1H 2016 VC Liquidity Report - PitchBook

1H 2016 VC Liquidity Report Test drive PitchBook [email protected]

VC Exit Trends 1H 2016 SAW A SLOWDOWN IN EXIT ACTIVITY The exit count in 1H 2016 looked vastly different from the year prior, falling 24.7% from 2H 2015 and putting this year on pace to record the fewest exits since 2011. The substantial drop can be largely attributed to frothy valuations coupled with a choppy public market—ultimately reducing investors' risk appetite for younger companies coming to market. The above-mentioned investor hesitancy has also forced late-stage companies to continue raising capital privately. QUARTERLY NUMBERS REVEAL ROBUST EXITS While 1H exit activity dropped dramatically across North America and Europe, overall exit value remained in line with 2015’s tally. This occurrence is largely attributable to a number of large scale acquisitions, namely AbbVie’s $10 billion acquisition of Stemcentrx, which in turn inflated total exit value. The considerable acquisition sizes that were seen throughout the first half of the year demonstrated a shift in marketplace behavior, as corporate acquirers pivoted their interest toward quality over quantity.

VC Exit Trends UNICORN DEALS CONTINUE TO OUTPACE UNICORN EXITS Since 2014, the number of $1 billion+ valuations has vastly outpaced the number of unicorn exits, and the gap appears to only be widening further into 1H. In the near future, unicorns may begin feeling pressure to exit, which could result in an IPO bottleneck. Moreover, we may see unicorns forced to accept deflated acquisition offers due to the limited number of companies able to dole out billions on a purchase, or choose to raise another private round at a lower valuation. SPOTLIGHT ON PHARMACEUTICALS & BIOTECHNOLOGY Fueled by corporate acquisitions, the pharma and biotech market saw $17.5 billion in exit value across 46 transactions in the first half of 2016. The sector accounted for 54% of all VC-backed exit value during 1H 2016, but 80% of that total resulted from AbbVie’s $10 billion acquisition of Stemcentrx and AstraZeneca’s $4 billion acquisition of Acerta Pharma. Pharma companies looking to build pipelines have utilized M&A as a primary growth strategy, bidding on early-stage companies, which in many cases can make the economics of a transaction much more enticing and affordable.

VC-Backed Exits Overview

Exits by Half-Year VC-backed exit activity was down by 25%, dipping to the lowest level since 2011 VC-backed exits by half-year $70 $60

699

$40

464 428

378

479

513

800

722

700 600

608

546

544

522

368

364

782 756

630 630

$50

$30

900

834

400

327 295

372

300

$20

200 $16

$16

$28

$27

$17

$10

$5

$13

$16

$19

$25

$20

$34

$27

$21

$31

$35

$65

$28

$38

$32

$10 $0

500

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2006

2007

2008

2009

2010

Exit Value ($B)

2011

2012

2013

2014

2015

2016

# of Exits Closed Source: PitchBook

100 0

Exits by Quarter 57% of total exit value in 2Q 2016 resulted from the $10B Stemcentrx acquisition VC-backed exits by quarter $50

411

$45 $40

346

337

293

384

368

353

372

400 350 350

372 314

294

450

414

336

$35 $30

423

270

294

274

300 250

$25 200

$20

150

$15

100

$10 $25

$13

$14

$10

$10

$12

$19

$18

$17

$21

$44

$14

$14

$17

$21

$15

$18

$0

$9

$5 1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

2012

2013 Exit Value ($B)

2014

2015

2016

# of Exits Closed Source: PitchBook

50 0

Exits by Size Deals valued between $100M and $500M accounted for 30% of completed exits in 1H VC-backed exits by size (#)

Though only nine exits of $500M+ were completed, the bucket accounted for 58% of total exit value in 1H VC-backed exits by size ($)

100%

100% $500M+

90% 80%

$500M+

90% 80%

$100M$500M

70% 60%

$100M$500M

70% 60%

$50M$100M

50% 40%

$50M$100M

50% 40%

$25M$50M

30%

20%

2016*

2015

2014

2013

2012

2011

2010

0% 2009

Source: PitchBook *as of 6/30/2016

2008

2016*

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

0%

Under $25M

10% 2007

Under $25M

10%

2006

20%

$25M$50M

30%


Exits by Sector IT hardware exits have significantly declined over the past decade as software has become a focal point VC-backed exits by sector (#) 100%

Other

90%

Software

80%

Commercial services accounted for almost 20% of exit value, spurred by several $500M+ deals VC-backed exits by sector ($) 100%

Other

90%

Software

80% Pharma and Biotech

70%

Pharma and Biotech

70%

60%

Media

60%

Media

50%

IT Hardware

50%

IT Hardware

0% 2016*

2015

2014

Commercial Services

2013

2016*

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Commercial Services Source: PitchBook *as of 6/30/2016

2012

0%

Consumer Goods & Recreation

10% 2011

Consumer Goods & Recreation

10%

Energy

20%

2010

20%

30%

2009

Energy

Healthcare Services/Supplies

2008

30%

40%

2007

Healthcare Services/Supplies

2006

40%


Exits by Type

Acquisitions While activity in the M&A market has declined immensely, transaction sizes have remained robust Corporate acquisitions by year $90

1400 $60

$80

1,034

$60

821

$50

$53.7

1,191


$70

$40

1,049

1200 $50

1,173

1000

873

$40 800

643 576

570

430 400 $20

$28

$48

$77

$38

$35

$34

$27

$16

$24

$37

$24

$20

$0

$40.0

$30 600

549

$30

$10

The 34% jump in median acquisition size is a product of rising valuations and desperation driving corporate M&A Median corporate acquisition size ($M)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Exit Value ($B)

# of Exits Closed

200 $10


0 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

IPOs IPO activity saw a substantial decline with just $2B raised across 34 offerings IPO activity by year $25

250$400


$350 200 $300

195

$20

$15

The median IPO offering amount fell to $50M alongside a $32M drop in median IPO valuation Median IPO size and valuation by year

148 127

$250 150

114

$10

85 29

34

50

$100

$60.7

$50.0

$2

$11

$18

$10

$22

$8

$50 $4

$11

$6

$181.6

100$150

81

19 $0

$213.5

$200

135

64 $5


2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Exit Value ($B)

# of Exits Closed

0

$0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Median IPO Offering ($M)

Median IPO Valuation ($M)

$1B+ Exit Activity As the late-stage exit market remains depressed, only four $1B+ exits were completed in 1H $1B+ exit activity by year $120

The number of $1B+ VC valuations vastly outpaced the number of $1B+ exits by a 5:1 ratio $1B+ deals and exits by year 30 100



25 25 80

$100 19

$80 15

$60

20 60

16

15

12

40

10 $40

$35

$81

$40

$106

$38

2

$20

4

4

3 $12

$0

10

7

$17

$20

79

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Aggregate Valuation ($B)

# of Exits Closed

5

19

20

20 4

0 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* # of $1B+ Valued Exits

# of $1B+ Valued VC Deals

Time to Exit As a larger concentration of companies opt to remain private, median time to IPO has increased by two years Median years from first VC financing to exit by year 10.0

The growing size of late-stage rounds is leading companies down a longer runway to exit Median years from last VC financing to exit by year 2.5 2.22

8.19 8.0

2.0

2.05

6.14 6.0

1.5 4.58

4.0

4.33

2.0

0.90

1.0 0.75

0.5 Source: PitchBook *as of 6/30/2016

Acquisition/Buyout

IPO

0.0


Acquisition/Buyout

IPO

0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

US +1 206.623.1986 UK +44 207.190.9809 Test drive PitchBook [email protected]