VC Valuations Report - PitchBook

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2016 Annual

VC Valuations Report

Credits & Contact PitchBook Data, Inc. JOHN GABBERT Founder, CEO ADLEY BOWDEN Vice President, Market Development & Analysis

Content NIZAR TARH U NI Analysis Manager K YLE STANFORD Analyst BRYAN HANSON Data Analyst J ENNIFER SAM Senior Graphic Designer

Contact PitchBook pitchbook.com

Contents

RESE ARCH [email protected] EDITORIAL [email protected] SALES

Introduction

3

Overview

4–6

Seed

7-8

Series A

9-10

Series B

11-12

Series C

13-14

Series D and Later

15-16

Corporate, Hedge & Mutual Fund Participation Valuation Step-Ups, Changes & Time Between Rounds

17-18 19-20 21-22

Liquidation Participation

[email protected]

COPYRIGHT © 2017 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

The PitchBook Platform The data in this report comes from the PitchBook Platform—our data software for VC, PE and M&A. Contact [email protected] to request a free trial.

2 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

US VC valuations still growing Introduction

Key takeaways » Despite the overall decline in venture capital activity last year, median valuations continued to rise



» VC deals with corporate VC participation have consistently been completed at higher valuations that those without » Participating liquidation preferences have declined to the lowest levels in the past decade

Valuations are one of the most intriguing parts of VC. A number that at times seems arbitrary, is at other times a driving force behind a bubble. The recent growth of VC valuations may have created an even hazier understanding of how round prices are agreed upon, or even if VC is able to price itself correctly. This report offers thorough datasets of US VC valuations from the past decade, providing break downs by series, stage, sector and more. In addition, data surrounding corporate VC, mutual funds and hedge funds is provided, as well as a section dedicated to liquidation preferences around the industry. We hope this report helps inform your analysis around current VC valuation trends. If you have any questions or comments, please feel free to reach out to us at [email protected]

K YLE STANFORD Analyst

3 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

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The new normal Overview The general attitude around the venture industry coming into 2016 wasn’t one of excitement, to say the least. The exit market had dramatically slowed in the second half of 2015, and the dislocation between median late-stage private valuations and the falling prices of public tech comparables caused a frenzied response to what was deemed at the time a valuation bubble. Sure, several private tech companies had their valuations marked down by mutual fund investors, but the price of their most recent rounds didn’t change. The growth in private valuations had been undeniably extensive. Never had so many companies been valued at $1 billion than before 2016 began, and never had there been so much unrealized value in the VC market.

US VC activity by year

$90 $80 $70 $60

Deal Value ($B)

# of Deals Closed

Angel/Seed

Early VC

12,000 10,496 10,000

Late VC

$50 $40 $30

8,467

8,000

5,695 4,280

6,000

2,971

$20

4,000 2,595 2,000

$10

1,830

1,592 0

$0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Source: PitchBook *As of 3/1/2017

US VC activity by quarter

$25 $20

Deal Value ($B)

# of Deals Closed

Angel/Seed

Early VC

3,000 2,500

Late VC

2,031

$15

2,000 1,500

$10

1,012

1,000

655

$5

500 364

$0

0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q* 2010

2011

2012

2013

2014

2015

2016

2017 Source: PitchBook *As of 3/1/2017

4 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

At the beginning of 2016, vintage 2009 through vintage 2012 residual value-to-paid in (RVPI) multiples all stood above 1.1x. As the industry became stretched with valuations growing and exit opportunities sliding, entrepreneurs and investors alike began to see that capital needed to be invested and raised in a more rational way. The number of unicorn deals declined

significantly last year, falling to just 37 from 60 the year before, but any hesitance created at the top of the market didn’t make its way throughout earlier stages of the industry. Relative to historical figures, VC activity stayed high in 2016 as 8,467 deals were completed and the decade’s second-highest capital sum made its way into

startups. Deal sizes continued to grow as investors looked for companies with more traction and emphasized slower burn rates. Altogether, median valuations stayed elevated across the board, growing at nearly every stage in 2016. Certain signs of a plateau did begin to show last year, however. Series D+ valuations dropped year-over-

US VC activity (#) by stage

Median % acquired by series in US

2017 1Q* 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q

25.7%

25%

24.5%

22.0% 22.0% 20.0% 20.3% 20.2% 18.4%

20% 15%

13.1%

10% Series A

Series C

Series D+

Series B

2013

Seed

13.5%

2014

30%

2015

2016

35%

5% 0%

0% 20% Angel/Seed

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* Source: PitchBook *As of 3/1/2017

