The growing size of venture deals has become a critical force in fueling this year’s increase in dollars deployed, with large transactions now reaching record levels.
The growth is most obvious in late-stage transactions, but has spread to the earlier stages, including to usually less volatile Series A and seed deals.
In broad terms, it comes with the prospect of dramatic, large-scale exits, but also adds risk as capital becomes concentrated in fewer names. It also draws attention to the activities of SoftBank and its massive Vision Fund, as well as to the sovereign wealth, hedge and mutual funds participating in the trend.
Overall, venture investing has been on a tear this year. Through the third quarter, $73.7 billion was dispersed to startups in the United States, a 32 percent increase over the first nine months of 2017, according to the MoneyTree Report from PricewaterhouseCoopers and CB Insights. Deal volume is down 6 percent.
Behind this rise is the creation of 16 new unicorns in the third quarter alone and 55 quarterly rounds of $100 million or more, the most on record. Six deals topped $500 million, according to the MoneyTree Report.
As more quarterly capital flowed into larger investments, late-stage totals were elevated, with $17.4 billion invested in the third quarter, according to a study by PitchBook and the National Venture Capital Association. It is the third quarter in a row with investments above $15 billion.
The result has been larger rounds, with late-stage deal size up 20 percent in the third quarter and the median pre-money valuation for Series D and later rounds now reaching $285 million, or more than double 2016.
Series B has itself seen a noticeable rise, with the median pre-money topping out at $55 million this year, the PitchBook-NVCA work found.
Early-stage rounds have seen the same upward pressure. Median deal size for early-stage deals has risen to $7 million this year, up 25 percent from 2017. The median pre-money valuation has keep pace, increasing to $20 million, or by 29 percent, in a year.
Larger deals sizes have showed up in seed deals, too. The median seed deals so far this year has risen to $2 million, double the $1 million of 2015 and a 21 percent increase from 2017, the PitchBook-NVCA work discovered. This has corresponded with a less pronounced increase in the median pre-money valuation of about 10 percent this year vs. last.