Inside The Global Q2 2018 Venture Market: New Records And Titanic Late-Stage Rounds

Jason D. Rowley jason_rowley

We’ve made it to the second half of 2018, and there is money everywhere.

Based on projections from Crunchbase, Crunchbase News reports that global venture capital activity has once again set post-Dot Com records. Specifically, deal and dollar volume blew past last quarters’ highs, propelled by an upswing in late-stage venture capital investments and an Asian venture market at full boil.

Follow Crunchbase News on Twitter & Facebook

In this report from Crunchbase News, we’ll cover these milestones and more as we venture deep into what the world’s private-market startup and tech investors did in Q2 2018. Here, using data and projections from Crunchbase, we’ll cover both sides of the venture market: Money In and Money Out.

In the Money In section, we will cover Crunchbase’s projections of how—and how much—the world’s VCs invested in Q2 2018. We’ll then evaluate how that result compares to both Q1 and Q2 2017. Accordingly, we’ll get some perspective on sequential quarter and year-over-year performance.

In the Money Out section, we’ll review acquisition statistics and highlight other notable liquidity events, including the thawing market for technology IPOs.

To help you digest this report, each section will contain a bullish and bearish key finding. Without further ado, let’s dive in.

Money In

Bullish Key Finding. Once again, Crunchbase projections indicate that, in Q2 2018, venture deal and dollar volume surpass last quarter’s totals to set new post-Dot Com records. This was spurred on by gains in seed-stage deal volume and late-stage dollar volume.
Bearish Key Finding. With tens of billions of dollars in new venture capital pouring into private technology companies, we’re in awe of the size of these deals. But, simultaneously, we’re left scratching our heads as we wonder not if this climate is sustainable (it isn’t) but when and how it will go about slowing down.

An Overview of The Venture Capital Landscape

The past three months have been characterized by rounds denominated in the hundreds of millions of dollars, a raft of new billion-dollar venture funds, more unironic love of unicorns than a book of Lisa Frank illustrations, and a spring fling with scooters and bicycles that’s due to extend into the dog days of summer.

Try to remember: this is not normal and this too will die down when the punch bowl gets taken away. Until that happens, though, party on.

From the outside, the venture investment market may look like a real raucous shindig; however on the inside, only a few groups are responsible for most of the rowdiness.

When it comes to fundraising, Chinese startups, taken collectively, are the middleweights who throw a heavyweight punch. Accounting for just 17 percent of all reported venture funding rounds, Chinese startups took down 47 percent of total reported VC dollar volume in Q2. This includes a preposterously large $14 billion Series C round raised by Ant Financial. (To learn more about reported data, check out the Methodology section at the end.)

Late-stage startups are the older folks at the party. There aren’t many of them, but they make considerably more money and seem to have an insurmountable head start compared to everyone else. Still though, they’re not above asking for money to bankroll big dreams.

According to projected data from Crunchbase, late-stage companies were involved in just seven percent of Q2’s venture investment deals but received a staggering 64 percent of the capital. (To learn more about projected data, and how we categorized the different funding stages, check out the Methodology section at the end.)

But what’s spiking the punch? It’s a combination of fresh animal spirits and old standby geopolitical conditions.

Older factors first:

Global interest rates remain fairly low, even as some large economies approach full employment. In other words, money is still pretty cheap, a condition that favors risk capital.
Despite deepening political divides in the world’s democracies, and autocrats vying to expand their power, these domestic issues didn’t really overflow into international economic relations until the latter bits of Q2.
The IPO window remains very much open for tech companies looking to debut on public markets.

Newer and emerging factors:

Since it started investing in May 2017, SoftBank’s $100 billion Vision Fund continues to bend the curve of late-stage dealmaking toward larger checks and accelerating the seed-to-unicorn funding timeline.
The United States is taking an increasingly hostile approach with economic trading partners, and its government may seek to limit cross-border investments.

To see how these phenomena may manifest themselves, let’s dive into the numbers.

Global Funding Activity: A View From Cruising Altitude

This section is a high-level look at the state of the market. We’re going to examine both the overall size and number of deals struck in the second quarter of 2018. After this 30,000-foot view, we’ll break these statistics down by stage.

Pace of Dealmaking

By looking at the pace of venture capital dealmaking, we’re able to get a feel for how fast (or slow) the market is moving. Projections from Crunchbase suggest that more deals were struck in Q2 2018 than in any prior quarter since the collapse of the Dot Com bubble. At current pace, global deal volume in 2018 is set to far exceed 2017’s record-breaking totals.