40% 60% Early VC

80% Later VC

Source: PitchBook *As of 3/1/2017

Median age (years) of late-stage US VC-backed startups

Median age (years) of early-stage US VC-backed startups

12

6 4.9

5

5.1

10.4

5.1

10 8.2

4 3.3

3.4

3.7

3

1.7

2.0

2.1

1 Series A

Series B

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

6.3

6.4

6.4

4

2 Seed

8.7

8

6

2

0

100%

0

Series C

Series D+

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Source: PitchBook *As of 3/1/2017

5 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Source: PitchBook *As of 3/1/2017

Median US early-stage post-money valuations ($M) by years $60

Seed

$50

Series A

Series B

$50.6

$50.0

Source: PitchBook *As of 3/1/2017

$40 $30

$25.8 $21.0

$20 $10

$8.0

$7.7

2016

2017*

$0 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Median US late-stage post-money valuations ($M) by years $250 $194.8

$200 Series C $150

Series D+

$160.4

Source: PitchBook *As of 3/1/2017

$100.4 $100.0

$100

$50

$0 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017*

Companies (#) with exit value < prior financing post-money valuation

40

37

35

31

30 25 20 15 10 5

Source: PitchBook *As of 3/1/2017

year (YoY) for the first time since 2009, and Series B valuations grew only slightly ($400,000 at the median). Further, the highest number of companies in the last decade exited at a valuation lower than their most recent private value. We have also seen cracks develop in the previously exalted ranks of unicorns. Zenefits will cut 50% of its workforce and has replaced its CEO after legal questions around its platform arose; lending marketplace Prosper is reportedly in the process of raising a massive down round; and Uber has been embroiled in a series of controversies over recent months. Put more simply, unicorns are reaching the point where more than just growth metrics matter. But the overarching theme stays the same: Venture is healthy. Several unicorns have already made their exits thus far in 2017. The high-profile IPO of Snap (NYSE: SNAP) raised $3.4 billion at a valuation of almost $20 billion. AppDynamics was acquired by Cisco (NYSE: CSCO) for $3.7 billion just before making its public debut. And just last week, Okta ($1. 2 billion valuation) and Yext ($566 million valuation) filed for IPOs—while these valuations may not be near the top of venture industry, the appetite shown for their offerings could prove a more appropriate barometer for the greater exit market in 2017. While analyzing private valuations can provide insight into the status of the market, until there are actual exits, we won’t know how well the industry has priced itself in recent years.

2

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

6 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Seed stage seeing significant change Seed valuations and trends

Median seed valuations ($M) by sector

Access to newer forms of capital have lengthened seed timeline

$16

The growth of new forms of investors, namely accelerators, pre-seed funds and crowdfunding sites, have given entrepreneurs several different routes to launching a business than raising seed capital. The median age of a company before bringing on seed investment lengthened to two years in 2016, resulting in startups entering the venture lifecycle with more developed business ideas and a team of employees. It makes sense then that the median seed size has grown by more than 200% since 2010—to $1.5 million in 2016— equating to a median valuation figure that has increased by 87% during that time to $8 million.

$14 $12

Total

So�ware

Commercial Services

Pharma & Biotech

$10 $8 $6 $4 $2 $0 2010

2011

2012

2013

2014

2015

2016

Source: PitchBook

Investors holding strong on seed stage stakes Median % acquired at seed by sector

Seed deal sizes roughly double over last three years Median seed round size ($M) by sector

26%

$1.6 Total

So�ware

Commercial Services

24%

Total

$1.4

So�ware

$1.2 22% 20.6% 20.0% 20.0%

20%

Commercial Services Pharma & Biotech

$1.0 $0.8 $0.6

18%

$0.4 16%

$0.2

14% 2010

2011

2012

2013

2014

2015

2016

$0.0 2010

2011

Source: PitchBook

7 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

2012

2013

2014

2015

2016

Source: PitchBook

Median software seed size and post-money valuation ($M)

Median seed size and post-money valuation ($M)

