Information technology. 1,170. 186. 1,332 ... Information technology. 9.9. 2.1. 13.4. 4.7 ... dominated the IPO rankings
2014 Venture Capital Review
Venture capital activity reaches 13-year high The venture capital (VC) industry had an exceptional year in 2014. Funding was back to levels not seen since 2000, median deal sizes were higher across all development stages and we saw more “mega-investments” of more than US$50m than at any point since 2000. With the macroeconomic situation improving and an active exit environment, in which VC-backed IPOs both increased in number and outperformed other IPOs (including those backed by PE), the prospects for 2015 look strong.
VC investors put more capital to work Global VC funding levels in 2014 were at their highest level for 13 years, with average deal size continuing to increase, making 2014 the best year for VC investment activity since 2000. In 2014,
US$86.7b was raised globally, surpassing every year since 2000, when US$116.3b was raised. The strong growth in funding was evident in all three key VC markets — the US, Europe and China.
Global venture capital investment
51.1
35.6
46.6
56.0
49.8
100
6,040 80
5,500
53.5
86.7
6,551
6,507
6,085 6,000
5,458
5,000 26.1
60
4,000 13.0
10.1
13.1 15.2
13.8 20
13.7
11.4
0
11.3
9.7
8.7 8.5
15.5
11.8
14.6
19.9
3,000
Number of rounds
Amount invested (US$b)
4,813
40
7,000
2,000
14.5 23.1
14.5
13.9
13.5
1,000
13.6
6.8
9.9
12.9
11.2
10.9
17.6
2008
2009
2010
2011
2012
2013
2014
Amount invested during Q1 (US$b)
Amount invested during Q2 (US$b)
Amount invested during Q3 (US$b)
Amount invested during Q4 (US$b)
0
Number of rounds during the year/quarter Note: Global total includes the US, Europe, Canada, China, Israel (all site) and India only.
1
Compared with 2013, median deal sizes increased significantly across all stages of development in 2014, particularly in the US, Europe and China. The rate of growth was highest in China, which recorded the highest median value across all markets in 2014. While the revenue generation stage continued to attract the largest share of investment, VC activity also increased in the
early-stage rounds. From a sector perspective, consumer services and business and financial services were the preferred areas for global VC investors, both in volume and value terms. Consumer services activity was particularly strong in Europe and China.
32mmx55mm 32mmx55mm
Venture capital investment by industry Number of rounds 2011 Business and financial services
2011
Consumer goods Business and financial services
186
Consumer services Consumer goods Energy and utilities Consumer services Health care Energy and utilities Industrial goods and materials Health care Information technology Industrial goods and materials
2012 1,170
2012 191
1,170 1,332
186 240
1,332 1,179
240 253
214
1,670
Information technology
Consumer goods Business and financial services Consumer services Consumer goods
2011 2.1
Information technology Industrial goods and materials Information technology
2
| 2014 Venture Capital Review
9.9
1,475 1,475 1,095
13.4
2.4 2.4
13.4 12.7 12.7 10.4 10.4
218 163 163 213
1,095 1,745
213
1.4 2.5 2.5 2.1 2.1
2014 1,535 1,535 1,544 1,544 1,130
1,738
9.4 11.7 11.7 11.0 11.0 11.3 11.3
1,682 1,690
226 121
145
2013 9.4
226
121
1,130
1,682
2014
1,690 1,064 1,064 1,554
145
1,554
1,738
1,745
1.4
9.9
4.7
218
1,163
214
2012
4.7
Health care Energy and utilities
2013
2012
2.1
Energy and utilities Consumer services
Industrial goods and materials Health care
1,163
1,670
2011 Amount invested (US$b) Business and financial services
181 181
1,179
253
191
2013
2013 1.5 1.5 1.7 1.7 2.1 2.1
2014 12.1 12.1 12.6 12.6 11.7 11.7 11.5 11.5
20.2
2014 1.7
20.2 29.0
1.7 1.7 1.7 4.7 4.7
29.0 14.0 14.0 14.7 14.7
Mega-investments on the rise in 2014 2014 was notable for the increase in mega-investments of more than US$50m. More than 300 companies received this level of
investment in 2014 (US$39.4), double the number of mega-investments in 2013.
