Make no bones about it: 2018 was one heck of a year for the global venture capital market, and the fourth quarter closed it out on strong footing. It was a year of superlatives: the most amount of money invested in the highest number of private tech company financing events on record; the largest venture capital deals in history; the rise and rise of supergiant venture rounds; and the elephantine funds that shake the market with every deal they make.
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This report from Crunchbase News will assess the state of the global venture capital market in the last quarter of 2018, and in the year as a whole. Like always, we’ll do so primarily through the lens of data.
We will cover Crunchbase’s projections of how—and how much—the global venture capital ecosystem invested in Q4 2018 and throughout the year as a whole. We’ll then evaluate how that result compares to both Q3 2018 and Q4 2017, giving us perspective on sequential quarter and year-over-year performance. (More about how those projections are calculated, and how rounds get classified into stages, can be found in the Methodology section at the end.)
IPOs and M&A will be covered in a separate report to be published following this one.
Before getting into the thick of Crunchbase News’s global investment report, here’s something to whet your appetite.
2018: Last Year In Three Charts
In 2018, venture capital got bigger and continued to expand globally.
Crunchbase News documented an emerging trend in VC: the tendency for some companies to raise $100 million or more in a single round of outside funding. Just like supergiant stars shine brightest and stretch the fabric of space and time, supergiant venture rounds of $100 million or more dominate the headlines and bend the fundraising curve for founders and investors alike.
In the chart below, we’ve plotted the count of reported supergiant venture rounds in 2014 through 2018, broken out by month. It looks like the July peak of over 60 supergiant deals remains the local maximum.
It’s easy to see that supergiant rounds have become more numerous. But what might be less clear, from the above chart alone, is just how much money these companies command. Below, we plotted the share of reported venture capital raised in supergiant rounds over that same timeframe, this time aggregating by quarter. (Note: this doesn’t account for money raised in deals from 2018 that are added to Crunchbase after publication.)
In all of 2018, over 56 percent of the reported capital raised by private tech companies was closed in supergiant venture funding rounds. Reported data in Crunchbase indicates that Q4 2018 was the most concentrated in years, with 61 percent of VC funding coming from nine, ten, and eleven-figure transactions.
Crunchbase News previously reported on the ratio of supergiant deals closed by China-based companies, as compared to their counterparts in the U.S. Back in August, U.S. and Chinese companies were basically neck-and-neck, but it appears as though China’s Q4 economic slowdown stymied growth in this metric. Reported data shows that U.S. companies raised 64 supergiant funding rounds in Q3 and 63 in Q4. According to reported figured in Crunchbase, Chinese companies raised 56 supergiant rounds in Q3, but just 39 in Q4. Meanwhile, companies based outside the world’s two largest economies raised 40 supergiant rounds in Q4, compared to 28 in Q3.
In the first and second quarters of 2018, Chinese VC dollar volume surpassed the United States for the first time. But international growth and a contraction in China put U.S. companies back at the top of the international ranks.
In Q4, China-based companies raised just over 21 percent of the reported funding during the quarter, relative to the 53 percent netted by U.S. companies.
It’s uncertain whether 2019 will (or even can) top 2018, but the globalization of VC is here to stay. At least for the time being, though, the status quo prevails: U.S. startups remain at the top of the global VC-raising heap.
- Bullish Key Finding. Full-year deal and dollar volume eclipsed 2017 by wide margins.
- Bearish Key Finding. On a quarter-by-quarter basis, venture funding activity appears to be leveling off or decreasing across some stages.
Pace of Dealmaking
If the last section felt like a salad course, here’s where we start the main dish.
The number of venture capital deals struck during a given period of time tells us how fast the market is moving. Q4 brought the pace down from ludicrous speed to merely insanely fast.
Note that these numbers are divided up by stage. A “stage” of funding is comprised of several types of rounds, classified according to a set of criteria defined by Crunchbase.
For example, “early stage” includes:
- Series A and Series B rounds (regardless of size).
- Venture rounds of unknown series, convertible notes, and rounds of undisclosed type, so long as they’re between $1,000,001 and $15,000,000 or USD equivalent (in the case of foreign currencies).
- Equity crowdfunding rounds between $5,000,001 and $15,000,000.
Collectively, those subsets are aggregated into a single stage. Similarly, seed and late-stage, as well as technology growth rounds, have their own set of classification rules. You can read more about those in the Methodology section at the end.