Up 19 percent from Q1’s levels, overall deal volume grew faster than any other period since Q1 2015.

Although it’s difficult to discern from the chart above, deal volume is breaking out of a merely linear growth pattern. The rate of change is growing, too, leading overall deal volume to grow larger at an accelerating rate, at least for the time being.

As we’ll see in later sections, much of this growth is attributable to a global spike in seed and early-stage dealmaking.

Projected VC Dollar Volume

As we alluded to earlier, global VC dollar volume in Q2 also set a post-Dot Com record. Although seed and early-stage drove growth in deal volume (mostly because those two stages account for a surpassing majority of the deals struck in any given quarter), the chart below shows that late-stage deals are responsible for much of the growth in venture dollar volume.

Crunchbase data indicates that the amount of money invested through the first half of 2018—a projected $175 billion so far—already exceeds annual totals from the years between 2002 and 2016. 2018’s funding totals are on track to exceed 2017’s total—approximately $212 billion, according to Crunchbase’s projections—by a large margin, provided that momentum keeps up.

Although dollar volume grew across all funding stages since Q1, most of the growth came from late-stage deals. At a projected 64 percent of total dollar volume this quarter, late-stage companies account for the largest share of quarterly dollar volume since at least Q3 2013, and likely further back than that.

A quarter-over-quarter change of 26 percent is the biggest such jump in aggregate dollar volume since Q2 2017.

Most Active Lead Investors

Now let’s take a look at which venture investors are leading the charge by leading the most rounds.

Here, we analyzed reported venture capital round data in Crunchbase from Q2. For most deals, Crunchbase lists at least one investor involved with any particular round, and many of those investors are designated as leads or participants. From the set of seed, early-stage, and late-stage rounds we analyzed, we identified 2,369 individual and institutional investors who led at least one round out of a pool of 5,832 unique investors involved in at least one venture round from the past quarter.

Here are the most active lead investors from Q2.

Keep in mind that this is based only on reported data for deals currently listed in Crunchbase, which is subject to change as new deals and investors are surfaced over time. That said, the general rankings are unlikely to shift all that much.

Stage-By-Stage Analysis of Q2 2018’s VC Funding Trends

Now that we’ve had the chance to assess the market in broad strokes, let’s get a bit more fine-grained.

In the following section, we’ll take a look at funding activity within each stage of the startup funding cycle. As we’ve done in prior quarterly reports, we’ll start “close to the metal” by analyzing angel and seed-stage backing and then move up the stack from there.

Angel And Seed-Stage Deals

The first round of outside funding may be the smallest investor check a startup will cash, but it’s typically the hardest to raise. Startups and investors alike paid little heed to those hard facts in Q2, which, according to projections, is a new high-water mark in angel and seed-stage deal and dollar volume globally.

You can find a chart of angel and seed-stage deal and dollar volume below.

Angel and seed-stage investment activity made up 61 percent of Q2 ‘18 deal volume but just four percent of total dollar volume, roughly in line with prior quarters’ totals. Although deal and dollar volume are both up, growth in deal counts leads the way.

Let’s take a look at how the size of angel and seed-stage deals changed over the past year.

Reported data from Crunchbase indicates that mean and median round size grew since the prior quarter—to the tune of 8.3 and twenty percent, respectively. Relative to the same period of time last year, angel and seed-stage deals are larger as well. This will be a running theme throughout this report, barring a few exceptions.

So which investors were the most active in the scene? In Q2’s funding rounds data, we identified 2,325 unique investors involved in one or more angel and seed-stage deals last quarter. Here are the most active among them:

As is the case with prior quarters, many of the most active investors at this stage are accelerator programs and dedicated seed funds.

What’s interesting about this quarters’ ranking is its makeup. There are a lot of sector- and region-specific investors on this list. Here are some highlights:

Higher Ground Labs is a Chicago-based group founded in 2017 that invests in companies building technical infrastructure catering to progressive political campaigns and constituencies.
Start-Up Chile is a startup accelerator program created by the Chilean government in 2010. It works with Chilean founders and those who are willing to start and scale their businesses in Chile.
We covered Hiventures in our Q1 report. To recap: Hiventures is a state-sponsored venture capital firm based in Hungary. The organization offers a full suite of funding options, spanning the cycle from upstart acceleration to late-stage equity deals with companies based in Hungary or led by Hungarian entrepreneurs.
Innova Memphis, as its name suggests, is a Memphis-based firm which invests in primarily seed and Series A rounds raised by companies in life sciences and agriculture. Crunchbase News mentioned Innova Memphis in our profile of Southern startups and investors from March.
Innovation Works was founded in 1999 and primarily invests in companies based in Pittsburgh and elsewhere in southwestern Pennsylvania.
Berkeley SkyDeck Fund is the investment arm of an accelerator program at the University of California Berkeley of the same name. The program invests $100,000 in startups founded by Berkeley alumni, students, and faculty.