197 197
25 25
22.3 22.3
20 20 15 15
5 5 0 0
61 61
38 38 4.1 4.1
0.3 4 0.3 4
Canada Canada
China China
150 150 100 100
9.1 9.1
10 10
200 200
Europe Europe
50 50
3.4 3.4
14 14
3 3
India India
0.2 0.2
Israel Israel
United States United States
Number Numberofofrounds rounds
Mega-investments Mega-investmentsby byregion region(US$b) (US$b)
Mega-investments by region 2014 (US$b) — number of rounds
0 0
Number of rounds during 2014 Number of rounds during 2014
Amount invested during 2014 (US$b) Amount invested during 2014 (US$b)
20 20 15 15 10 10
100 100
107 107
81 81
57 57
7.9 7.9
62 62 7.7 7.7
4.6 4.6
5 5
0.8 7 0.8
0.3 3 0.3
Business and Business and financial services financial services
Consumer Consumer goods goods
Consumer Consumer services services
Amount invested during 2014 (US$b) Amount invested during 2014 (US$b)
Amount invested during Q3 (US$b) Amount invested during Q3 (US$b)
Energy and Energy and utilities utilities
Health care Health care
80 80 60 60 40 40 20 20
7
3
0 0
120 120
18.2 18.2
Information Information technology technology
Number Numberofofrounds rounds
Mega-investments Mega-investmentsby bysector sector(US$b) (US$b)
Mega-investments by sector 2014 (US$b) — number of rounds
0 0
Number of rounds during 2014 Number of rounds during 2014
Number of rounds during the year/quarter Number of rounds during the year/quarter
3
Positive exit and fundraising environments drive activity Improving macroeconomic conditions underpinned investor confidence and fueled an active exit and positive fundraising environment, which supported the increase in global VC activity in 2014. The IPO window remained open throughout the year and M&A activity was up on 2013 levels in all VC markets. In the US, the increase in IPO volumes was solid, but paled by comparison with China, which saw a three-fold increase in activity as capital markets reopened, and with Europe, where activity levels more than doubled. IPO activity in smaller VC markets, such as Israel and Canada, also reached its highest levels in the last six years. 9.2
Globally, more than 70% (77% in the US) of VC-backed IPOs were in the tech and health care sectors. In 2014, both of these sectors dominated the IPO rankings with health care accounting for the greatest number of deals (193) and tech accounting for the greatest amount of capital raised (US$50.2b). 120 100
105 Amount raised through IPO exits by region 2014 (US$b) — number of exits 8 7.1 10 6
9.2
8 4
105
4.8
4 0 2 0
60 100
7.1
55
6 2
80 120
61
40 80
61
4.8
0.2
55 United States
Europe
China
Canada
Europe
China
India
0.5
Israel
7 0.9 2 0.5 Number of IPO exits
Amount raised through IPO exits (US$b) 0.2 4
United States
7
0.9 2
4
Canada
India
Israel
20 60 0 40 20
Number ofNumber IPO exitsof IPO exits
Mega-investments Mega-investments by by region (US$b) region (US$b)
10
VC-backed IPOs delivered particularly well for investors, outperforming all other IPOs in 2014, including those that were backed by PE. Although VC is traditionally attracted to the highest growth sectors and its investments are considered higher growth than PE portfolio companies, the degree of difference in performance was significant.
0
Number of IPO exits
Amount raised through IPO exits (US$b)
Amount raised through IPO exits by sector 2014 (US$b) — number of exits
2.5
8
2.5
Business 18 and financial services
VC contacts
5.0
1.8
18
1.8
Consumer goods 8
25 Consumer services 25
Consumer goods
Consumer services
26
0.9
Energy and Health care 0.9 utilities
7
26
Industrial goods 0.5and materials Industrial goods and materials
Number of rounds during the year/quarter
Bryan Pearce +1 617 585 0499
[email protected] | 2014 Venture Capital Review
Information 36 technology
0 40 20 0
Information technology
Amount invested during Q3 (US$b) Global Growth Markets NumberRegional of IPO exitsVC Amount raisedStrategic through IPO exits (US$b) Number of rounds during the year/quarter
Global VC Leader
20 60
Number of IPO exits
Energy and Health care utilities
Maria Pinelli +44 20 7980 0960 Amount invested during Q3 (US$b)
[email protected]
40 80
4.2 36
0.5
7
Amount raised through IPO exits (US$b)
Business and financial services
4
80 120
4.2
60 100
5 2 4 1
0
5.0 114
7.1
7 4 6 3
1
120 100
6 8 5
3 0 2
114
7.1
7
Number ofNumber IPO exitsof IPO exits
Mega-investments Mega-investments by by sector (US$b) sector (US$b)
8
leaders
Markets and Operations Sandra Feldner Vandergriff +1 213 977 3253
[email protected] United States Jeff Grabow +1 408 947 5607
[email protected]
The US and Europe continued to dominate the global M&A exit landscape in 2014, with the US accounting for 66% of global deals. VC-backed M&A activity remained particularly strong in the US on
the back of big-ticket deals, with the amount raised through M&A exits at its highest level since 2008.