Crunchbase projects that a total of 8,607 venture deals were struck in Q4 2018 worldwide, down 3.55 percent from last quarter’s total of 8,924 deals.1 That’s off about 6 percent from Q2’s highs, which isn’t much by standards of this venture market, where bigger moves happen regularly. For example, total deal volume surged up 24 percent between the first and second quarters of the year.
It was, in part, that explosion in projected deal volume, led by angel and seed-stage, that propelled venture deal volume to such great heights in 2018.
With just over 34,000 deals projected for all of 2018, last year was the most active on record. Overall deal volume jumped by over 32 percent since 2017.
There’s an important note to make about these projections. When Crunchbase News pulled data for this report on January 1, 2019, Crunchbase had recorded a total of 21,865 deals for all of 2018. Based on historic patterns of venture deal reporting, Crunchbase’s projections try to compensate for the deals that have likely been struck but haven’t yet been publicly disclosed or added to Crunchbase. These projections are applied to the most recent Crunchbase’s projections indicate that slightly over 12,000 deals will be back-filled into 2018 over time. A lot of those will be angel and seed-stage deals, with are typically the slowest to be reported. More information about reported versus projected data can be found at the end of this report.
It’s easy to see that growth in deal volume was largely driven by angel and seed-stage deals. You’ll see why in a later section when we approach the market stage by stage.
Projected VC Dollar Volume
If deal volume is like a speedometer, dollar volume is better thought of as a pressure gauge. This measure of capital throughput tells us how companies (and their backers) view the market.
A market awash in cash points to both optimism (after all, investors believe their capital will earn a good return even at this late stage of the market cycle) but, also, a more competitive business climate. As industries develop and established players dig their trenches, it takes increasingly large amounts of money to get a leg up on the competition.
Crunchbase projects that overall dollar volume is up, once again, in the final quarter of the year. Data in the chart below is subdivided by stage.
Note that Crunchbase doesn’t incorporate the “Corporate Round” type into its projections. Accordingly, the $12.8 billion deal Juul signed with Altria in November 2018, which Crunchbase classifies as a corporate round, is not counted in the chart below.
A resurgence in late-stage venture funding drove the global market’s dollar volume totals higher in the final quarter of 2018. Crunchbase projects that roughly $91.4 billion was invested in Q4, up about 2.4 percent from Q3.
This rounds out two solid years of quarter-over-quarter growth. According to Crunchbase data, global dollar volume figures increased every quarter since Q4 2016. Zooming out to annual numbers for a moment, the results of that consistent growth become readily apparent.
In 2018, private companies raised over three times as much capital as they did just four years prior. Data in the chart below is broken out by stage.
On an annual timescale, all three main stages of venture funding saw major growth in dollar volume. (Money shifted out of technology growth-stage deals for reasons we’ll highlight later.) Growth in early and late-stage dollar volume drove most of the overall gains.
Here too we’d like to explain a bit how the projections were calculated. As of January 1, 2019, Crunchbase had recorded $293 billion in venture funding. However, Crunchbase projects that $48.56 billion worth of venture investment deals that occurred in 2018 will be added over time.
Recall that this is subdivided by “stage,” which includes more than neatly-labeled rounds following the typical “Series [sequential letter]” naming convention. Because they include rounds of unknown round series and unknown funding types, this “stage” definition is quite expansive.2 Crunchbase recorded $293 billion worth of deals in 2018 when aggregated by stage. By comparison, Crunchbase captured roughly $205 billion worth of neatly-labeled seed, angel, and rounds from Series A onward during the year. We report projections based on stage as it provides a broader look at the global venture market than what can be readily apportioned into neat buckets.
Most Active Lead Investors In 2018
In venture funding rounds with more than one investor involved, typically there will be one (but sometimes more) firm that invests the bulk of the capital and steers most of the negotiations in a given deal. Let’s take a look at which firms were the most active throughout 2018.
The chart below shows the investors which are reported to have led the most rounds. For most deals in Crunchbase with investor information included, the data designates which investors led a round, versus those which just participated or followed-on.
In the set of 2018 venture rounds, we identified nearly 6,800 unique investors which led a deal last year. Of these, here are the firms which led the most rounds.