Early-Stage Deals

Early stage (Series A, Series B, and other venture rounds sized between roughly $1 million and $15 million) is when we start talking about real money. Underscoring that, early-stage deals represented about 32 percent of overall deal volume and 29 percent of dollar volume in Q2.

According to projections from Crunchbase, worldwide early-stage deal and dollar volume also set post-Dot Com records. Here is the data for Q2 and the preceding four quarters.

As was the case with seed, early-stage activity is up relative to Q1 2018 and the same period of time last year. Quarter-over-quarter growth is once again led by deal volume. Also note the significant increase in dollar volume relative to last year, an additional $7.6 billion, according to Crunchbase projections.

To see what might be driving the rather modest quarterly growth in dollar volume, let’s check out the average size of early-stage funding rounds over time.

Early-stage deal size presents one of the few cases of sequential quarterly declines in this report. Reported data suggests that the only reason projected early-stage dollar volume grew is because the uptick in round counts was sufficient to offset modest average and median deal size shrinkage from last quarter. Despite this, relative to the same time last year, early-stage deals are still notably larger.

Which firms are the most active early-stage dealmakers? Below you can find the investors involved in the most early-stage deals in Q2, which we identified out of a pool of 2,641 individual and institutional entities from around the world.

As was the case in Q1, an increasing number of the world’s most active early-stage investors are based in China or invest primarily in Chinese startups. Out of the fourteen firms listed above, six are Chinese:

Note that Matrix Partners China raised $750 million for its fifth flagship venture fund, which was announced in late June. One day prior, Sequoia Capital China filed paperwork for three new funds: Sequoia Capital China Growth Fund V, L.P., Sequoia Capital China Venture Fund VII, L.P., and Sequoia Capital China Seed Fund I, L.P.. It’s still uncertain how big, exactly, the venture and seed funds will be, but prior reporting indicates the China-focused growth vehicle could be between $1.6 and $1.8 billion in size.

Given the new capital flowing into these entities, it’s likely that many of the funds listed above will remain active into the coming quarters.

Late-Stage Deals

If a startup doesn’t fail, get bought, go public, or otherwise stop raising capital after Series B, then it graduates to join the ranks of late-stage ventures. And, as we alluded to earlier, it’s late stage where most of this quarter’s excitement lies. Why? Late-stage deals are driving most of the dollar volume growth and, like earlier stages of funding, are setting post-Dot Com records for aggregate counts and cumulative size of transactions.

Here are the numbers.

It’s difficult to overemphasize how late-stage venture investment activity is driving current market conditions, and it’s mostly because of the rapid pace of growth. Crunchbase projects that a staggering $16.4 billion in additional capital was invested in late-stage deals in Q2 as compared to Q1, though part of that is no doubt attributable to that $14 billion Series C round raised by Ant Financial we mentioned earlier. Still though, late-stage dollar volume in Q2 2018 is more than double its levels from Q2 2017. And while late-stage activity has consistently represented about seven percent of deal volume over the past four quarters, it makes up a growing proportion of dollar volume. For perspective, late-stage rounds accounted for about 42 percent of dollar volume in Q2 2017. Late-stage rounds made up 64 percent of dollar volume in Q2 2018.

Consistent, if incremental, growth in deal volume may make up part of the gains in dollar volume, but deals have grown larger over time, too.

The average late-stage deal is not quite double what it was a year ago, but it’s pretty close. Average deal size is up nearly a third since last quarter alone. Besides that Ant Financial round, here are a few other rounds which bumped averages higher:

