Venture Capital

Cost of unicorns grows

BY Richard Summerfield

It is more expensive to become a unicorn in the US than ever before, with the median sum raised prior to the status-conferring round soaring to $126.1m in the first half of this year, according to Pitchbook’s 2019 unicorn report.

The sums raised by companies before becoming a unicorn – which are start-ups valued at over $1bn – are approaching all-time highs.

At midyear, there were 187 active unicorns in the US, with an aggregate private valuation of just over $600bn, down from the peak of $603.3bn recorded in 2018.

The growth of unicorns can be attributed to a number of factors, including burgeoning interest of non-traditional venture capital (VC) investors. 2018 saw a peak of $43.5bn invested across just over 100 transactions, while the first half of 2019 is going strong at $17.7bn invested and 53 completed financings of unicorns both old and new. Indeed, 2018 saw 12 deals worth a total of $4.8bn closed with only foreign investor participation. The first half of 2019 saw over $6bn of foreign capital invested in the unicorn space.

From an exit perspective, 2019 has already been a notable year, with a new record of close to $160bn realised across only 14 acquisitions or initial public offerings of unicorns, with around $142bn of that figure attributed to IPO exit value.

“Current unicorns will be truly tested by a significant market shock, which, given that nearly all have only existed within one of the largest bull markets in history, would present a challenge most have yet to face,” said Garrett James Black, senior manager, custom research and publishing at Pitchbook.

He continued: “It is difficult to envision any waning in investor willingness to fund companies to unicorn status unless there are significant market shocks to derail investing activity. The incentives for early exposure to rapidly growing, mature companies are still intact, especially given that several have validated their valuations in public debuts this year. The common limiting factor is the number of investment firms that have the resources and wherewithal to take on the inherent risk and potential outsized reward. There are enough such firms, especially as VC grows more institutionalised.”

Report: Pitchbook’s 2019 Unicorn Report

 

Iconic UK sports car manufacturer acquired by European investment firm

BY Fraser Tennant

One of the most iconic names in the automotive world, Morgan Motor Company has been acquired by Italian investment firm Investindustrial – which has taken a majority stake in the 110-year old British sports car manufacturer.

The financial terms of the transaction have not been disclosed. However, the investment is being executed without financial debt and Morgan will have a positive net cash position upon closing of the transaction.

Founded in 1909, Morgan hand-builds premium sports cars with a classic design in its historic factory in Malvern, UK, which is visited by more than 30,000 people each year. With revenues of £33.8m and a net profit of £3.2m in 2018, the company sells around 700 cars per year. It is also one of the last remaining British-owned carmakers.

“The past two years have been the most successful in our company’s history,” said Dominic Riley, chairman of Morgan. “However, to really fulfil our full potential and secure our long-term future, both the family and management team felt it was essential to bring in a strategic partner – a partner that shares our vision and has the expertise, financial resources and track record of success in the automotive world, to make it happen. That partner is Investindustrial.”

Following completion of the acquisition, the Morgan family will continue to act as stewards for the brand and retain a minority shareholding. And, for the first time in its history, the management team and all employees will have a share of the business.

“Morgan’s handmade British sports cars are true icons of the industry,” said Andrea C. Bonomi, Investindustrial’s chairman of the industrial advisory board. “We have followed the company and seen its progress for some time and see significant potential for Morgan to develop internationally while retaining its hand-built heritage. We share with the Morgan family the belief that British engineering and brands are unique and have an important place in the world.”

The transaction is expected to be completed in April 2019.

Steve Morris, chief executive of Morgan, concluded: “The future is bright for Morgan. We are coming off the back of two record years and now have the best possible owner and partner to take the business to the next level and develop Morgan’s global potential.”

News: Morgan family sells control to venture capitalist group

2018 sees VC investment record set

BY Richard Summerfield

Venture capital (VC) funding has continued to pour into jurisdictions the world over, with 2018 seeing a record high of $255bn invested globally, according to KPMG’s Enterprise Venture Pulse Report. The fourth quarter of 2018 alone saw almost $64bn.

Activity was not limited to just one jurisdiction. The US, the wider Americas, Asia and Europe all recorded a record high level of annual VC investment during 2018.

“The record levels of funding we are seeing around the world highlight the intense focus VC investors are placing on late-stage deals. One billion+ mega-deals alone in Q4 2018 accounted for $22 billion in investment – approximately a third of the total funding raised this quarter,” said Brian Hughes, national co-lead partner at KPMG Venture Capital Practice, and a partner with KPMG in the US.

He continued: “While the extended decline in the number of deals, particularly at the earliest deal stages, is somewhat concerning, the highest quality companies are still attracting investment and we expect to see a strong IPO market in 2019.”

Across the Americas, VC investment rose to $41.8bn in Q4 2018, up from $32.5bn in Q3. For the third year running, Europe set new records for VC investment (despite ongoing uncertainty around Brexit) with a total of $24.4bn for 2018, although deal volume fell markedly year-on-year.

In Asia, VC investment reached an annual high of $93.5bn during 2018 – a significant increase on the $65.2bn recorded in 2017.

Looking forward, activity seems likely to drop this year, however there should still be significant investment, particularly in the tech space where autonomous vehicles, alternative energy vehicles and ride hailing continue to garner interest.

