Venture Capital Deals in 2017

2017 turned out to be quite a success for startups as they managed to receive over 67 billion dollars in venture capital funding, broking the previous record of 2015 by 5 percent.

Although, there has been substantial funding in Silicon Valley during the past few years, the overall investment has reduced since 2015. There has been a decline of 12 percent and it’s partially because of Uber Technologies Inc. and Lyft Inc. as these companies secured the maximum funding in 2017. Snap Inc. got a funding of 1.8 billion dollars, whereas Uber secured 3.5 billion dollars in 2016, and the value of capital received in 2017 decreased. Another reason was the fact that some of the major deals happened elsewhere last year.

The Value of Deal Based on Metropolitan Statistical Area

If you look at the trend based on metropolitan areas, San Francisco was in the lead, but as discussed, the overall value has declined since 2015. Similarly, the investment in Boston and Los Angeles has also decreased; it was 6.2 billion dollars and 4.9 billion dollars for Boston and Los Angeles in 2015, but in 2017, the amount reduced to 5.9 billion and 3.9 billion respectively.

On the other hand, the funding in New York, San Jose, Washington D.C., and Chicago increased. In 2015, Chicago secured 0.9 billion dollar investment, which eventually increased to about 1.5 billion dollars in 2017. Washington experienced a mild increased from $1.4 billion to $1.6 billion and San Jose increased from 6.5 billion dollars to 6.9 billion dollars. The investment in New York however, almost doubled since 2015. It was 7.8 billion dollars in 2015, but in 2017, the overall value increased to 13.3 billion dollars.

On the other hand, the funding value also increased in Miami, Philadelphia, Provo, Indianapolis, Charlotte, and Minneapolis. The biggest reason for the sharp increase in the funding value in New York was the massive infusion of money in WeWork Companies Inc. The company got a capital of about 6 billion dollars in 2017, which eventually led to the sudden increase in the overall funding.

2017 Top 10 Deals

After WeWork, the second biggest deal in 2017 was Lyft in San Francisco, the company secured 2 billion dollars in funding. Other deals in San Francisco that made their way to the Top 10 included Uber with $1.25 billion, GRAIL with $0.9 billion, and SoFi with $0.5 billion.

Beside that, Admiral Permian Resources in Midland secured 0.6 billion dollars, Magic Leap in Miami got a capital of 502 million dollars, Outcome Health got 500 million, and SpaceX got 450 million dollars. Another company in New York that made its way to the Top 10 was Compass that secured a capital of 0.55 billion dollars.

All in all, startups in many regions of the U.S. managed to get funding as compared to 2015. In 2017, around 141 metropolitan areas got capital in a total of 48 states, whereas, it was 119 areas of 43 states back in 2015.

Size of Deals

The value of investment received by companies also increased over the years. Although, the total number of deals has declined since 2015, the overall deal value increased by 3 billion dollars. If you look at the average size of a deal, it was 25.5 million dollars in 2017. This has been the highest so far in history. The average size in 2015 was 21.5 million dollars.

The average size of a seed stage investment was also high, i.e., 13.8 million dollars in 2017. It was $11.9 million in 2015. The early stage deals represented almost 33 percent of the total venture capital volume. The value of late-stage deals, however, has declined since 2013.

Number of Initial Public Offerings (IPOs)

The number of IPOs deals around the world was the highest since 2007, but there were only a few IPOs in the United States that were backed by the VCs. There were only 28 companies that went public in 2017, which was quite low as compared to 2015.

Moreover, some of the biggest companies couldn’t perform well in 2017; the 3 largest IPOs showed negative returns. Snap Inc. , the second biggest IPO, showed very poor returns.

To summarize, the VC environment has experienced ups and downs over the years, but the overall trends have been declining with the passage of time.

Wave of Change in the VC Sector

Every day many venture capitalists invest in startups with the hope that it will be yet another unicorn. Venture capitalists are a type of investors who are also futurologists. They invest in new businesses with an anticipation that it will turn out to be the next Facebook or Uber and their investment will multiply several times.

A perfect example of such investment is the one made by Mark Tluszcz in Skype. In 2001, he invested $2.5 million and now is worth $250 million.

Investors have the chance of winning big or losing all of their investment. Tluszcz also shared his experience stating that 50 percent of the startups they invest in, end up as a failure; 20 percent of these investments only make as far as returning their investment money and another 20 percent increase their stake three times. It is the remaining 10 percent that makes it big, he added, and keep the venture capital (VC) firms going.

A Wave of Change in the VC Sector

Keeping all of this in mind, it is an undeniable truth that VC firms have undergone massive changes over the last two decades.

In the UK, the amount of investment by venture capitalists has increased from £453 million to £1961 million between 2011 and 2016. A number of these firms are filled with entrepreneurs who are passionate about building a business and not just a career.