$9

$9

Post-money valua�on

$8

$8.0 $6.8

$5.8

$6 $5.1 $5

$7.2

$7

$6.0

$6

$5.3

$5.0 $5

$4.3

$4

$4

$3

$3

$2 $1.00

$1

$8.5

Deal Size

$8

Deal Size

$7

Post-money valua�on

$5.9

$5.7

$6.0

$4.5

$2

$1.47

$1.10

$1.50

$1

$0

$0

2010

2011

2012

2013

2014

2015

2016

2010

2011

2012

2013

2014

Source: PitchBook

2015

2016

Source: PitchBook

Median commercial services seed round size and postmoney valuation ($M)

Median pharma & biotech seed round size and postmoney valuation ($M)

$9

$16

Post-money valua�on

$8

Deal Size

$4

Deal Size

$6.9

$12

$6.2

$6.0

$9.9

$10

$5.2

$5

Post-money valua�on

$14

$7 $6

$14.5

$8.0

$4.5

$8.0

$8

$3.8

$6.8 $5.6

$6

$3

$4

$2 $1.00

$1

$1.20

$4.9

$2.8

$2

$1.00

$1.43

$0

$0 2010

2011

2012

2013

2014

2015

2010

2016

2011

2012

2013

2014

Source: PitchBook

2015

2016

Source: PitchBook

Select largest seed valuations of 2016

Company

Deal size ($M)

Post-valuation ($M)

Date

HQ City

State

Industry

Boomcloud 360

$5.5

$132.2

2/25/2016

Austin

TX

Software

Kinetica

$6.0

$78.0

4/10/2016

San Francisco

CA

Software

SafeGraph

$19.5

$78.0

9/12/2016

San Francisco

CA

Software

Stellar Labs

$3.7

$62.6

5/26/2016

Redwood City

CA

Software

SaltStack

$16.0

$60.0

11/4/2016

Lehi

UT

Software Source: PitchBook

8 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Series A financings continue growth Series A valuations and trends

Median Series A post-money valuations ($M) by sector

The vast number of seed-funded companies gives investors plenty of options

$35 $30

Total

So�ware

Commercial Services

Pharma & Biotech

More than 11,000 seed and angel deals were closed between 2014 and 2015, giving Series A investors plenty of choice when startups came back to the table. Knowing this, investors have been able to increase certain benchmarks they are looking for in potential Series A investments. From just 2013, Series A valuations have increased by 57%, with deal sizes growing by roughly the same percentage.

$25 $20 $15 $10 $5 $0 2010

2011

2012

2013

2014

2015

2016

Source: PitchBook

Pharma & biotech financing sizes far outpace other sectors as of late Median Series A round size ($M) by sector

Unsurprisingly, lofty financing sizes come with greater percentages acquired Median % acquired at Series A by sector

$10

40% 37.5%

$9

Total

So�ware

$8

Commercial Services

Pharma & Biotech

35%

32.8%

$7 $6

30%

$5 $4

25%

$3 $2

20%

$1 $0 2010

2011

2012

2013

2014

2015

2016

25.8%

25.0% 25.0%

25.5%

23.0%

22.7%

Total

So�ware

Commercial Services

Pharma & Biotech

15% 2010

2011

Source: PitchBook

9 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

2012

2013

2014

2015

2016

Source: PitchBook

Median Series A round size and post-money valuation ($M)

Median software Series A round size and post-money valuation ($M)

$25

$25 Post-money valua�on

Post-money valua�on

$21.0

Deal Size

$19.5

$20

$21.0 $17.5

$16.6 $15

$10

$15

$13.3 $10.1

$10.5

$20.8

Deal Size

$20

$13.3 $11.9

$11.7

$10

$4.50

$5

$5.00

$9.8

$10.1

$5.00

$5

$5.50

$0

$0 2010

2011

2012

2013

2014

2015

2010

2016

2011

2012

2013

2014

2015

2016

Source: PitchBook

Source: PitchBook

Median commercial services Series A round size and post-money valuation ($M)

Median pharma & biotech Series A round size and postmoney valuation ($M)

$30

$35

$25

Deal Size

$25

$20.0

$20

$10

$30

$23.9

Deal Size

$20.5

$9.0

$10.1

$10.4

$20.3

$20

$15.2

$15

$31.0

Post-money valua�on

Post-money valua�on

$11.8

$15

$14.9

$15.1

$20.0

$16.1

$10

$8.60 $6.06

$5

$3.50

$4.00

2015

2016

$5 $0

$0 2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

2015

2016

Source: PitchBook

Source: PitchBook

Select largest Series A valuations of 2016

Company

Deal size ($M)

