$58 billion: That's the number of venture capital dollars invested in 3,912 companies so far in 2018.
In Massachusetts specifically, $6.1 billion was invested in 311 deals so far this year. The US venture capital ecosystem is shifting shape and the new normal is one where capital is concentrated into fewer, larger deals. The Boston area saw a bunch of these including Scout Exchange and Xebia Labs, which raised $100 million each.
More than 20 percent of total VC financing -- or $11.8 billion in 2018 -- was invested in VC-backed unicorns. Boston area unicorn startup Moderna Therapeutics, valued at $7 billion, raised $500 million in February, and Circle, valued at $3 billion, raised $110 million in a Series E round in May.
Angel/Seed Funding
When it comes to seed funding, deal sizes have gotten larger dominated by two trends -- the emergence of pre-seed financing and the median age of startups. In Q2 2018, the median age of a company in the angel and seed stage rose to 3.11 years, up from 2.4 years in 2017, allowing for more time to develop successful business models and increase valuations.
Early-stage
It’s not only angel and seed rounds that have gotten bigger. Early-stage deals have increased in value, too — deals over $25 million now make up more than 50 percent of 2018 early-stage deal value.Furthermore, the median amount of capital raised by companies at the Series A and B level has shown a steady growth pushing the median at Series A to $11.3 million and Series B to $29.3 million, representing a greater than twofold increase from 10 years ago, further illustrating the extreme shifts even at the early stage.
Late-Stage
As mentioned earlier, late-stage deals have been getting a lot of attention. Another emerging trend is the increased activity by private equity (PE) investors as a result of increased competition in PE coupled with maturing venture-backed companies. VC financings with participation from a PE firm accounted for 30 percent of total deal value. In Boston, Warburg Pincus led the $60M Series D round raised by BitSight.
So far, $15 billion has been invested into 475 late-stage deals representing a remarkably steady volume of deals at the late stage. As investors retain their demand for developed businesses in the private markets, valuations have gotten loftier -- valuations at the late stage in Q2 2018, which extended to $278 million—24 percent higher than 2017's.
Exits/IPO
This year has been remarkable for companies debuting with a public offer. Massachusetts alone has seen 32 VC exits so far, dominated by biotech companies. As of July, 13 biotech companies headquartered in the Bay State had successfully gone public, raising a combined $1.3 billion. The previous record for total raised occurred in 2014, when 17 local drug developers generated a total of $1.2 billion. These include Neon Therapeutics, a Cambridge-based cancer drug startup that sought upwards of $115 million and Lexington-based Translate Bio that was also hoping to raise up to $115 million by listing its shares on the Nasdaq market.
In terms of exits via acquisitions, S&P Global buying machine-learning startup, Kensho for $550M was a significant one.
Corporate VC
Thanks to the passage of US tax reform in late December of 2017, corporates have turned into venture capitalists. A reduction in the US corporate tax rate from 35 percent to 21 percent has been a boon for firms’ free cash flow (FCF), providing corporations with additional capital to direct into CVC investments. Software and life sciences sectors continue to receive increased focus from CVCs.
Together, software and life sciences have received 62 percent of CVC deal count in 2018 so far. For instance, Lockheed Martin responded to the tax reform by increasing dedicated CVC capital by $100 million and invested in Mythic, a local artificial intelligence platform. Some prominent CVCs include GE, Boeing, Honeywell and Lockheed Martin. Defense companies especially have stepped up their investment game seeding a range of startups making new drones to batteries.
