2018 was a huge year for venture capital in the U.S., which sparked concern over what 2019 would bring. Would there be a slowdown in venture capital investments?
This concern was quickly abolished when venture’s first quarter of 2019 picked up exactly where its 2018 year left off with a record of $32.6 billion of capital investment in the first quarter. While $100 million investment deals were once uncommon, $100 million rounds are almost a daily occurrence for ventures now. After seeing the results of their 1Q, investors believe venture capital is structured to rival its 2018 record.
U.S. venture capital’s 1Q is the second-highest recorded quarterly capital investment total in the last decade. Entrepreneurs are a large portion of venture capital investments, with $9.3 billion going toward early-stage startups. There are multiple reasons for this spike in startup investments, but the main thing is venture capital’s accessibility. This means the point of interest for 2019 is to see what sectors are capturing venture investors’ attention. Some of the areas to watch include mobility tech, robotics, artificial intelligence and machine learning, cybersecurity, and health tech. An intersection of digital and biology is another trend that will most likely garner attention.
Mobility tech has been steadily gaining attention for several years, but it was tossed back into the spotlight in early 2019 due to the initial public offerings of Lyft and Uber. Venture capital has been validated in investors’ decision to back shared mobility applications thanks to the strong demand both Lyft and Uber have received from public equity investors. The future of shared mobility could be influenced by how these two companies perform in the public markets. Both companies, although very similar, present two very different business models. Lyft operates in the U.S. as well as Canada, but Uber serves not only the U.S. and Canada but operates in many cities worldwide as well. These two rivals represent an investment into the U.S. ridesharing industry and an investment into a global mobility platform. Venture capital has also witnessed a shift in its deals with shared mobility companies. In 2016, the majority of spending went toward early-stage deals, but by 2018, that trend had reversed. Now, the majority of venture capital’s spending goes toward late-stage deals because the industry has rapidly matured.
While 2019 is looking like a record year for venture capital, there are two major policy issues on the industry that can shape how this year goes. Foreign investment, also known as the Foreign Investment Risk Review Modernization Act or FIRRMA, and immigration policies will make 2019 an interesting year for venture capital. These two major policies are already causing friction in the startups interact with foreign co-investors according to the National Venture Capital Association. If more regulations are launched, this could push away foreign co-investors, ultimately reducing the capital available to U.S. startups.
Another segment to explore is the investment in female-founded companies, which accounted for 2.2% of total venture capital deal value and 5.5% of total venture capital deal count in the 2019 1Q. It seems like one of the trends for female founders is starting their companies in historical venture hubs. From 2006 through the 1Q of 2019, the top U.S. metros by capital raised ($B) for companies with all-female founders were the Bay Area Metro, New York metro, Boston metro, Los Angeles metro, and the Durham metro, with $4.5 billion in capital raised in the Bay Area metro.
There has been a recent explosion in corporate venture capital activity, with companies’ participation in 316 deals in the 1Q of 2019. Maintaining the rapid growth of 2018, corporate venture capital divisions totaled $19.4 billion in the 1Q. Not only does this contribute to venture capital-backed companies staying private for longer than they have in the past, but it also contributes to the effect of investors taking part in larger deals at later stages. 40.8 percent of corporate venture capital-backed deals in the 1Q of 2019 were $25 million or larger. Corporate venture capital-backed transactions contributed 91.8 percent of venture capital investment dollars during the quarter.
Venture capital also showed record-breaking activity in fundraising in 2018 by raising $9.6 billion across 37 channels in its 1Q. 2018 was the fifth consecutive year venture capital’s fundraising exceeded $30 billion, which sets a powerful outlook for their fundraising in 2019. More firms are expected to launch fundraisers with substantial goals, so the amount raised in 2019 is expected to remain strong.
U.S. venture capital is one of the most well-known investment firms, and its reigning lead is expected to continue on into the future. Based on the results of its 1Q in 2019, Venture Capital is anticipating to end the year on just as strong of a note.