VC valuations data is bonkers

Also: AI/ML opportunities emerge in smart robots, natural language; On-demand B2B delivery starts to take hold; Big development brewing in GP stakes.

Read online | Don't want to receive these emails? Manage your subscription. PitchBook Log in The Research Pitch August 28, 2021 Don't miss our webinar Wednesday diving into the investment styles of private managers! Register here. When unicorn valuations are almost average—literally The rapid pace of US venture capital activity in 2021 has translated to similar rampant growth in the valuations at which deals are being priced. Median valuations have increased across all stages, with particularly notable jumps for the largest and most mature startups in our dataset. Illustrating this trend is the growth of the median and average late-stage valuations as of H1 2021 to $130 million and $914 million, respectively, opening the door for an average late-stage valuation over $1 billion by the end of this year.   Our US VC Valuations Report has many charts with this trend. Both of these represent an increase of over 85% relative to 2020's values—which were the previous high-water marks. (And maybe it's about time we reconsider the term "unicorn" if $1 billion becomes the average.) Whenever we analyze valuations, capital availability is always one of the first factors we consider. In recent years, the story with capital availability, especially at the late stage, has been a focus on nontraditional investors. These participants are essential to the market for VC deals over $100 million, providing the crossover capital for startups prior to exiting. For nontraditional investors that hold public securities as a core strategy, these crossover rounds can be the start of a long-term relationship, which, along with deep pockets, allows these investors to be less intent on near-term price movements. This diversity of investment goals from the nontraditional cohort is also another driver in elevated prices of nontraditional venture deals. And while constantly increasing valuations bring their own worries around risk or an eventual correction, the liquidity release valve of the exit markets is still alive and well. The valuation step-ups at exit for acquisitions and IPOs were 2.2x and 1.7x, respectively, through H1 2021, both near the highs we've ever recorded. Until we see a change in behavior from corporate buyers and public market investors with their current risk-seeking via the VC ecosystem, we expect robust exit activity to persist: Click to download our free US VC Valuations Report Feel free to reach out with any feedback or questions, or if you would like to discuss the research.   Best, Cameron Stanfill, CFA Lead Analyst, Venture Capital Share:            Emerging Tech Research AI & MACHINE LEARNING: There's been a continued breakout in VC funding for AI semiconductors and AI core software, the basic building blocks of artificial intelligence. But capital has been flowing all over the industry, as AI companies closed 11 deals of $500 million or more last quarter—three led by SoftBank. There's more to uncover in our latest sector research: VC deal value in AI/ML set a third consecutive quarterly record, with $31.6 billion invested globally across 1,097 deals in Q2. After relatively low activity in the space, M&A is starting to pick up. Big tech companies are taking AI acquisitions more seriously and investing in them more heavily. Our data suggests that there are very active early-stage opportunities in natural language AI and intelligent robotics. read an executive summary   SUPPLY CHAIN TECH: New expectations around consumer delivery are beginning to carry over into the world of on-demand B2B delivery. That's one key takeaway from our new research on the technology impacting a global supply chain that remains heavily disrupted almost two years into the pandemic: Supply chain tech startups raised $7.9 billion across 174 deals in Q2, with downstream logistics companies like freight and delivery tech receiving the bulk of investment. Headlines are dominated by robotaxis and self-driving cars, but we think the trucking industry might actually be the first area to adopt on-road autonomous technology. Visibility into port logistics has historically been low, but that's changing as investors put money into management software, data analytics and AI tools to improve areas like drayage. read an executive summary Deal Commentary Senior PE analyst Wylie Fernyhough weighs in on the news that Petershill, the GP stakes arm of Goldman Sachs, is considering a public listing for a permanent capital vehicle: "Liquidity has long been a leading question around GP stakes as many funds have 15-year-plus or perpetual lives. "While this timeframe aligns the GP stakes and target firms, LPs often question what liquidity looks like for them. "In the past, we have seen simple liquidity measures taken. However, many of the more complex options have remained theoretical—at least until now, with Petershill looking to publicly list a fund in London, according to Bloomberg. "Whether other firms will be able to follow is unknown. Specific legal provisions must be incorporated in original fund documents and each deal if the fund hopes to list as an operating company rather than a closed-end fund. "A fund IPO would be a massive step forward for the industry if they are able to provide liquidity to LPs while keeping the GP stakes firm and target firm relationship intact—especially if they achieve the multiples that firms like EQT have in public markets. "With the fund's broad and diversified cash-flow stream, it just might." Read our past research: Monetizing GP stakes   Wylie Fernyhough Senior Analyst Private Equity Lead Mobility tech analyst Asad Hussain weighs in on the news that Waymo will expand its robotaxi offering into San Francisco (which he previously forecast): "As we predicted in our June report Robotaxis and the Road to Profitability, the primary purpose of Waymo's $2.5 billion Series B was to expand into San Francisco. "While Waymo has made progress automating vehicles and is largely regarded as the leader in autonomous driving, the company has failed to scale or expand despite several nearby areas possessing similar weather and traffic conditions. "We believe this reflects the poor economics of operating a ride-hailing model in suburban and less dense areas where ride volumes are low and car ownership is popular. "Both Uber and Lyft generate most of their profits from large cities, including New York City and San Francisco, where trips are frequent and prices remain relatively high. "While suburban locations provide safe testing grounds for robotaxis, dense cities' higher utilization rates will be necessary to achieve profitability. "In San Francisco, Waymo will come into more direct competition with Cruise, another robotaxi company."   Asad Hussain Senior Emerging Technology Analyst Mobility Tech In the News Our insights and data featured in the press: Startups are charging consumers hundreds of dollars to analyze their gut microbes and offer dietary advice based on results. [NBC News] A deep dive into our US VC Valuations Report stresses the role of nontraditional investors on price increases. [Institutional Investor] Mental health startups are convincing major companies that they can fight burnout. [Insider] How VC can join the ESG revolution after lagging behind. [Stanford Social Innovation Review] If you're a media member interested in interviewing our analysts, contact our PR team. ICYMI Highlights from our other research content published this quarter: Market updates Private Fund Strategies Report Emerging Tech Indicator Global Private Debt Report US Venture Capital: Momentum Out of Uncertainty Global M&A Report Thematic research Emerging Opportunities: Real-World Evidence Transformative Agtech and Sustainability Challenges Analysis of Public PE Firm Earnings: Q2 Seeding and Anchoring PE Managers 2021 European PE/VC Predictions: H1 Follow-Up Emerging Technology Research (free previews) Insurtech Foodtech Enterprise Healthtech Mobility Tech Information Security Coming next week (subject to change) Greater China VC Report (NEW!) Global Fund Performance Report European VC Valuations Report A primer on the DeFi industry (sneak peek) Analysis into VC returns by series SoftBank's run on IPOs ETR: Agtech ETR: Retail Healthtech h/t to @alex for today's subject line inspiration Thanks for reading! Feel free to email us any time with feedback, questions or tips! 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