Note that the above data is subject to change as more rounds get added to Crunchbase over time. There’s strong representation from the U.S. and China, and some representation for Chile (via Start-Up Chile) and the United Kingdom (by way of the Business Growth Fund). There is a very long tail of investors which led fewer than 33 deals in 2018, and that’s where more of the geographic diversity can be found.
Stage-By-Stage Analysis of Q4 2018 VC Funding Trends
In this section, we’ll take a look at each stage in turn, getting into the nitty-gritty details. As usual, we start “close to the metal” with angel and seed-stage deals.
For more about how Crunchbase classifies rounds by stage, check out the Methodology section at the end.
Angel And Seed-Stage Deals
What angel and seed-stage deals lack in size, they make up for in number. In Q4 2018, angel and seed-stage activity accounted for approximately 59 percent of all deal volume, but just five percent of total dollar volume. Those ratios are representative of 2018 as a whole. (More information about what types of rounds get counted in this stage can be found in the Methodology section at the end.)
Although 2018 as a whole was a year of phenomenal growth, Crunchbase projections indicate that things cooled down a bit in Q4.
Between Q3 and Q4, both deal and dollar volume declined somewhat. A pull-back is inevitable after a period of consistent growth. But, this being said, a contraction here may indicate increased caution on behalf of investors on the riskiest end of the capital pool.
But an end-of-year slowdown doesn’t do much to dent the annual numbers. According to projections from Crunchbase, approximately 20,250 angel and seed-stage transactions took place in 2018, a significant jump from 2014-2017—during which time aggregate seed-stage deal volume ranged between roughly 14,100 and 15,700 deals. Yearly totals for angel and seed-stage dollar volume also rose markedly. For the entirety of 2018, Crunchbase projections indicate that $14.94 billion was invested in seed-stage deals. That’s an over 50 percent increase from 2017’s total of $9.717 billion.
A good chunk of that growth can be attributed to increasingly large sums raised by angel and seed-stage ventures.
It’s not just deal and dollar volume that grew so significantly. Seed-stage rounds—which also include angel funding, pre-seed deals, and other funding types—grew larger over the course of 2018.
Crunchbase data included over 7,500 unique investors which led or participated in angel or seed-stage rounds last year. Here are most active among them.
There aren’t many surprises here in the overall makeup of this list, and it includes many different types of investors, all of which seek stakes in seed-stage startups.
Accelerator programs take most of the top spots; after all, it’s a model designed to deploy capital at scale. For example, Y Combinator’s “demo day” for its Summer 2018 batch featured over 120 companies, and its Winter 2018 batch had over 130 pitches. Techstars and 500 Startups run multiple sessions around the world every year. SOSV bills itself as “the accelerator VC.”
In addition to these, though, there are government-backed programs intended to kickstart innovation. Hungarian Hiventures Investment Fund, for example, continued investing much of the €182.3 million it raised across three funds in 2017. Start-Up Chile, which offers international entrepreneurs work visas and equity-free funding, ramped up again in 2018, after several quiet years. Add in university-based initiatives like the Berkeley SkyDeck Fund, an equity crowdfunding platform like Crowdcube, a few seed-focused funds, and that rounds out the basic set of institutional investors involved at this stage.
Of course, there’s also the largely incalculable amount of money solo founders and fledgling companies raised from individual angel investors and through informal “friends and family [and fools]” rounds. Those small but numerous transactions are difficult to track, but they no doubt add up.
Early-stage companies raise more money than their seed-stage counterparts. In Q4 2018, early-stage deal volume accounted for approximately 33 percent of all deal volume and 32 percent of total dollar volume. Those ratios are at the low end of 2018 as a whole. For example, a Q3 pullback in late-stage investment meant early-stage deals accounted for an even third of deal volume but 39 percent of dollar volume.
And like with seed-stage deals, there was a quarterly decline in dollar volume.
That’s because Q3 was extraordinary. Notice how dollar volume grew steadily by $2-4 billion, per quarter, over most of the past year—with the exception of the $7.2 billion jump from Q2 to Q3. Q4’s dollar volume results are a reversion to the mean. Deal volume is projected to be basically flat after a down quarter in Q3 but is still near historically high levels.
2018 was a record-setting year in early-stage venture. According to projections from Crunchbase, approximately 11,250 early-stage transactions took place in 2018, worldwide, another significant jump from 2014-2017. Yearly totals for early-stage dollar volume also went up. Crunchbase projections indicate that $117.65 billion was invested in early-stage deals over the course of 2018. That’s an over 57 percent upswing from 2017’s total of $74.9 billion.