Despite the increase in investment value, the total number of VC deals globally declined to a six year low of 15,299 deals during 2018, compared to 17,314 in 2017 and a peak high of 20,172 in 2015. The drop in quarterly deal volume was also notable, with the 3048 deals seen in Q4 2018 the lowest number since Q3 2012.

Report: Venture Pulse Q4 2018

US-based VC-backed companies raised close to $100bn in 2018, says new report

BY Fraser Tennant

US-based venture capital (VC)-backed companies raised close to $100bn across 5536 transactions in 2018 – the highest annual funding level since 2000 – according to PwC’s and CB Insight’s MoneyTree report  published this week.

While deal activity in 2018 was at its lowest level since 2013, the report reveals that US companies still raised a record number of mega-rounds in 2018, with 184 $100m-plus funding rounds. In addition, there was a record number of new unicorns in 2018, as 53 US VC-backed companies saw their valuation rise to over $1bn.

“2018 was a phenomenal year for US venture capital, with $99.5bn invested, a record-breaking 55 unicorn births, 184 mega-rounds and funding levels at $119.6bn, their highest level since 2000,” said Tom Ciccolella, PwC’s US venture capital leader. “There certainly continues to be a healthy availability of funds and appetite for investment, while the trend of fewer, bigger deals persists.”

Key highlights in the Q4 MoneyTree report include: (i) US deals and funding slipped in Q4, dropping from a record funding level of $28bn across 1325 deals in Q3 2018 to $25bn across 1211 deals in Q4 2018; (ii) seed-stage activity rose slightly to 23 percent of all deals, although this was still well below levels from a year prior; (iii) expansion-stage deal activity was up slightly, at 24 percent of all deals, compared to 20 percent a year prior; and (iv) median deal sizes were up across the board, with later-stage median deal size rising to $37.5m in Q4 2018, up from $32.4m from the previous quarter.

Regionally, San Francisco, Silicon Valley, New York, New England and Los Angeles all saw increases in funding levels in 2018. In San Francisco, funding jumped 55 percent, rising to $28bn. In New England, funding activity increased for the second straight year, to $11bn. Silicon Valley and New York saw an uptick in funding in 2018, increasing to $18bn and $13bn, respectively. Funding for Los Angeles-area companies increased slightly to $6bn.

“While this year saw the lowest level of deals since 2013, median deal sizes are up and $100m plus mega-deals are becoming standard," said Anand Sanwal, chief executive co-founder of CB Insights. "US companies raised a record 184 mega-rounds, a 53 percent increase compared to last year's record. While mid- and late-stage start-ups are winners in the current environment, the early stage is getting pinched with seed activity.  There does not appear to be a near-term catalyst to get seed activity growing again."

In terms of global VC funding, last year saw $207bn of VC funding raised globally across 14,247 transactions – a 10 percent increase in deal activity. Furthermore, 2018 came close to the funding record of 2000, a 21 percent jump compared to 2017. 

Report: Q4 2018 MoneyTree Report

Canadian VC funding declines for second straight quarter after record Q1, reveals new report

BY Fraser Tennant

Following a record Q1, Canadian venture capital (VC) funding declined in Q3 2018 for a second straight quarter, reveals a new report by PwC Canada and CB Insights.

According to the ‘MoneyTree Canada Report Q3 2018’, Canadian venture-backed companies closed 87 deals, down from 127 in Q2. At the same time, total VC funding totalled $541m in Q3 2018, a 42 percent decline in investment from the previous quarter.

However, despite the overall fall, there has been an increase in VC funding for Canadian digital health and FinTech companies in the third quarter of 2018.

“The first half of 2018 saw a new high in venture capital investment in Canada, and yet we have seen a marked decrease in deal activity in the third quarter,” said Michael Dingle, national deals technology leader at PwC Canada. “While a decrease does not come as a surprise, we will be sure to keep a close eye on investment trends for the following quarters as the tech sector in particular seeks to maintain funding levels.”

The report also notes that: (i) early-stage rounds increased to 30 percent of all Canadian deals, while seed stage deals declined to 25 percent of all deals; (ii) corporate investment in Canadian startups has been rising steadily in recent quarters, and increased to 39 percent of all deals in Q3 2018; (iii) corporate participation in deal activity increased for the third consecutive quarter; (iv) Toronto and Vancouver continued to drive the highest number of deals; and (v) investment in Canadian digital health companies jumped 170 percent to $83m, the third-straight quarterly increase.

While Vancouver and Toronto remained the top markets in deal activity, funding and deal activity for these cities decreased slightly in Q3 2018 to $104m across 21 deals and $248m across 30 deals, respectively. Montréal also saw a slight decline, falling to $95m over 16 deals during Q3 2018, compared to $105m over 17 deals in Q2 2018. In addition, Québec City experienced a significant decline in funding – from $147m to $14m – returning to its historical range, following a massive second quarter.

"While overall funding and deal activity among Canadian startups fell this quarter, there were bright spots like digital health and FinTech," said Anand Sanwal, co-founder and chief executive of CB Insights. "The digital health sector saw a 168 percent spike in funding -- the third-straight quarterly increase in this industry and well above the funding range in recent years."

Report: MoneyTree Canada Report Q3 2018

 

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