Venture capitalists’ money is flowing into U.S. technology companies at the highest rate since the dot-com boom, aimed at finding the next big thing — yet there doesn’t seem to be a bubble in sight, say VCs and research firm PitchBook.
Venture capital firms in the United States dished out $84 billion to 8,000 technology startups and companies in 2017, the highest amount of capital seen since the early 2000s, according to an annual industry report from PitchBook and the National Venture Capital Association.
The amount of invested venture capital has seen a near-consistent rise since 2009 and more than doubled since 2012 — though venture capital dipped in 2016 to $72.4 billion from $79.3 billion in 2015, according to Bloomberg.
Although VC investment came roaring back in 2017, PitchBook and the National Venture Capital Association see a healthier environment today than when many venture capital firms lost their money as the dot-com bubble burst. One reason is that most of the $84 billion last year went to large, high-value companies with an established customer base, rather than risky, early-stage startups, they said.
The ride-hailing platform Lyft and the shared-office business WeWork secured some of the largest venture capital funding 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, some venture capitalists did not associate the growing number of investments in established companies as a sign of the industry thriving.
“That number is not indicative to the innovation that is going on anymore,” said Steve Blank, a longtime Silicon Valley venture capitalist and lecturer at Stanford and UC Berkeley.
Meanwhile, venture capital firms are not reaping returns as fast as they once did. More venture-backed companies are deciding to stay private. The number of companies exiting through either an initial public offering (IPO) or an acquisition 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 today need more patience — and deeper wallets.
The Japanese conglomerate SoftBank, with 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.
Softbank’s Vision Fund — backed by Apple, Qualcomm, the sovereign wealth fund of the United Arab Emirates and the public investment fund of Saudi Arabia — in the American technology industry has been a game-changer in 2017. Unlike other venture capital firms, which seek to invest in companies with big potential, Softbank is more focused on buying market segments, according to Blank.
“It’s an 8.0 earthquake for the growth stage,” said Menlo Ventures Managing Director Venky Ganesan. “The Vision fund is like the Godfather — they make offers you cannot refuse.”
Excluding Softbank, other 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’s 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.