Lack of Diversity

Despite all the changes, there is still a lack of diversity in the sector. Debbie Wosskow, a VC investor who was once an entrepreneur, came face to face with the harsh reality that 95 percent of all the investments made by venture capitalists go to male-led startups and most of these investments are made by male venture capitalists.

According to a research in Harvard Business Review, when it comes to female entrepreneurs, the focal point of venture capitalists is always toward potential losses, but with male founders, they look at it from the perspective of potential gains. Regardless of what the reason is, things have started to change in the VC sector.

Wind of Change — A Step Toward Revolutionizing the VC Sector

According to a venture capitalist, Suranga Chandratillake, said that those who present their ideas before a group of investors have to sell their idea of making it big. He further said that investors need a convincing idea that has a potential to generate good profits and not a presentation that just talks about becoming another unicorn like Uber. Investors need to see that entrepreneurs are not just into organic growth; in fact, they should be willing to take risks of revolutionizing the entire sector with a proper plan and potential to bring the right people in their team.

Self-awareness — A Trait of Successful Entrepreneurs

Another venture capitalist, Jillian Manus, believes the best ideas come from those startups where one partner has a sales and operation background whereas the other one is into technology. They come together as a team to sell their idea along with a well-devised plan of how they will achieve their goals. She added that a founder must be honest with exciting ideas as the most important question she asks the entrepreneurs is to tell how they failed. Those who say they have never failed are either hiding the truth or they lack self-awareness.

To secure an investment, a founder of a new startup should show that they have learned from their mistakes and be honest about it as it enables them to identify a problem ahead of time. All in all, venture capitalists do believe that honesty is the best policy when it comes to investing in new startups, because if an entrepreneur needs a venture capital, he or she must tend to scale up and expand their business quickly.

New Unicorn Wannabe

A number of Venture Capital (VC) investors are predicting 2017 to be the year when a large amount of money will flow into startups, especially if those startups have the opportunity to become “Unicorns”. Although, 2016 was not the best year for the startups as 70 percent reduction was observed in the companies that made it to unicorn status, 2017 seems quite promising.

For example, a number of VC firms, including Founders Fund and Andreessen Horowitz, managed to raise around $40.6 billion – a huge sum of capital needing to be deployed.

Rising Trend of Unicorn Companies

A rising number of unicorns from different industries have made it big.

Uber – Transportation service
Xiaomi – Consumer electronic
Airbnb -Lodging services
Snapchat – Social media
SpaceX – Aerospace

The marketplace for used goods has also picked up the pace during the last ten years as a number of startups have emerged in the market, such as OfferUp, 5miles and OLX.

Boom of the Unicorns in the Used Goods Marketplace

The online market for used goods has dramatically increased over the past decade as more and more e-commerce companies have made their entry. Encouraging the users to get rid of the items they no longer need, these companies have created a multibillion dollar market.

Recently, Letgo, a company that allows users to purchase and sell products secured $175 million in new financing. It has previously grabbed on to $325 million since it was initially launched and is currently approaching one billion dollars in valuation.

Moreover, some of the big unicorn names like Facebook launched a Marketplace Tab on the lower bar of its mobile application that allows quick access to shopping and selling on the basis of location. This goes to show how it is planning to penetrate in the e-commerce industry rather more aggressively.

LatAm Unicorns – Making it Big

On the other hand, in Latin America, some of the talented entrepreneurs are hosting five of the world’s biggest Unicorns ($1 billion in valuation). Although, the list of tech startups founded in Latin America is short, yet, these companies have made it possible for other new entrants to envision themselves as growing on a global scale. Argentina is the only country in Latin America with 4 (soon to be 5 with Letgo) out of 6 Unicorns. Those Unicorns are MercadoLibre, Despegar, OLX and Globant.

MercadoLibre is an online company from Argentina that is involved in online auctions and e-commerce. eBay made a strategic alliance with this company back in 2001. Apart from Argentina, the company currently has its presence in Colombia, Brazil, Costa Rica, Chile, Mexico, Dominican Republic, and a lot of other countries.

B2W is another name in the same sector. It was founded in 2006 and its headquarters are based in Rio de Janerio. B2W is a retail company that came into existence as a result of a merger between Americanas.com (holding a control share of around 53 percent) and Submarino.com (controlling the remaining percentage of share). The market-share of a company in the year it was founded was almost 50 percent of the online sales sector in Brazil.

Similarly, another renowned Argentine unicorn company from the e-commerce sector is OLX, which was founded by Fabrice Grinda and Alec Oxenford in 2006. Its headquarter is based in New York. The company is currently operating in more than 40 countries around the world.

The total number of internet users in Latin America is closer to the users in the U.S., but it has shown rapid growth in the past couple of years with the growth rate that is 8 to 10 times more than the U.S. rate. It means that the potential for new startups to make it big is huge in this region. Besides, there is a strong institutional and government support for entrepreneurial companies, which can further increase the expected number of unicorns in that area.