Post-valuation (SM)

Date

HQ City

State

Industry

Zoox

$50.0

$1,550.0

11/7/2016

Menlo Park

CA

Automotive

Seven Bridges

$45.0

$410.3

2/16/2016

Cambridge

MA

Healthcare systems

Osterhout Design Group

$58.0

$258.0

11/28/2016

San Francisco

CA

Accessories

Headspace

$34.3

$239.0

3/18/2016

Los Angeles

CA

Software

Jive Communications

$7.5

$237.6

8/10/2016

Orem

UT

Wireless service providers Source: PitchBook

10 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Series B valuations beginning to form plateau Series B valuations and trends

Series B sitting at a crossroads

Median Series B post-money valuations ($M) by sector

Series B valuations grew 83% to a median of $50.5 million between 2010 and 2015. Last year, however, the Series B median valuation flatlined, finishing the year at just $50.7 million. With that, deal sizes at the stage also flattened, realizing a jump of just $400,000 at the median. Despite these plateaus, less than 10% of the deals were raised as down rounds (9.1%), making Series B the stage with the lowest percentage of down rounds and the only to see a decline YoY in 2016.

$80

Total

So�ware

$70

Commercial Services

Pharma & Biotech

$60 $50 $40 $30 $20 $10 $0 2010

2011

2012

2013

2014

2015

2016

Source: PitchBook

The overall median percentage acquired has increased slightly in recent years Median % acquired at Series B by sector

Pharma & biotech financings continue marching upward in size Median Series B round size ($M) by sector

31%

$25

29% 27.7% 27%

$20

Total

So�ware

Commercial Services

Pharma & Biotech

25.0% 25%

$15

23% 21.2% 21%

21.2% Total

19%

19.7%

So�ware

22.2% 22.0% 20.0%

$5

Commercial Services

17%

$10

Pharma & Biotech

15% 2010

2011

2012

2013

2014

2015

2016

$0 2010

2011

Source: PitchBook

11 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

2012

2013

2014

2015

2016

Source: PitchBook

Median software Series B round size and post-money valuation ($M)

Median Series B round size and post-money valuation ($M)

$60

$50.5

Deal Size

$50

$30.1

$51.7

Deal Size $50

$46.0

$40

$34.7 $27.6

$56.2

Post-money valua�on

$50.6

$45.2

$40

$30

$60

Post-money valua�on

$36.4 $31.4

$30.9 $30

$30.1

$24.2 $20

$20

$10

$11.5

$11.9

2015

2016

$12.0

$13.0

2015

2016

$10

$0

$0 2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Source: PitchBook

Source: PitchBook

Median commercial services Series B round size and post-money valuation ($M)

Median pharma & biotech Series B round size and postmoney valuation ($M)

$70

$80

Post-money valua�on $60

$61.7

Deal Size

$64.0

$60

$50 $41.9 $40 $30

$70

Deal Size

$27.2

$30.8

$44.5

$50

$33.7

$75.3

Post-money valua�on

$39.2

$38.0

$40

$52.7

$49.0

$48.9

$30

$23.4

$20

$17.9

$20

$10

$10.0

$10.0

2015

2016

$20.0

$10 $0

$0 2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Source: PitchBook

2015

2016

Source: PitchBook

Select largest Series B valuations of 2016

Company

Deal size ($M)

Post-valuation ($M)

Date

HQ City

State

Industry

Human Longevity

$220.0

$1,888.0

4/4/2016

San Diego

CA

Pharma & biotech

Quanergy

$90.0

$1,549.9

8/22/2016

Sunnyvale

CA

Electronic components

Denali Therapeutics

$130.0

$1,130.0

6/1/2016

South San Francisco

CA

Pharma & biotech

Gusto.com

$90

$1,090.0

6/1/2016

San Francisco

CA

Software

NextVR

$80

$966.7

8/9/2016

Laguna Beach

CA

Software Source: PitchBook

12 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Median Series C valuation hits decade high Series C valuations and trends Median Series C post-money valuations ($M) by sector

$140

Total Commercial Services

$120

Median Series C valuation surpasses $100 million for first time

So�ware Pharma & Biotech

$100 $80 $60 $40 $20 $0 2010

2011

2012

2013

2014

2015

2016

Source: PitchBook

The median Series C valuation has ballooned by almost $50 million since 2010, reaching over $100 million last year for the first time. As companies have lengthened the amount of time developing at the early stage, businesses are simply larger and in many cases more valuable by the time they reach the Series C stage in today’s market. Further, there has also been a huge increase in late-stage capital in recent years. Since 2014, 21 VC vehicles based in the US have closed on at least $1 billion in commitments, combined totaling more than $30 billion. While not all is earmarked for late-stage, these funds will help sustain the increases we’ve seen in both deal sizes and valuations.

