US Venture Capital Investing Held Strong Last Year, Family Office Involvement Grows - Study

Tom Burroughes, Group Editor, January 14, 2020


Exits from venture capital investments are important liquidity events and ways of setting firms on their way. These mint new millionaires and ultra-high net worth asset owners drive growth and of course have been central to much of the tech ferment over recent decades.

The venture capital sector put $136.5 billion to work in US-based companies last year, beating the $130 billion mark, and family offices are noticeably more involved in the space than in recent years, according to the quarterly PitchBook-NVCA Venture Monitor.

During the fourth quarter of last year, there was $34.2 billion invested across 2,215 deals, totaling $136.5 billion across 10,777 deals in 2019. (To see a separate report across the whole world's VC and private equity space, see the latest data from Preqin, reported here.)

“Non-traditional investors, such as sovereign wealth funds and family offices, are more involved in the venture industry than ever before, participating in 85 per cent of the 252 mega-deals (deals over $100 million) recorded in 2019,” the study said.

The report said that one reason for record deal value in recent years is the “increasing maturity of companies at all stages, underscored by a rise in early-stage mega deals”. These transactions – 53 completed in total – represented nearly 25 per cent of all VC mega-deals raised in the year. 

Another driver of high activity is that investors are still willing to chase attractive opportunities even though the market for initial public offerings – a way that many young firms have exited in the past – has been disappointing.

Exit activity dropped in the final three months of last year from the previous quarter, however, in deal sizes and volumes. There was a total of 174 exits ($18.8 billion).

“Despite the decline in activity during the back half of the year, 2019 now stands as the annual record for US VC exit value at $256.4 billion across 882 liquidity events,” the report said.

Along with other alternative investment areas such as private equity buyouts, private credit and forms of real estate and infrastructure, VC has benefited from the attractions of getting higher returns to compensate for the long timeframe over which such investments are held. Very low, or even negative, interest rates have pressured yields on conventional listed investments, making less liquid alternative areas more attractive. A question mark, however, is for how long this situation can persist without pushing down VC returns.

The report noted that the biggest fourth-quarter exit from a VC was PayPal's $4.0 billion acquisition of Honey Science. 

“IPO activity has been the primary driver behind this record year of exit value, but this liquidity option had an especially tepid Q4. Lackluster post-IPO performance of many newly listed technology companies over the past six months likely put a damper on potential debutantes,” the report said. (This is a reference to investor disenchantment with performance of some "unicorns" once floated on the stock market, such as Snap, Dropbox, Lyft and Uber.) 

US venture funds raised $46.3 billion across 259 vehicles in 2019, reaching the second highest annual total in the past decade but posting well below the $58 billion raised in 2018, it said.

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