venture capital data provider, I heard from countless private equity investors and advisors that they didn’t have a data source that completely covered the private markets and companies to an adequate level. It wasn’t because they were failing to conduct thorough research or due diligence, but rather, the data they needed simply didn’t exist or was too hard to find. There had to be a better way. So, we started PitchBook. The goal has always been for our customers to be able to make smarter decisions with world-class data and research. It turns out, while doing that, we had a front-row seat to one of the larger paradigm shifts in recent market history with the significant flows of capital away from the public markets and into the private markets.
Turning back the clock ten years, as we were just preparing the launch of PitchBook, the financial markets were about to hit serious turbulence. In fact, we almost could not have timed it worse. Venture capital and private equity investment had rebounded from "The private markets have since regained their momentum and are now much larger, more global and substantially more sophisticated than they were when we first started building PitchBook ten years ago." the dotcom bubble and were beginning to reach new heights, but then the world quickly changed as the Great Recession hit. The day we actually launched the first version of the PicthBook Platform was one of those early massive market drop days in 2008 that signaled all was not well. I still remember pitching to investors as Lehman Brothers filed for bankruptcy, and two weeks later our Seattle hometown bank, Washington Mutual, went under as well. I was met with more than 200 “no thank yous” as I struggled to convince investors that a financial information product, let alone one focused on private equity, was a product people would buy. But we were ‘all in’ so with failure not an option we put a strong focus on our customers’ needs and weathered the storm.
The private markets have since regained their momentum and are now much larger, more global and substantially more sophisticated than they were when we first started building PitchBook ten years ago. It’s been exciting to see so many new developments, including the rise of unicorns, the emergence of mega investment funds and the record multiples and valuations we’ve seen in PE recently, and it’s been a fun challenge to track and cover these in our database and through our content so that our customers can get the insights they need as these markets continue to evolve.
Throughout the rise, fall and resurgence of the private markets, PitchBook has helped industry professionals discover new opportunities, make informed decisions and gain insight into this exciting, ever-evolving landscape. Join us as we look back on the last decade of changes and look ahead at what’s to come.
Founder and CEO
A decade of venture capital
An era of excess
Venture activity has moved well beyond levels reached before the global financial crisis over the past few years. Overall deal count has slipped since the high of 2015, but the industry is still moving through an era of outsized financings and high valuations. Strong fundraising years have left the industry with more dry powder than ever before, leading many companies down a longer private path, pushing out potential exits.
US venture investment activity is firmly in the middle of a self-correction period. Signs of this normalization began in the second half of 2016 after investment levels peaked between 2014 and early 2016. While on the surface this leveling off, particularly at the early stage, may give pause to some, those immersed in the industry on a day-to-day basis welcome this news as a healthy return to steadier investment after several years of froth. With valuations subsiding, the industry is witnessing a back-to-the-future moment to some degree as trendlines point toward a healthy venture ecosystem.
In the first half of 2017, 3,876 venture-backed companies raised $37.76 billion in funding, with $21.78 billion deployed to 1,958 companies in the second quarter alone. 2Q marked an uptick from 1Q totals in terms of capital raised, though the overall number of companies receiving investment remained relatively stable. The divergence stems from the high number of mega-financings that happened during the quarter. The top 10 deals alone accounted for $4.3 billion in deal value, representing 19.6% of total dollars invested during the quarter, and 34 financings were completed of at least $100 million. While there have been fewer deals across all stages of investment, the decline has been the most acute at the angel and seed stage, which has also correlated to a drop in first-time funding rounds. Many venture investors are seeing this first-hand, as they report that most of the promising companies they have recently evaluated have been at the Series B, C, and D stages and fewer at the angel, seed, and Series A stages, likely an effect of the influx of companies at the early stage that received funding in 2015 and 2016.
Looking ahead, capital invested is unlikely to drop off given that venture funds have raised $130 billion since 2014. Investors are mindful of approaching the five-year window in which deploying capital is a priority given the venture fund life cycle. While overall 2017 venture fundraising is off pace slightly from 2016 in terms of closed vehicles, first-time fundraising has been a bright spot. 15 first-time funds have closed on a combined $1.5 billion, on pace for the highest annual capital raised in the past decade.
While investors balance deploying recently raised capital, their existing portfolio companies continue to grow and scale, and exit paths remain top of mind. After a slow start this year, the IPO market for venture-backed companies picked up steam in 2Q, bringing the 1H total to 27. There’s optimism of a strong year ahead for venture-backed IPO activity on the heels of five unicorn IPOs through 2Q and a strong pipeline of companies in the registration process, including real estate platform Redfin and security provider ForesScout, which has reportedly filed confidentially. The