There were certainly more deals in 2018, but they weren’t necessarily that much bigger than they have been in the immediate past.
Early-stage rounds are larger than they were a year ago, but by a narrower margin than seed-stage deals.
Over 8,500 unique investors contributed to early-stage funding rounds in 2018. And here are the most active early-stage investors, worldwide, in the last year.
It’s in these ranks that we start to see the increasingly dominant role China-based investors are occupying on the world stage. Many of the institutional investors listed above are either headquartered in China, or are investing capital from Chinese limited partners. Beijing-based IDG Capital—which this year saw portfolio companies Xiaomi, Pinduoduo, and NIO (among others) exit—tops out the annual ranks. China-based offshoots of U.S. venture capital franchises, like Sequoia Capital China and Matrix Partners China, struck more deals than their American counterparts. This is a material shift from 2017, when the only China-connected firm to crack the top ten rankings was GGV Capital, a cross-border firm with offices in the U.S. and China.
Late-stage reigned. In Q4 2018, late-stage deal volume accounted for just 7 percent of all deal volume, but 55 percent of total dollar volume. As previously mentioned, due to variation in market conditions this year, late-stage deal volume accounted for as much as 61 percent of dollar volume in Q2, and as little as 51 percent in Q3.
At least part of that quarterly variability can be accounted for by the enormity of the largest rounds at this stage. For example, the $14 billion Series C round raised by China-based Ant Financial in June remains the largest-ever venture capital transaction to date. That boosted Q2’s numbers significantly. Not all rounds need to be that gigantic to shift dollar volume results; a cluster of merely huge nine and ten-figure rounds can change the shape of the market. Q4 appears to carry on a steady upward trend in both late-stage deal and dollar volume.
Now let’s look at 2018 as a whole. According to projections from Crunchbase, approximately 2,330 late-stage transactions took place in 2018. That’s an over 40 percent jump from 2017’s projected total of just over 1,600 deals. Yearly totals for late-stage dollar volume rose. For the entirety of 2018, Crunchbase projections indicate that a staggering $192.2 billion was invested in late-stage deals, worldwide. Jumping over 80 percent, 2018’s late-stage deals hauled in nearly twice 2017’s total of $104.9 billion.
In 2018, more money was invested in late-stage ventures than the entire global VC market invested in 2016 (approximately $168 billion, total). Late-stage rounds are bigger now than a couple of years ago, but on the whole they haven’t grown much over the past several quarters.
Despite some movement on a quarterly basis, late-stage venture rounds are roughly the same size as they were during the same period in 2017 before the supergiant round phenomenon came to a head in the late summer of 2018.
More than 3,200 unique investors participated in late-stage venture deals in 2018. Here are the most active among them.
As with ranks of early-stage investors, international representation is strong here.
There are U.S. and Chinese funds, as well as Temasek Holdings, which is backed by the government of Singapore. The SoftBank Vision Fund is nominally led by Masayoshi Son, CEO of Japan-based SoftBank. Its main office is in London, but it’s legally domiciled in Jersey (that’s Old Jersey, a small island off Great Britain with convenient tax structuring). The nearly $100 billion Vision Fund invests capital from global technology giants like Apple, Sharp, Qualcomm, and Foxconn, as well as sovereign wealth from Abu Dhabi and, perhaps problematically, Saudi Arabia.
Many of the U.S.-based firms listed above have country-specific offshoots, expanding the scope of the global venture capital industry. Take Sequoia Capital, for example, which has subsidiary investment firms in India and China (each of which manages billions of dollars), on top of a possibly $8 billion global growth fund that Sequoia Capital is raising itself.
Also notable is all the corporate investors, which isn’t surprising considering how much corporate venture capital (CVC) grew over the past couple of years. Crunchbase News has covered several of these investors this year. We profiled Tencent and Alibaba’s investment efforts back in January. And in a profile of corporate venture capital (CVC) investments, Crunchbase News plotted out Goldman Sachs’s rise to the top of the most-active CVC charts.
Technology Growth Deals
Since Q4 2017, Crunchbase has defined technology growth rounds as the set of private equity deals raised by companies with prior venture backing. WeWork’s $3 billion PE round from November is a great example of a “technology growth” deal. (To learn more about the old definition of technology growth and why Crunchbase changed it, check out the Q4 2017 Global Report.)
