The state of global VC funding and unicorns

Mega-rounds drove strong funding in the US, but Silicon Valley showed weakness. Global deals above the $40 billion mark again.

Global VC-backed funding in the third quarter of 2017 broke $40 billion for the second quarter in a row, according to the latest MoneyTree™ Report from PricewaterhouseCoopers PwC and CB Insights.

In the third quarter, deal activity increased 3% as investors distributed $42 billion across 2,645 deals to VC-backed companies. This represents a 4% decrease in total funding from the previous quarter. However it is still 47% greater than the total of the first three months of 2017.

Deal activity in North America were down 6% in terms of numbers compared to the preceding quarter, but even for money raised. Asia increased by 25%, despite a 15% decrease in funding. While European deal activity decreased 6%, total funding grew 18% this quarter to $5.2 billion.

“With 40% of value coming from mega-deals, Q3 2017 saw the largest quarter for deal value in two years,” said Tom Ciccolella, PwC US Venture Capital Leader. “Three of the quarter’s five largest occurred outside of California, further demonstrating the overall health of the venture capital ecosystem across the US.”

(Credits: REUTERS/Mike Blake)

While North America saw a decline in the number of companies joining the unicorn club at a valuation of over $1 billion, Asia registered a stable growth with six new unicorns — same as the previous quarter — and Europe witnessed the birth of two new unicorns, the highest increased since 2015. Among the five new VC-backed US new unicorns — down from 10 new unicorns in the previous quarter: Desktop Metal (Burlington, MA), Indigo Agriculture (Boston, MA), and Coinbase (San Francisco, CA).

Among the five largest VC-backed deals outside of the US, three were Asia-Pacific-based companies and one was in Europe:

• $2 billion for Grab (Singapore)
• $1.4 billion for Flipkart (Bengaluru, India)
• $1.1 billion for Roivant Sciences (Basel, Switzerland)
• $1.1 billion for Tokopedia Product Team (Jakarta, Indonesia)

UNITED STATES

In the United States, VC-backed companies saw $19.9 billion in total funding, invested across 1,207 deals. Deals were even with last quarter, but down 6% over the same quarter last year.

In the third quarter, 26 mega-rounds of $100 million or more added to the strong US quarterly funding total — below the previous quarter totals, but well above the slow activity seen throughout 2016.

Each of the top three rounds to US companies were made by Japan-based SoftBank Group:

• $1.7 billion + $760 milllion for WeWork (New York, NY)
• $1 billion for Fanatics (Jacksonville, FL)
• $350 million for SpaceX (Hawthorne, CA)
• $280 million for Auris Surgical Robotics (San Carlos, CA)
• $159 million for Nauto (Palo Alto, CA)

“Total funding in Silicon Valley dropped sharply during the third quarter, even though the deal count rose,” said Danny Wallace, US Emerging Company Services Co-leader at PwC. “The decline was driven by a big drop off in $100M+ megarounds, from ten to only two, which also reflects the national prominence of mega-rounds.”

Deals in Silicon valley were up from 131 in the second quarter to 146 in the third quarter, but investment money was almost halved from $4.1 billion to $2.2 billion.

The sharpest regional rise was in the New York City metro area with deals steady at around 160 but investment money up from $2.6 billion in the second quarter to $4.2 billion in the third.

EUROPE

Europe deal activity declines, funding increases to 8-quarter high •

Quarterly funding increased to $5.2 billlion in the third quarter of 2017, growing 18% over the preceding quarter.

VC-backed funding in the area increased to a eight-quarter high driven by $100M+ mega-rounds. Those include Switzerland-based Roivant Sciences ($1.1 billion minority investment), London-based Deliveroo @DeliverooEng Deliveroo Design Team ($385 million Series F), and Luxembourg-based EREN Groupe ($284.5 million minority investment).

ASIA-PACIFIC

After bottoming out in 2016, deals to VC-backed companies in the Asia-Pacific region have continued to rise in the three months from July to September. Deal count was up 25% increasing to 747 from 596 deals in the previous quarter. Quarterly funding declined 15% from $19.4 billion to $16.5 billion.

Mega-rounds increased in the region in the past quarter, as 34 mega-rounds were completed, up from 28 the quarter before and reaching an eight-quarter high.

Asia-Pacific early-stage deal sizes remained above those registered in North America and Europe. Median early-stage deal sizes in the region remained at $7.1 million, above the $6.5 million in North America and $5.2 million in Europe, respectively.

Median expansion-stage deal sizes jumped to $18.4 million but median later-stage deal sizes declined to $67.5 million.