Venture

Investment

Sharif University of Technology

Graduate School of Management and Economics
Fall 2018
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Introduction
to Venture
Investment
 VC Industry segmentation
￮ Fintech ￮ Autotech
￮ Healthcare ￮ Traveltech
￮ E-commerce ￮ Data & Analytics
￮ Internet software & services ￮ Cybersecurity
￮ Social ￮ Edtech
￮ Media ￮ Cleantech/Greentech
￮ Hardware ￮ … (many more)
￮ On-demand

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VC Industry segmentation

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VC stage-based segmentation
￮ Mentorship programs like Y Combinator help startups ideate, form
founding teams, and build initial products.
￮ Early stage VCs or super angels provide capital and guidance to
hire non-founder employees, further product development, market
the initial product , raise follow on VC funding.
￮ Traditional VCs (Sequoia, Kleiner, etc) help companies scale and
get to profitability. They often have broad networks to help with
hiring, sales, bizdev, other scaling functions, selling companies and
raising follow-on financing.
￮ Late-stage VCs focus on providing partial liquidity and preparing
the company for an IPO or big M&A exit.
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VC investment map - 2012

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 Top 20 cities – 2012
VC Share of VC Share of
Rank Metro investment global Rank Metro investment global
(M) investment (M) investment

1 San Francisco $6,471 15.40% 12 Toronto $628 1.50%

2 San Jose $4,175 9.90% 13 Austin $626 1.50%

3 Boston $3,144 7.50% 14 Shanghai $510 1.20%

4 New York $2,106 5.00% 15 Mumbai $497 1.20%

5 Los Angeles $1,450 3.40% 16 Paris $449 1.10%

6 San Diego $1,410 3.30% 17 Bangalore $419 1.00%

7 London $842 2.00% 18 Philadelphia $413 1.00%

8 Washington $835 2.00% 19 Phoenix $325 0.80%

9 Beijing $758 1.80% 20 Moscow $318 0.80%

10 Seattle $727 1.70% Top 20 Total $26,790 63.60%

11 Chicago $688 1.60% Total – All Metros $42,121 100.00%

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Global VC Investment
Summary
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 Global VC Investment Hits
Record Annual High
￮ A strong Q4’17 across the Americas, Asia, and Europe helped
propel the global VC market to a record high level of annual
investment for 2017 of $155 billion.
￮ A number of multi-billion-dollar mega-deals during the quarter
buoyed investment levels despite the continuing decline in deals
volume across all deal stages.
￮ Globally, in Q4’17 VC-backed companies raised $46 billion across
2662 deals.

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 Global Trends
The dollar amounts are up…
￮ An increasing number of $100+ Million megarounds, with 109 such
rounds in the US
￮ Six investments over $1 Billion during Q4 alone
￮ The two largest of these were not in the US but in China

…but the number of deals is down

￮ Total number of VC deals (11,000) significantly down from 2016
￮ Less first round investments, back to the low levels of 2010
￮ Dollars invested in first rounds has decreased by 30% since 2015
￮ France was a rare exception having growth of early stage deals
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VC
invested
and
volume
diverge
even
further

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 Global Trends
Entrepreneur friendly terms
￮ Deal sizes and valuations rose in all stages
￮ Europe had 70% up-round deals, US was even higher at 79% –
both well above the long term averages
￮ Investment terms remained very entrepreneur friendly

Exit market is active

￮ Global IPO volumes highest for a decade, 48% up from 2016
￮ IPO boom continued in Nordic, Stockholm alone had 79 IPOs
￮ M&A transactions: valuations high but amount of deals mediocre
￮ Buyout exits were high: record year both in dollars and deals
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Global median deal sizes by stage

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Global
median
deal sizes
by series

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Global Trends
￮ US dominates VC market globally
￮ The US continued to lead the VC market
globally in Q4’17, accounting for well over
$23 billion of investment during the
quarter.

￮ China sees largest VC deals of the quarter,

mega-deals blossom worldwide
￮ Asia saw the largest deals of the quarter,
including $4 billion mega-deals to
Chinese companies Didi-Chuxing and
Meituan-Dianping.

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 Global Trends
￮ VC market continues to see decline in number of angel and
seed stage deals
￮ During Q4’17, the volume of angel and seed stage deals
continued to decline, highlighting a long-term trend that
began 3 years ago.

￮ Aging unicorns, availability and size of late-stage funding signals

companies are staying private longer
￮ This year, there were 93 fundings of current and newly
minted unicorns (companies with a valuation over $1 billion)
created, exceeding the 77 fundings during 2016.

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The early-stage slump: Crash or correction?

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First-time investments remain off the pace of prior years

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Q4’17 caps off a massive year with fourth highest sum of
unicorn VC invested ever

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 Global Trends
￮ Uptick in secondary market activity providing much-needed
liquidity
￮ While companies are staying private longer, many of their
investors still want exits. This has led to a more robust
secondary market in order to allow companies to provide
liquidity to their employees and early-stage investors.

