$58 billion: That’s the number of venture capital dollars invested in 3,912 companies across the U.S. in the first half of 2018, according to VC and M&A database Pitchbook.
In Virginia specifically, more than $326.22 million was invested across 66 deals so far this year, which is down slightly from both the previous six months ($378.47 million across 77 deals) and the first six months of 2017 ($389.59 million across 70 deals). However, the $235 million raised in Q1, 2018 represents the third-most funding in a quarter since Pitchbook began reporting these numbers in 2013, trailing only 2017's Q1 ($270.68 million) and 2013's Q3 ($272.35 million).
While investing dipped a bit in Virginia, fundraising skyrocketed. In Virginia, firms and funds raised $3.56 billion in the first half of 2018, almost double the previous six months’ $1.34 billion and ahead of 2017's Q1 & Q2 by a whopping $1.5 billion. Venture trends suggest that, while funding slowed a little comparatively, the influx of capital will yield a return to growth in the near term in state.
It's also important to note that Pitchbook's data, while comprehensive and market-leading, can sometimes be incomplete as a result of how deals are structured, categorized or filed. The above and below figures reflect what's captured by Pitchbook and not necessarily every single in-state investment.
Analyzing the first half of the year's venture data, let’s take a look at several other national trends and how Virginia fits into them.
Image Courtesy: Pitchbook
Angel/Seed Funding
When it comes to seed funding, deal sizes have gotten larger and are 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. In Virginia, MarginEdge, Fractal Industries and CareTake Medical, three startups that raised seed and early-stage rounds this year, were founded in 2015, 2015 and 2014 respectively, in line with national trends.
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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. Virginia was slightly below this curve, represented by Social SafeGuard and Somatus both raising $11 million Series Bs.
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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.
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.
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Exits/IPO
Nationally, this year has been remarkable for companies debuting with a public offer. In the Mid Atlantic, the region saw nearly $4.045 billion generated across 73 exits, with eight coming from Virginia.
Corporate VC
Thanks to the passage of U.S. tax reform in late December of 2017, corporates have turned into venture capitalists. A reduction in the U.S. 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.
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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.
Full disclosure: measuring startup funding is a fickle task due to the timing of reporting with the Securities and Exchange Commission and because of how different VC monitoring groups gather information and categorize fundings. Additionally, deal flow in the first half of the year isn’t necessarily a yardstick for what happens in the second half.
Additional reporting from Katherine Davis and Will Flanagan
