At the halfway point of 2017, the venture capital industry
seems headed for another year of record-high valuations.
Median valuations across late-stage, early-stage, and seed
fundraising for the first six months of the year have surpassed
previous highs, according to a new report from industry data
Late-stage venture capital has grown the most dramatically
in recent years, with median valuations more than doubling
between 2009 and 2015. So far this year, that figure has
climbed to $65 million the highest figure PitchBook has
tracked and up from nearly $64 million two years ago.
This ongoing climb in valuations has resulted in so-called
unicorn startups pre-IPO companies valued at more than
$1 billion and has caused worry in the industry that
some new companies are overpriced. PitchBook attributed the
current phenomenon in part to the companies themselves entering
fundraising stages later.
But the data provider also pointed to the sheer amount of
money pouring into venture capital funds: According to
PitchBook, these managers have raised more capital over the
past four years than in any similar period, amassing an
additional $129.4 billion. This, in turn has led to record
levels of dry powder, with U.S. managers now sitting on roughly
$95 billion of unused capital.
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These high levels of fundraising mean a more competitive
deal market for fund managers. According to a Preqin report
released Thursday, nearly half of venture capital
managers reported that the industry has become increasingly
competitive and this has also pushed up valuations.
Roughly a third said pricing for portfolio companies is
higher now than it was a year ago, while just 13 percent
reported pricing had gone down. Another 35 percent said
portfolio company pricing is likely to be a major challenge for
venture capital funds over the next year.
It is clear that strong fundraising is putting
pressure on dealmaking in the venture capital market,
said Felice Egidio, Preqins head of venture capital
products, in a company statement. Large influxes of
capital are causing dry powder to soar, and asset pricing is
rising as a consequence, forcing fund managers to find
increasingly innovative ways to source attractive deal
Still, 70 percent of managers said finding attractive
opportunities was no more difficult now than it was last year,
with 15 percent reporting it was actually easier. Nearly
two-thirds said they planned to deploy a higher level of
capital over the next 12 months, thanks to strong fundraising
and rising prices.