In June, Singaporean ride-hailing service Grab snagged $1 billion in a Series H round from Toyota Motor Corporation and Microsoft co-founder Paul Allen’s family office Vulcan Capital. This came just over a month after Uber sold its Southeast Asia operations to Grab.
Lyft raised $600 million in a Series I round led by Fidelity Management & Research Company. Crunchbase News covered that round as news broke in June.
In the alternative transportation sector, Shanghai-based Hellobike raised over $1 billion in Q2, according to Crunchbase data. The first chunk came through in April in the form of a $700 million Series E round co-led by Ant Financial and Fosun Group. Just two months later, in June, Ant Financial invested an additional RMB2.06 billion ($321 million) in Hellobike in a Series F deal that valued the company at $1.47 billion post-money.
In a similar vein, Crunchbase News covered the $300 million Series C round which valued scooters-as-a-service provider Bird at $2 billion post-money.
Bike companies weren’t the only ones raising over a billion dollars last quarter, though. SenseTime, a Beijing-based computer vision company, raised over $1.2 billion in Q2. The first part of its Series C round, some $600 million, was announced in April. On May 31, SenseTime announced it extended its Series C round by another $620 million. The second transaction values SenseTime at over $4.5 billion, according to Crunchbase data.

Collectively, these rounds helped bump up global averages. But, as a group, late-stage rounds are creeping ever-larger, as evidenced by growth in median deal size. It’s not just a matter of outlying giants goosing the average.

Let’s see which investors were the most active in this growing pool of late-stage capital.

There aren’t any major surprises here. Like in previous quarters, the most active late-stage investors are older, more established firms, which are able to raise lots of capital and invest it in these growing mega-rounds.

Technology Growth Deals

Long-time readers of Crunchbase News’s quarterly reports may remember that “technology growth” is a bit of a strange stage to cover.

Starting in our Q4 2017 Global report, Crunchbase News worked with the Crunchbase team to re-define the technology growth stage. Prior to that report, technology growth rounds were defined as “any ‘private equity’ round in which a ‘venture’ investor participated.” The new working definition, which we’ve adhered to since Q4 2017, is “any ‘private equity’ round raised by a company which has raised ‘venture’ funding (like a seed round, or a Series C, for example) in its prior round(s).”

Just like in prior quarters, tech growth investing activity is kind of all over the place, as you can see in the chart below.

Although the projected number of technology growth deals, and the amount of money invested in them, both rose since last quarter, it’s become a less important class of deals over time as deals shrink in size.

Though technology growth deals—as currently defined—are fewer and farther between, there were still a number of notable deals from Q2. Here’s a selection:

Rover, the Seattle-based pet boarding marketplace, raised $125 million in a private equity round led by T. Rowe Price. Prior to that infusion of capital, Rover had raised nearly $186 million in prior equity and debt financing rounds.
L Catterton, a large consumer-focused investment firm, invested $200 million in a private equity deal with The Honest Company. The Honest Company was co-founded by Jessica Alba in 2012 and raised $303 million in prior funding from the likes of IVP, Lightspeed Venture Partners, General Catalyst, and ICONIQ Capital to develop and grow its natural baby and home products lines.
WeddingWire, an online marketplace for engaged couples planning weddings based in Chevy Chase, Maryland, raised $350 million in a private equity deal led by European PE firm Permira. Permira acquired a majority stake in WeddingWire through the transaction. WeddingWire raised a reported $31.1 million up through Series B from investors including Martha Stewart Living, prior to the PE deal with Permira.

With so much variability from quarter to quarter, and a relatively small number of transactions, it’s difficult to make more claims about technology growth rounds. But it’s fair to say that deep-pocketed PE investors may have less luck getting into deals as venture firms continue to raise bigger funds to bankroll late-stage bets.

And with that, we come to the end of this quarter’s look at venture investment around the world.

Money Out

Bullish Key Finding. The IPO window remains open, and public market investors are increasingly willing to entertain non-standard listing arrangements if, like Spotify, companies are well-known and on reasonably sound economic footing.
Bearish Key Finding. The recovery in deal volume for venture-backed M&A deals we got excited about in Q1 was cut short as deal volume declined at its fastest quarter-over-quarter rate in years.

Venture-Backed Acquisitions

We spent a great deal of time in earlier sections looking at the “input” side of the VC investment equation, but no assessment of the market would be complete without a look at the output as well.

It’s important to remember that stock in privately-held companies like tech startups is treated very differently than shares traded on an open market like the New York Stock Exchange. For a bunch of legal reasons not worth getting into here, there are plenty of barriers around buying private company stock, but even more around liquidating a position.

Mergers and acquisitions (M&A) is one of two primary ways individual angels and professional venture capitalists get their money back (and hopefully more than they initially put in). The chart below shows reported M&A deal and dollar volume in Q2 2018 and the four prior quarters.

Much like with technology growth-stage investments, dollar volume can vary wildly. Just like there isn’t a one-size-fits-all private equity investment round, there isn’t much uniformity in the world of M&A deals either.