A modest uptick for overall percentages acquired in 2016 Median % acquired at Series C by sector

Deal sizes of other sectors have caught up to pharma & biotech Median Series C round size ($M) by sector

30%

$30 Total Commercial Services

28%

$25

26% 24%

23.2%

22%

20.8%

20%

16%

$15

16.5% 16.6%

$10

15.4%

14% 12% 10% 2010

Total

So�ware

Commercial Services

Pharma & Biotech

2011

2012

2013

2014

$20

18.4%

17.3%

18%

So�ware Pharma & Biotech

14.8%

$5

2015

2016

$0 2010

2011

Source: PitchBook

13 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

2012

2013

2014

2015

2016

Source: PitchBook

Median Series C round size and post-money valuation ($M)

Median software Series C round size and post-money valuation ($M)

$120

$140 Post-money valua�on

$100

Deal Size

$80 $63.3 $60

$65.0

$120

$104.1

$100

$75.5

$76.1

$80

$51.3

$40

$40 $18.0

$77.5

$58.8

$60

$20

$115.0

Deal Size

$91.1

$71.0

$125.2

Post-money valua�on

$100.4

$36.8

$21.7 $20

$22.4

2015

2016

$0

$0 2010

2011

2012

2013

2014

2015

2016

2010

2011

2012

2013

2014

Source: PitchBook

Source: PitchBook

Median pharma & biotech Series C round size and postmoney valuation ($M)

Median commercial services Series C round size and post-money valuation ($M)

$120

$140 $120

$100

$94.4

$89.2

$80

$80

$72.0

$100.0

$91.4 $75.1

$86.6 $69.7

$71.4

$60

$56.4

$55.8

$52.6

$108.0

Deal Size

Deal Size

$100

Post-money valua�on

$125.8

Post-money valua�on

$60

$22.0

$40

$40 $15.5

$20

$21.3

$20

$24.5

$24.7

$0

$0 2010

2011

2012

2013

2014

2015

2010

2016

2011

2012

2013

2014

2015

2016

Source: PitchBook

Source: PitchBook

Select largest Series C valuations of 2016

Company

Deal size ($M)

Post-valuation ($M)

Date

HQ City

State

Industry

Magic Leap

$793.5

$4,500.0

2/2/2016

Plantation

FL

Computer hardware

Pivotal Software

$653.0

$3,265.0

5/9/2016

San Francisco

CA

Software development

JetSmarter

$105.0

$1,605.0

12/12/2016

Fort Lauderdale

FL

Software

Unity Technologies

$181.0

$1,500.0

7/13/2016

San Francisco

CA

Software development

Razer

$75.0

$1,500.0

2/23/2016

Irvine

CA

Electronic equipment Source: PitchBook

14 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

First decline in late-stage valuations since 2009 Series D and later valuations and trends The latest stages cool off as nontraditionals pull back, VCs get rational

Median Series D+ post-money valuations ($M) by sector

$300

Just 21 Series D+ deals came along with a valuation of $1 billion or more in 2016, less than half the average of the previous two years. While this stat alone won’t explain a trend at this stage, it is interesting given that median Series D+ valuations saw the only YoY decline last year, falling 7% to below $193 million. Mutual funds and hedge funds, which had been part of many of the largest deals in 2014 and 2015, pulled back on participation by 42% and 37%, respectively. While certainly this is a notable source of capital, the fact that VC dry powder is at an all-time high lessens any negative impact foudners may feel in terms of capital availability.