483
80
500
70
79.8
80 60 70 50
483
400 500
79.8
300 400
60 40
181
50 30 40 20
181
30 10 20 0 10 0
200 300
United States
10.6
6.5
10.6 Europe
China 19
0.6
19
6.5
Europe
17
0.6
Canada 22
Amount raised through M&A exits (US$b)
United States
1.0
22
China
Canada
1.0
100 200
1.0
0 100
11
1.0
India
17
Israel
11
Number of M&A exits
India
Israel
NumberNumber of M&Aof exits M&A exits
Mega-investments Mega-investments by by region (US$b) region (US$b)
Amount raised through M&A exits by region 2014 (US$b) — number of exits
0
Number of M&A exits
Amount raised through M&A exits (US$b)
Amount raised through M&A exits by sector 2014 (US$b) — number of exits 377
400 18.8
300 400
14.9
15 10
18.8
14.9
10 5
145 1.2
15 5 0 0
350
377
20 15
145
1.0 23
10.4
10.4
153
143
10.4
10.4
153
1.2
Business Consumer Consumer 1.0 Energy 23 and Health care 15 and financial goods services utilities services Business Consumer Consumer Energy and Health care Amount raised through M&A exitsutilities (US$b) and financial goods services services Amount raised through M&A exits (US$b)
The fundraising environment in 2014 was most positive in the US, with early- and late-stage financing running at multi-year highs. In the Asia-Pacific region, VC funds continued to target early stage
2.0
143
11 2.0 Industrial Information 11 and technology goods materials Industrial Information Number M&A exits goods and of technology materials
200 300 150 250 100 200 50 150 0 100 50 0
Number of M&A exits
investing reflected by an increasing proportion of early stage funds closed. The Asia-Pacific region recorded the biggest gains in average fund values compared with 2013.
Israel Oren Bar-On +97 2 3568 7102
[email protected]
France and Luxembourg Franck Sebag +33 1 46 93 73 76
[email protected]
Asia-Pacific Ringo Choi +86 755 2502 8298
[email protected]
EMEIA Demet Ozdemir +90 212 408 5405
[email protected]
India Mayank Rastogi +91 22 6192 0850
[email protected]
Greater China Lawrence Lau +862 1222 82816
[email protected]
sector US$b) (US$b)
250 350
NumberNumber of M&Aof exits M&A exits
Mega-investments Mega-investments by by sector (US$b) sector (US$b)
20
5
Outlook positive but global economy at an inflection point Looking ahead to 2015, we expect the upward trend in VC activity to be maintained, provided that the expected tightening in US monetary conditions does not damage investor confidence and undermine the exit environment. With US growth leading the global economic recovery, the Federal Reserve has now ended its quantitative easing (QE) program and is expected to raise interest rates at some point in 2015. However, it remains uncertain whether the US can manage the shift away from unconventional monetary policy without unsettling asset markets. From a geographic perspective, given the strength of its economic recovery, we expect VC activity in the US to continue to perform well in 2015. The tightening of the US labor market is a key determinant of when the US will start to raise interest rates. From a VC viewpoint, however, it is the focus on job creation in small entrepreneurial businesses within the tightening labor market that will help support VC investment. The outlook for Europe is more uncertain given the anaemic Eurozone recovery, discussions around quantitative easing and resulting currency market instability impacting confidence. Germany, Europe’s largest economy, was the second most preferred VC destination after the US Bay Area in 2014, but this performance may not be maintained as its key export markets, particularly China, are slowing. Despite slower growth in China, which the monetary authorities are combatting with easier monetary policy, the structural rebalancing of the Chinese economy will continue to support VC activity. The Chinese financial system is becoming more mature and the ongoing shift away from over-investment in export-led growth toward domestic consumption will continue to support VC investment in consumer and business services.
Investors remain keen Global VC investors recognize these trends, as shown by greater willingness to invest in 2014. We believe they are likely to remain keen to invest at an early stage in emerging markets in pursuit of higher returns. Activity in China is expected to remain robust and interest in India will be heightened following the installation of a more pro-business government. Lower oil prices will further boost economic activity helping to sustain a positive operating environment for VC. In terms of sectors, we anticipate that interest will continue to focus on technology, health care, consumer, business and financial services.
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EY’s Strategic Growth Markets Network EY’s worldwide Strategic Growth Markets Network is dedicated to serving the changing needs of high-growth companies. For more than 30 years, we’ve helped many of the world’s most dynamic and ambitious companies grow into market leaders. Whether working with international mid-cap companies or early-stage venture-backed businesses, our professionals draw upon their extensive experience, insight and global resources to help your business succeed. © 2015 EYGM Limited. All Rights Reserved. EYG no. CY0868 ED None The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice..
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