Because technology growth deals are relatively few and far between and vary so much in size, sussing out trends from deal and dollar volume is difficult. However, in general, the same market forces driving fundraising at the latter end of the late-stage spectrum apply here.
Shifts in the late-stage market may finally be having an effect. Crunchbase projections indicate that throughout the whole of 2018, roughly $16.76 billion was invested in technology growth deals, down by 78 percent from 2017’s total of $29.86 billion. This being said, projected technology growth-stage deal volume is up 24 percent, from 147 transactions in 2017 to 194 transactions in 2018.
Previously venture-backed companies raised less in pre-IPO private equity rounds, but mostly because VCs are increasingly raising growth-stage funds to fuel companies further into the business lifecycle. In other words, dollar volume shifted away from tech growth rounds to late-stage as better-capitalized VCs now have the financial wherewithal to invest at a scale previously accessible to big-dollar PE firms.
As mentioned earlier, it’s tough to tell too much from the numbers, because there aren’t a lot of these deals. Nonetheless, it’s worth noting that the median deal size has now crept into supergiant territory.
Though Crunchbase News doesn’t typically cover a lot of private equity transactions, which are rarely cut-and-dry. Our coverage of a two-part $35 million PE deal with Tango Card (itself a tech growth deal) highlights that. This being said, we did cover some other technology growth deals in 2018. We profiled WP Engine, which raised a $250 million private equity round at the beginning of the year, and we also touched on Tanium’s $175 million PE deal back in May.
And with that, we close out the Money In. Now the challenge will be getting that money out. That’s what we’ll cover in a follow-up companion report focused on liquidity.
It’s going to be difficult to top 2018. And there’s a lot to suggest that the best times may be in the rearview mirror. After close to a decade of post-Great Recession boom times, some sort of serious slowdown is all but guaranteed sometime in the next few years. Will 2019 be that year? Maybe.
The Federal Reserve is signaling intent to hike interest rates in 2019, and public stock market volatility is spiking on global uncertainty. A lot of how the global economy will proceed depends on some key political decisions: the Brexit negotiations in the U.K., how the U.S. and China move past the detente in the ongoing trade war, and what, if any, consequences members of the U.S. executive branch may face for prior actions.
As global growth is expected to start slowing, some of the biggest winners of this past market cycle are expected to graduate to public markets. Though, the question of what’s going to be left to fund after a lot of folks try to find an exit is probably more of a 2020 challenge, barring calamity.
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
For reporting purposes, Crunchbase aggregates its funding data into “stages,” reflecting the different phases of private company development. Rounds are classified by stage according to the following sets of rules.
- Angel & Seed-stage is comprised of seed, pre-seed, and angel rounds. Crunchbase also includes venture rounds of unknown series, transactions of undisclosed type, and convertible notes totaling $1 million (USD or as-converted USD equivalent) or less. Equity crowdfunding rounds with no listed dollar value, as well as those totaling less than $5 million, are also counted as seed-stage.
- Early stage is comprised of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, transactions of undisclosed type, and convertible notes totaling between $1,000,001 and $15,000,000. Convertible note rounds with missing dollar values are also counted as early-stage.
- Late stage is comprised of Series C, Series D, Series E, and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, transactions of undisclosed type, and convertible notes of $15,000,001 or more.
- Technology growth is a private equity round raised by a company that has previously raised a “venture” round. (So, basically, any round from the previously-defined stages.)
Note: Fundings denoted by Crunchbase as corporate rounds are not included in Crunchbase stage classification metrics and therefore do not get included in annual and quarterly startup investment totals. In some instances, this will impact totals to a significant degree. (In Q4 of 2018, for instance, Crunchbase did not include the $13 billion Altria investment in e-cigarette maker Juul as a venture round.)
Illustration: Monique Lopez
Note: At the time of our Q3 report, Crunchbase’s projections indicated that Q3 2018 deal volume narrowly surpassed Q2’s totals. Now, at the end of Q4, projections suggest that Q3 deal volume shrank back from Q2 highs.↩
For example, this way of defining stages captures unlabeled rounds like the $1.3 billion Epic Games secured from Vulcan Capital and KKR & Co. in October. Similarly, it also helps include data captured through Form D filings, which might not disclose other details of the round. This $14.4 million transaction with GoodData was classified as an Early Stage round.↩