$250

Total

So�ware

Commercial Services

Pharma & Biotech

$200 $150 $100 $50 $0 2010

2011

2012

2013

2014

2015

2016

Source: PitchBook

Percentage acquired in pharma & biotech companies has declined as of late Median % acquired at Series D+ by sector

Software’s march upward continues unabated, even as overall flatlines Median Series D+ round size ($M) by sector

22%

$60

20%

Total

So�ware

Commercial Services

Pharma & Biotech

18%

$50

So�ware

Commercial Services

Pharma & Biotech

$40

17.2%

16%

Total

15.6%

$30

15.0%

14%

13.1%

$20

12.3% 12%

12.0% 11.7%

11.8%

2015

2016

10% 2010

2011

2012

2013

2014

$10

$0 2010

2011

Source: PitchBook

15 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

2012

2013

2014

2015

2016

Source: PitchBook

Median Series D+ round size and post-money valuation ($M)

Median software Series D+ round size and post-money valuation ($M)

$250

$300 Post-money valua�on Deal Size

$250

$192.7

$200

$273.0

Post-money valua�on

$206.8

$163.0

$247.5

$253.3

Deal Size

$200

$150

$100

$97.3

$107.6

$118.4

$144.6

$150 $104.9

$82.9

$118.3

$100 $65.4

$50

$30.3

$27.0

2015

2016

$50

$0 2010

2011

2012

2013

2014

$33.8

$32.8

2015

2016

$0 2010

2011

2012

2013

2014

Source: PitchBook

Source: PitchBook

Median commercial services Series D+ round size and post-money valuation ($M)

Median pharma & biotech Series D+ round size and post-money valuation ($M)

$200

$200

Post-money valua�on

$180

$160.0

Deal Size

$160

$172.0 $153.9

$100

$181.2

Deal Size

$160

$140 $120

Post-money valua�on

$180

$149.8

$116.8

$120

$101.4 $90.5

$118.6

$100

$80

$139.7

$138.4

$140

$95.8

$88.7

$80

$58.1

$60

$60

$40

$48.1

$40

$21.0

$20

$14.5

$22.2

$20

$0

$0

2010

2011

2012

2013

2014

2015

2016

2010

2011

2012

2013

2014

Source: PitchBook

2015

2016

Source: PitchBook

Select largest Series D+ valuations of 2016

Company

Deal size ($M)

Post-valuation ($M)

Date

HQ City

State

Industry

Uber

$5,600.0

$66,600.0

5/24/2016

San Francisco

CA

Software

Palantir Technologies

$880.0

$20,529.4

1/29/2016

Palo Alto

CA

Software

Snap

$1,808.6

$20,000.0

5/25/2016

Los Angeles

CA

Software

WeWork

$690.0

$16,900.0

10/12/2016

New York

NY

Real estate services

Stripe

$150.0

$9,200.0

11/25/2016

San Francisco

CA

Software

Source: PitchBook. Note: Uber’s financings in the first half of 2016 were collated into one super round in 2Q 2016 according to PitchBook methodology.

16 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

CVC’s different strategy Corporate, hedge & mutual fund participation Deals with corporate VC (CVC) participation have increased from just 455 completed in 2009 to more than 1,000 during each of the past four years. The heightened valuations of these deals has become a point of contention within the venture industry over recent years. While it may be coincidental, the distinct gap

between the median valuation of VC investments with CVC participation and those without exemplifies a fundamental difference in how CVCs are able to invest. In 2016, the median valuation of an early-stage deal with CVC involvement outpaced that of deals without by $11 million ($28 million compared to $17 million), and

US VC activity with corporate VC participation

Deal Value ($B)

1,223

Deal Count

the spread of late-stage valuations was almost $40 million. The strategic aspect of CVC dealmaking, along with a lower reliance on financial returns, has given CVC a unique investment profile. That’s not to say that financial gain is off the investors’ radar, but that gain can come in several forms. For example, new technology can be the

Median round size ($M) with corporate VC participation $16

1,304 1,153

$13

$14

1,003 $12

803

$11

$10

696

662 669 533

$10

455

$8

541

$6 $4 $2 $3

$32

$34

$24

$13

$11

$12

$7

$6

$10

$11

$9

166

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

$0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Source: PitchBook *As of 3/1/2017

Source: PitchBook *As of 3/1/2017

Median post-money valuation ($M) of US early-stage VC rounds with corporate VC participation

Median post-money valuation ($M) of US late-stage VC rounds with corporate VC participation

$30

$180

CVC Investor $25

$26

$28 $25

No CVC Investor

$23 $20

$15

$164

$160

CVC Investor

$140

No CVC Investor $137

$120

$16

$17

$10

$130

$100 $80

$85

$89

$96

$60 $40

$5

$20 $0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

$0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Source: PitchBook *As of 3/1/2017

17 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Source: PitchBook *As of 3/1/2017

lead motivation for a CVC investment. By integrating the new technology into its core product, investors can receive additional value from its investment that isn’t tied to a future exit. Startups can also be looked at as a potential acquisition target down the road, providing a source of inorganic growth. These unique differences in strategy leave CVCs less focused on the price of investments, and allow them to make deals at heightened valuations.

