Venture capital investments in U.S. set for another bonanza year

By Jane Lanhee Lee and and Manas Mishra

(Reuters) – U.S. venture capitalists are expected to pour over $100 billion into startups for a second straight year, following the record sum invested in 2018, according to a report released on Wednesday. 

During the first three quarters of the year, venture capital firms had already invested $96.7 billion in 7,862 funding deals, according to the report by venture capital database PitchBook Data Inc and National Venture Capital Association. In 2018 it invested a record $137.6 billion. 

The strong investment numbers come as Silicon Valley investors and startups brace for a possible correction after several years of sharp rises in valuations that have minted an unprecedented number of so-called unicorns – startups valued at over $1 billion.

Fears of a setback for the industry were heightened by high profile initial public offering flops such as Uber Technologies Inc (N:) and Lyft Inc (O:) and the valuation plunge of WeWork Companies Inc as it tried to go public.

So far, the money is still flowing, several venture capitalists told Reuters in the past week, although there have been fewer deals but they have been bigger in size.

The latest PitchBook data showed the number of deals valued at over $100 million are set for a record count this year, while the number of early-stage deals in the third-quarter touched their lowest levels since the first-quarter 2013. 

Craig Sherman, a partner at law firm Wilson Sonsini Goodrich & Rosati said he’s still seeing quite a few large deals coming down the pipeline.

“When the market is really bad and there’s a correction, deals that have signed term sheets will often die ,” said Sherman. “We definitely are not seeing a meaningful market correction right now.“

Even last week scooter sharing company Bird said it raised $275 million with a valuation of $2.5 billion before the investment. And that comes despite skepticism that bike and scooter sharing companies could ever become profitable.

Bird CEO Travis VanderZanden told a tech conference last week his company changed its focus to emphasize profitability. “The tech investment community is changing and reacting quickly to the public markets,” he said. “If you’re a …growth at all costs company burning hundreds of millions of dollars with negative unit economics, it’s going to be very difficult to get funding moving forward.”

That concern and the fact that there’s still a lot of late stage capital available could keep venture capital backed funding strong for the next quarter or two, said Jeff Grabow, US Venture Capital Leader at EY.

               

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