Halfway through the year, venture capitalists have already reaped a near-record amount of value from their portfolio companies. In any dissection of venture exits, a large deal or two can drive the annual total. This year is no exception, as the second-highest-priced VC exit since the dot-com days printed in May. Still, the rise in value isn’t limited to the high end of the market.
According to 451 Research’s M&A KnowledgeBase, VCs globally have sold $46.4bn worth of tech portfolio companies through the first half of the year. That’s already 45% higher than the amount from all of last year’s exits and just shy of the record for annual VC-backed sales – $50bn in 2014. Facebook’s $19bn reach for WhatsApp, the largest acquisition of a venture-funded company, led that year’s totals. Embedded in this year’s figure is the second-largest, Walmart’s $16bn purchase of Flipkart.
Still, this year’s record-setting pace isn’t propped up by a single transaction. Since 2002, only four VC portfolio companies have sold for more than $5bn – three of them came in the first half of this year. Even looking at the VC exit market without those rare $5bn-plus exits, this year’s first half generated more VC exit value than the first half in 15 of the past 16 years. In fact, more companies than ever are benefiting from higher prices. The running median value of a venture exit this year, at $123m, sits more than twice as high as last year’s median of $56m – a number that’s roughly in line with values between 2014 and 2016.
Many of the reasons for the surge are the same as those driving the broader tech M&A market toward another record, including increased activity among strategic acquirers buoyed by a tax windfall, a pageant of IPOs, the continued rise of private equity, and other trends that we’ll discuss in a webinar on Tuesday (more info here). Amplifying those trends, VCs benefit from a widespread fear of changes wrought by new technologies.
According to 451 Research’s Voice of the Enterprise: Digital Pulse, 46% of IT decision-makers predicted that digital technology would have a large impact on their companies’ markets over the next five years, compared with just 14% who forecast little or no impact. Those anticipated changes are playing out not just in the valuations, but in the type of deals getting done. Case in point: the $1.9bn pickup of oncology trial software developer Flatiron Health by Roche, a pharmaceutical firm that had never spent $100m on an information technology provider. Or Microsoft’s new tack in building software developer relationships via its $7.5bn acquisition of GitHub.
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