Competitive Venture Capital Landscape Spurs Still-Rising Valuations

Strong fundraising has fund managers spending more on portfolio companies as both competition and dry powder mount.


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 provider PitchBook.

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, Preqin’s 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 opportunities.”

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.