With investment goals of their own, mutual fund and hedge fund investment in venture deals boomed in 2014 and 2015. Each investor type dramatically increased their exposure to the asset class, in most occasions being a cornerstone investor in a “private IPO” for a unicorn. This fact alone skews any analysis between investments with mutual or hedge fund participation with that of more traditional VCs simply because investments by these investors were almost exclusively limited to the largest deals of their respective years.

US VC activity with mutual fund participation

Median US round size ($M) with mutual fund participation

114 Deal Value ($B)

$70

65

$60 $50

67 67 59 52

$40

12

$10

$0.6

$13.3

$14.5

$10.2

$2.0

$2.3

$20

$6.0

$0.7

$1.3

$1.8

$29

$30

29

$2.1

$40

54

42

$1.5

$65

103

# of Deals Closed

72

In 2016, however, the activity of both mutual and hedge funds in VC declined by 42% and 37%, respectively. The quick turnaround from investment to IPO that many of these investors had envisioned took a hit when the exit market for VC-backed companies dramatically slowed toward the end of 2015 and on through 2016. With money being pulled out of hedge and mutual funds at the highest clip in some time due to lackluster returns, these “tourist” investors have pivoted back to their core strategies for the time being.

$0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* Source: PitchBook *As of 3/1/2017

Source: PitchBook *As of 3/1/2017

US VC activity with hedge fund participation Deal Value ($B)

Median US round size ($M) with hedge fund participation $50

104

$40

83 66

$35

67

65

$25

45 30

33

39

$20

38

$0.2

$4.4

$7.9

$5.2

$1.7

$1.0

$2.2

$0.8

$0.9

$2.0

$14

$15

9 $1.8

$32

$30

53

$1.5

$46

$45

# of Deals Closed

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

$10 $5 $0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Source: PitchBook *As of 3/1/2017

18 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Source: PitchBook *As of 3/1/2017

Venture timeline lengthens Valuation step-ups, changes and time between rounds Median valuation step-ups dropped slightly in 2016, falling back to roughly the decade average for both early stage and latestage financings of 1.6x and 1.3x, respectively. To be fair, a 60% jump in a given valuation step-up at the early stage is still very strong, though comparing it to the 80% multiple from 2014 may make it seem more nominal. As valuations begin to plateau at later stages, the increase in private valuations realized in recent years will take its effect on step-ups moving forward. Still, 75% of companies have raised subsequent rounds with a higher post-valuation than their previous raise, the highest proportion we have tracked in the past decade. The grow-at-all-costs mentality that pervaded VC over the past few years has begun to change. The focus that founders and investors seemed to put on valuation in recent years is moving toward more rational focus on business metrics and capital needs.

Lastly, down rounds have become an only slightly more common occurrence than in 2014 when they comprised just over 10% of transactions, the lowest proportion

Median time (years) between US VC rounds

2.2 2.0

2.0 1.8 1.6

1.4 1.3

1.4

1.3 1.2

1.2 1.0

1.5x 1.6x

1.7x 1.4x

1.7x

1.7x 1.5x

1.6 1.6 1.5 1.5 1.5 1.4 1.3 1.2 1.2

1.0

0.8 0.6 Seed

0.4

Series C

0.2

Series A

Series B

Series D+

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* Source: PitchBook *As of 3/1/2017

Median early-stage round step-ups in US 1.6x

since at least 2006. But when compared to years in the past decade, the overall percentage of down rounds in 2016, and even flat rounds, is still relatively low at 14%.