This is why, in prior reports, we’ve focused on deal volume and its ebbs and flows. And, to be honest, it’s trended more toward ebbs over time. Last quarter, we noticed that venture deal volume may have turned the corner on a years-long downtrend stretching back to Q1 2016. But, alas, with the biggest reported quarter-over-quarter drop in deal volume since at least Q1 2015, those hopes are dashed for now.

This isn’t to say that there haven’t been many big or otherwise remarkable M&A deals in Q2. It was a good quarter for a number of venture-backed companies, as we can see in our ranking of the largest mergers and acquisitions.

The ecommerce and career service sectors were particularly lively last quarter. Ecommerce giants continued to use M&A to further expand their scope and consolidate market dominance.

Reports indicate that Amazon has been interested in the healthcare market for some time now, but its billion-dollar buyout of mail order pre-packaged prescription pharmacy service PillPack at the end of Q2 was among the company’s most concrete forays into the market to date. The move led shares of publicly-traded pharmacy chains like Rite Aid, Walgreens Boots Alliance, and CVS Health to shed $11 billion in market value when the deal was announced on June 28th, according to a CNBC report. Amazon’s market capitalization jumped $19.8 billion that day.

Separately, Walmart won the bidding war for Indian ecommerce company Flipkart, which, at $16 billion, was the largest M&A exit of a venture-backed tech startup since Facebook acquired WhatsApp for $19 billion in February 2014. Also last quarter, for $1.68 billion, Adobe bought Magento Commerce, a hosted ecommerce platform akin to Shopify, as the creative toolmaker fleshes out its Experience Cloud offering.

On the career services front, HR and workforce solutions conglomerate The Adecco Group bought out General Assembly—a provider of online and in-person instruction in fields like data science, software development, and design—for $413 million. Glassdoor, the website where you can compare employers and sift through self-reported salary data, was acquired by Tokyo-HQ’d Recruit Holdings for $1.2 billion.

But perhaps the biggest story in the recruiting and professional development sector is Microsoft’s $7.5 billion buyout of software version control and collaboration platform GitHub. Although there’s no immediate indication Microsoft intends to marry LinkedIn data or functionality (which MSFT acquired in 2016 for $26.2 billion) with GitHub—a service which many software developers use as their de facto resume—the potential for Microsoft to build the one developer recruiting solution to rule them all may prove difficult to resist in the future.

Let’s see what’s going on at the other side of the liquidity pool.

Initial Public Offerings

Initial public offerings are the second primary way venture investors get to cash out their positions.

The good news for investors and founders alike is that the IPO window remains very much open. Here are some of the biggest public market debuts from Q2.

At the end of April, ReCode observed that, at that point in the year, 2018 had twice as many initial public offerings as the same period of time in 2017. And given the number of S-1 filings and first trades Crunchbase News has covered this quarter, we’re willing to bet that that trend kept up through the end of the second quarter.

Barring total calamity, the past two quarters’ momentum is likely to keep up through the latter half of the year.

Conclusion

The first half of 2018 winds goes out with a bang.

With post-Dot Com highs at fresh levels, billions of dollars flowing in from limited partners to bankroll new funds, and an accelerating rate of growth in many markets, it would seem that everything is coming up Milhouse.

This being said, all fun times must come to an end eventually. The current climate of late-stage largesse and general ebullience in the market raises some important questions about sustainability and long-term value appreciation prospects.

Q3 is likely to be a pivotal quarter in this current bull run. We’ll have to wait and see what’s going to slow down this market, but it’s probably not at the braking point yet.

Methodology

The data contained in this report comes directly from Crunchbase, and in two varieties: projected data and reported data.

Crunchbase uses projections for global and U.S. trend analysis. Projections are based on historical patterns in late reporting, which are most pronounced at the earliest stages of venture activity. Using projected data helps prevent undercounting or reporting skewed trends that only correct over time. All projected values are noted accordingly.

Certain metrics, like mean and median reported round sizes, were generated using only reported data. Unlike with projected data, Crunchbase calculates these kinds of metrics based only on the data it currently has. Just like with projected data, reported data will be properly indicated.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to US dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs, and other financial events as reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of Funding Terms

Seed/Angel include financings that are classified as a seed or angel, including accelerator fundings and equity crowdfunding below $5 million.
Early stage venture include financings that are classified as a Series A or B, venture rounds without a designated series that are below $15M, and equity crowdfunding above $5 million.
Late stage venture include financings that are classified as a Series C+ and venture rounds greater than $15M.
Technology Growth include private equity investments with participation from venture investors.