Overall, the VC market is experiencing significant growth. In the last two years, deal value has reached a combined $160 billion value. This number will likely increase as the results for the fourth quarter are not yet included. While valuations have increased across the board, pricing for companies in Series A rounds remains relatively tame compared to later stage funding rounds where median valuations have increased nearly 108% from $137 million in 2016 to $285 million in 2018.
Institutional investors are backing existing and newer managers at records levels with over $34 billion in total VC commitments so far in 2018. In a market flush with cash, many VCs have been able to raise larger funds and in shorter timeframes.
Top companies are successfully attracting growth capital from non-traditional investors (mutual funds, hedge funds, private equity) which in turn has lengthened the average time to exit to approximately 6.4yrs. The benefit of extended exit periods is that more patient capital allows companies to optimize for better outcomes. The drawback is increased angst from LPs who would much rather have liquidity sooner than later.
Companies achieve liquidity in a variety of ways including mergers & acquisitions, secondary buyouts, and initial public offerings. According to Pitchbook, companies are taking longer to exit, but there is a greater percentage of companies exiting at larger sizes. The median exit size is currently $100 million, and the average exit size has reached $244.2 million.
The IPO window is wide open. There has been a total of 637 exits this year and roughly 10.6% of those have come via IPOs. We anticipate the IPO trend to continue in 2019 as more and more unicorns (Airbnb, Uber, Pinterest, Palantir, Lyft and others) make plans to go public.
Pitchbook Private Markets Playbook 4Q 2018
Pitchbook 3Q Venture Monitor Report