Median late-stage round step-ups in US 1.8x 1.6x 1.5x

1.3x

1.2x 1.2x 1.2x 1.1x

1.3x 1.4x

1.3x 1.2x

1.3x

1.2x

1.0x 1.1x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Source: PitchBook *As of 3/1/2017

19 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Source: PitchBook *As of 3/1/2017

All up, flat or down rounds (#) by year 100%

While down rounds increased to 13% of deals in 2016, that proportion is still low when compared historically

90% 80% 70% 60% 50% 40% 30% 20% 10%

Software up, flat or down rounds (#) by year

0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Up

Flat

Down

100% 90%

Source: PitchBook

80% 70% 60% 50%

The proportion of 2016 pharma & biotech rounds with increased valuation was the highest we have tracked

40% 30% 20% 10% 0% 2012

2013

Up

2014 Flat

2015

2016

Down Source: PitchBook

Commercial Services up, flat or down rounds (#) by year

Pharma & biotech up, flat or down rounds (#) by year

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10% 0%

0% 2012 Up

2013

2014 Flat

2015

2016

Down

2012 Up

Source: PitchBook

2013

2014 Flat

2015

2016

Down Source: PitchBook

Note: Up, flat or down rounds are calculated using a combination of comparing share price and the pre and post valuations of previous and current rounds, e.g. if the price per share in the most recent round was the same as in the prior financing OR the post value of the old round is the same as the new round, then that would be classified as a flat round.

20 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Still founder-friendly? Liquidation participation

Participation rates have steadily decreased in venture financings at every stage over the past few years, moving the venture industry into a more founder-friendly territory than it had been even five years ago. While we have seen investors take slightly larger stakes in each round during the last two years, the drop in participating terms, either capped or uncapped, has set up founders to keep better control over their eventual payout, as long as they can continue moving the company forward on schedule. As investors exercise more scrutiny over the companies they back, a negotiating piece they might be able to use to earn a spot at the table with the best companies could be a willingness to defer participation.

Liquidation participation by series in US VC rounds

70%

64.5% 55.9%

60% 50% 44.6%

54.4% 42.5%

43.1%

40%

33.7%

30%

36.2% 27.2%

25.4%

21.5%

20.4%

20% 10% 0%

2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 Commercial Services

Pharma/Biotech

So�ware Source: PitchBook

Liquidation participation by series in US VC rounds

70% 59.3% 54.8%

60% 49.3%

50%

47.9% 42.6%

42.1%

37.8% 33.3% 27.9% 30% 23.7% 23.6% 40%

43.3% 42.9% 38.3%

33.3% 30.2% 29.2%

32.5%

27.5% 25.0%

20%

Series A

Series B

Series C

2017*

2016

2015

2014

2013

2017*

2016

2015

2014

2013

2017*

2016

2015

2014

2013

2016

2015

2014

2013

0%

2017*

10%

Series D+ Source: PitchBook *As of 3/1/2017

21 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

Series A liquidation participation in US 100%

Participating liquidation preferences have fallen steadily across VC over recent years

90% 80% 70% 60% 50% 40% 30%

Series B liquidation participation in US

20%

100%

10%

Par�cipa�ng - Capped

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Non-par�cipa�ng

2017*

90%

0%

Par�cipa�ng - Uncapped Source: PitchBook *As of 3/1/2017

80% 70% 60% 50% 40% 30% 20%

Non-par�cipa�ng

Par�cipa�ng - Capped

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

0%

2017*

10% 2006

Uncapped participation terms included in Series D+ rounds fell to the lowest proportion in over a decade

Par�cipa�ng - Uncapped

Non-par�cipa�ng

Par�cipa�ng - Capped

Par�cipa�ng - Uncapped

Non-par�cipa�ng

Par�cipa�ng - Capped

Source: PitchBook *As of 3/1/2017

Par�cipa�ng - Uncapped Source: PitchBook *As of 3/1/2017

The key distinction between participating preferred stock and non-participating preferred is that in the former, holders not only get their investment back but also share with the common stock on an as-converted basis in any remaining available deal proceeds, while in the latter, investors get either their investment amount back plus an accrued dividend if applicable or their pro rata share based on common stock, whichever is greater.

22 P I TC H B O O K 201 6 A N N UA L VC VA LUAT I O N S R E P O R T

2017*

2016

2015

0%

2013

0%

2012

10%

2011

10%

2010

20%

2009

20%

2008

30%

2007

40%

30%

2006

40%

2017*

50%

2016

50%

2015

60%

2014

70%

60%

2013

70%

2012

80%

2011

80%

2010

90%

2009

100%

90%

2008

100%

2007

Series D+ liquidation participation in US

2006

Series C liquidation participation in US

2014

Source: PitchBook *As of 3/1/2017

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