Goldman Sachs: VC Dry Powder Hits Record Highs

In the first in a new series of reports on the venture capital market, the investment bank says dealmaking is set to increase.


Dry powder available in venture capital funds has reached a record level at more than $121 billion, which could lead to even more dealmaking after high activity in recent years, according to a new Goldman Sachs report.

Venture capital funds raised $64 billion in global capital last year, up from $55 billion in 2015, Goldman said in the first installment in a new report series that will monitor the venture investment landscape. Investment has also shifted globally, with Asia’s share of global venture capital reaching 38 percent in 2016, growing from 11 percent just three years earlier. Interestingly, corporate venture capital is on the rise, with larger public companies taking stakes in private companies. Last year corporate VCs participated in nearly $25 billion in funding, or 23 percent of total VC investment, across 1,373 deals.

That activity continued in the first quarter of this year, according to the report. The largest investment deal in the quarter, a $1 billion funding round for Flipkart, counted eBay, Microsoft, and Chinese Internet giant Tencent Holdings among its lead investors. Biotech company GRAIL, which produces blood tests for early-stage cancer detection, received $900 million from several corporates, including Amazon, J&J Innovation, and Merck & Co., with other investors including ARCH Venture Partners and McKesson Ventures. The third-largest deal, a $600 million funding round for NIO — a China-based maker of smart, electronic and autonomous vehicles — attracted a large group of investors including Baidu Venture, Hillhouse Capital Management, IDG Capital Partners, Lenovo Ventures Group, and Warburg Pincus. Other top-ten venture investments included funding rounds for Social Finance, the online lending platform known as SoFi; Ofo, a Chinese bike-sharing platform; and accomodation-sharing website Airbnb. Mobile commerce and ecommerce companies accounted for seven of the ten largest deals during the quarter.

Technology companies continue to make up the majority of venture capital investment, with about 60 percent of total investments at the end of last year. Scientific and engineering software companies constituted the fastest-growing subcategory last year, Goldman found, growing more than 200 percent year over year. Big data showed the biggest decline, falling 67 percent, although the report’s authors contend this is down to strategic shifts “as the Big Data companies of 2015 become the Machine Learning companies of 2017.”

While venture capital investment in the health care sector as a whole has slowed, Goldman says regenerative medicine is one of the most compelling areas in VC, as 80 such companies have been funded in the past three years. The firm also found that the number of deals has not increased with volumes, meaning regenerative medicine companies are attracting larger investments per deal. Stem cell therapies garnered some of the largest deals in the sector from 2015 to 2016, capturing almost half of the deals in the time period.