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Abu Dhabi, UAEThursday 20 September 2018

VC market on track for strongest year since dot-com era

Venture capitalists spent $27.3bn in the US in the last quarter, according to a new report

US President Donald Trump (L) stands with Foxconn Chairman Terry Gou (C), and Masayoshi Son, Chief Executive Officer of SoftBank. Japanese conglomerate, SoftBank, is a driving force behind the VC fundraising frenzy. Photo: AFP
US President Donald Trump (L) stands with Foxconn Chairman Terry Gou (C), and Masayoshi Son, Chief Executive Officer of SoftBank. Japanese conglomerate, SoftBank, is a driving force behind the VC fundraising frenzy. Photo: AFP

Venture capitalists are spending cash at levels not seen since the dot-com era, and they’re raising money at a pace to match.

Last quarter, VCs spent $27.3 billion in the US, according to a report published on Tuesday by research firm PitchBook and the National Venture Capital Association, a trade group. That’s the most in any second quarter since the group began tracking quarterly data more than a decade ago. Combined with a record-setting first quarter, the VC market had its strongest first-half-year performance since 2000.

The $57.5bn invested in startups so far this year has already surpassed the full-year total for six of the past 10 years. This year is on track to exceed the $81.9bn invested last year, which was itself a record since the dot-com boom.

VCs have no shortage of cash to invest. Venture funds raised $10.8bn last quarter. That does not include a stockpile raised by SoftBank Group. The Japanese conglomerate, which is looking to spend $100bn in the technology business, is a driving force behind the VC fundraising frenzy.

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Competition from SoftBank’s Vision Fund is helping inspire long-established venture firms to raise larger funds. Last quarter, those included Foresite Capital’s $668 million health-care fund and Meritech Capital’s $630 million fund- both were much larger than the firms’ previous funds. Sequoia Capital is raising $8bn across several vehicles, but its efforts aren’t reflected in last quarter’s data because it hasn’t completed the fundraising.

“Many of these funds are taking an approach similar to SoftBank’s Vision Fund, adopting a meta view and attempting to capitalise on mega-trends affecting entire industries,” the VC trade association wrote it its report.

Another encouraging sign for startups: 28 went public last quarter, the most in three years. Venture funds generated $4.12bn as a result, more than any quarter since Facebook held its initial public offering in May 2012.

But acquisitions are the biggest driver of VC returns, and there were plenty of those last quarter, too: companies spent $8.8bn to buy 134 venture-backed startups.

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