￮ IPO activity remains weak in 2017

￮ IPO activity globally remained relatively slow compared to
previous years. While a number of companies held
successful IPOs in 2017, step-up valuations have been
relatively slight. This suggests that the last private valuation
pre-IPO for some companies may have been inflated.
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Will the exit
cycle
subside
further or
plateau?

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 Global Trends
￮ Alternative financing mechanisms beginning to gain traction
￮ 2017 saw a significant increase in interest in alternative
financing mechanisms, particularly Initial Coin Offerings
(ICOs). While cryptocurrencies, such as Bitcoin have been of
some interest to investors over the last couple of years, this
year, there was a substantial increase in the number of ICOs
which, together, raised over $2 billion in capital.

￮ Pharma & Biotech a big winner in 2017, poised for additional

growth
￮ Pharma & biotech investment experienced significant
growth globally in 2017, reaching over $16 billion in
investment compared to $12.2 billion in 2016.
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 Global Trends
￮ Artificial intelligence experiences bumper year of investment
￮ In 2017, VC investment in artificial intelligence almost
doubled, attracting $12 billion of investment globally,
compared to $6 billion in 2016. Q4’17 saw a significant
number of AI-focused VC deals, including Nio ($1 billion),
Face++ ($460 million), and Indigo ($206 million).

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Corporate
VCs look set
to remain
highly active
after year of
remarkable
participation

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Software dominates, as diversity grows slightly

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Top 10 global financing in Q4’ 17

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US Summary

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US VC investment
achieves new high in 2017
￮ In 2017, VC investment in the United States soared
past the $83 billion mark, making it the strongest year
of VC investment ever.
￮ Despite rising investment, deals volume plummeted
as investors focused on placing bigger bets on a
smaller number of companies.

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 US Trends
￮ Q4’17 results lifted by three $1 billion+ mega-deals
￮ Investors remain focused on late-stage deals
￮ Secondary market providing much liquidity
￮ Decline in step up valuations
￮ Healthtech and biotech see strong growth in the US
￮ Corporates becoming more interested in transformative agtech

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Deals getting bigger by the year

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Valuations on the rise

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Top 10 US financing in Q4’ 17

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2017 IPOs
ended up
as a mixed
bag

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Europe Summary
 European VC funding
up significantly in 2017

￮ In Q4’17 European VC-backed companies raised $5.7 billion

across 535 deals.
￮ VC investment in Europe remained strong in Q4’17, bringing the
total annual investment in the region to record levels, despite
an ongoing decline in deal volume.
￮ Companies in the UK raised the lion’s share of investment
during Q4’17, accounting for seven of the top 10 European deals.

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 Europe Trends
￮ Median deal sizes up in Europe across all deal stages
￮ Pharma & Biotech booming in Europe
￮ US investors targeting European VC market
￮ VC investment rises significantly in Germany
￮ UK sees massive increase in VC investment in Q4’17
￮ France growing in importance
￮ Israel continues to attract global attention

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Top 10 Europe financing in Q4’ 17

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Asia Summary

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Asia VC propelled by two $4
billion mega-deals in Q4’17
￮ In Q4’17 VC-backed companies in Asia region
raised $15.6 billion across 245 deals.
￮ VC investment in Asia closed out 2017 at a new
high on the heels of two massive $4 billion
mega-deals in China, one by Didi-Chuxing
and the other by Meituan-Dianping.
￮ The strong quarter helped propel Asia to over
$45 billion of VC investment for the year,
despite the drop in the number of VC deals.

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 Asia Trends
￮ Q4’17 results reach $15 billion
￮ Strategic focus fostering Chinese VC investment globally
￮ Hong Kong sees larger rounds in Q4’17
￮ Auto-tech becoming hot in China
￮ India VC investment strengthens
￮ AI continues to expand reach and investor pull

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Top 10 Asia financing in Q4’ 17

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Angel and VC financing in the Middle East

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 Trends in 2018

￮ Artificial Intelligence

￮ AI had a monster year in 2017, with over $1 Billion

invested in every quarter of last year in the US alone.

￮ The global investment in AI ($12 Billion) was 100%

above the 2016 number. And the AI juggernaut is not
going to slow down in 2018 with AI being increasingly
applied across sectors.

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 Trends in 2018

￮ Auto-tech

￮ Automotive technology (and especially technologies

related to self-driving cars) are likely to continue to
be a hot area and attract a great deal of money in
2018.

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 Trends in 2018

￮ Blockchain

￮ While cryptocurrencies are viewed with some

suspicion, the underlying blockchain technology will
remain relevant and be increasingly utilized in
protecting digital assets and transactions across
digitally disrupted industries.

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 Trends in 2018

￮ Virtual/Augmented Reality

￮ While VR might be losing some of its steam, AR (augmented

reality) seems to be surging ahead. Both big corporates
and innovative startups are innovating in this sector and AR
seems increasingly likely to start hitting the mainstream
and attracting a lot of investments.

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Thanks!
Any questions?

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