Venture capital valuations continue to move higher across all stages. The most significant increase was at the late stage, where the median pre-money valuation as of 1Q 2018 pushed to $75 million, a 19% increase from 2017.
The median time between VC rounds remains extended, sitting at 1.4 years for angel & seed and early-stage rounds and 1.8 years for late-stage, compared to long-term averages of 1.2 and 1.5 years, respectively. Extended hold times have caused some apprehension in the VC community; however, VCs appear willing to continue funding companies for prolonged periods in private markets.
While we continue to see valuation increases across all stages, this is not driven by an increase in investor protections and terms. For example, the percentage of deals with cumulative dividends, as well as those with participation rights, fell steadily over the past decade and hover at or near prior lows so far in 2018.
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VC
Valuations
1Q 2018
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Contents
Key Takeaways
3
Overview
4
Spotlight: Pre-seed Valuations
7
Valuation Step-ups
9
Spotlight: Exit Valuation Step-ups
10
Corporate VC Valuations
11
Deal Terms
12
Credits & Contact
PitchBook Data, Inc.
John Gabbert Founder, CEO
Adley Bowden Vice President,
Market Development & Analysis
Content
Joelle Sostheim Analyst
Cameron Stanfill Analyst
Darren Klees Data Analyst
Contact PitchBook
Research
reports@pitchbook.com
Editorial
editorial@pitchbook.com
Sales
sales@pitchbook.com
Cover design by Jennifer Sam
Click here for PitchBook’s report
methodologies.
Key takeaways from the analysts
• Venture capital valuations continue
to move higher across all stages. The
most significant increase was at the
late stage, where the median pre-
money valuation as of 1Q 2018 pushed
to $75 million, a 19% increase from
2017.
• The median time between VC rounds
remains extended, sitting at 1.4 years
for angel & seed and early-stage rounds
and 1.8 years for late-stage, compared to
long-term averages of 1.2 and 1.5 years,
respectively. Extended hold times have
caused some apprehension in the VC
community; however, VCs appear willing
to continue funding companies for
prolonged periods in private markets.
• While we continue to see valuation
increases across all stages, this is
not driven by an increase in investor
protections. For example, the
percentage of deals with cumulative
dividends, as well as those with
participation rights, fell steadily over the
past decade and hover at or near prior
lows so far in 2018.
19% increase
in late-stage median pre-
money valuations since 2017
1.4 & 1.8
years between rounds for
angel & seed to early-stage &
late-stage, respectively
5% of deals
in 1Q 2018 had cumulative
dividends
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Sponsored by
0
2,000
4,000
6,000
8,000
10,000
12,000
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
# of deals closed
Angel/seed
Early-stage VC
Late-stage VC
Source: PitchBook
*As of March 31, 2018
While valuations have risen in recent years, fears of
declining capital invested haven’t manifested
US VC activity
VC valuations trend higher in 2018
Overview
Following a decade high of VC
invested in 2017—and on a record
pace again in 2018—VC valuations
continue to move higher across all
stages. The most significant increase
was at the late stage, where median
pre-money valuations as of 1Q 2018
pushed to $75 million, a 19% increase
from 2017. We believe much of this
valuation expansion has been caused
by the buildup of dry powder and
general availability of capital to high-
growth companies, which has given
these companies pricing power in
negotiations with investors.
This phenomenon is transforming
the VC environment and contributed
heavily to the solidification of support
for mega-deals, which we categorize
as deals over $100 million. Historically,
companies seeking equity financing
of this size would turn to the public
markets to continue funding their
growth, but the size and maturity
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
4
Sponsored by
5
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
$6.3
$6.5
$20.0
$27.5
$63.3
$75.0
$0
$10
$20
$30
$40
$50
$60
$70
$80
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Angel/Seed
Early-stage VC
Late-stage VC
Late-stage valuations continue to soar
Median pre-money valuation ($M) by stage
22.2%
26.7%
26.7%
26.5%
23.5%
22.8%
16.7%
20.0%
12.5%
15.5%
0%
5%
10%
15%
20%
25%
30%
35%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
Angel/Seed
Series A
Series B
Series C
Series D+
Percentage acquired in angel & seed eclipses early-stage
Median percentage acquired by series
of the VC ecosystem now allows
companies to scale with VC backing.
Traditional VC firms raising $1 billion+
funds and increased activity by
SoftBank’s Vision Fund make these
mega-deals possible.
With older and more mature
businesses raising a greater number
of VC rounds, it is logical that
valuations rose in tandem. This
development also lengthened average
hold times for venture investments, so
not only is there more risk of a down
exit from an elevated valuation, but
time-weighted returns may also come
under pressure as companies sit in
fund portfolios longer.
The shift toward funding more mature
companies was especially present
in the angel & seed stage, where the
median age for companies receiving
financing pushed to three years—
twice as old as a decade ago. This
trend is explained by a multiplicity
of alternative funding options, such
as accelerators, equity or product
crowdfunding and a greater ability
to bootstrap thanks to tech-enabled,
low-capital-intensity business models.
As valuations and deal sizes at the
angel & seed stage steadily grew
larger over the last 10 years, investors
in these transactions consistently
took a 20% ownership position. But
so far in 2018, the median percentage
acquired has spiked to a decade high
of 26.7%. This is an intriguing change,
as large seed financings now come
with the trade-off of giving up more
equity. We see this shift as evidence
that companies are now being more
fully valued at the angel & seed
stage, with investors tempering their
expectations for unchecked valuation
growth going forward.
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Overview
Sponsored by
6
Growth at all costs?
In recent years, attractively priced
companies with strong growth
potential have been difficult to find—
even in public equity markets—because
quantitative easing raised valuations
across almost all asset classes by
decreasing the cost of leverage
and injecting cash into the market.
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
1.5
1.4
1.4
1.5
1.8
1.8
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Angel/Seed
Early-stage VC
Late-stage VC
While the backdrop is changing,
growth remains highly sought-after,
which was another force behind the
extended climb in VC valuations. Over
this decade-long bull market, VC
investments offered the ability to back
high-growth companies, attracting
greater demand from capital allocators,
as evidenced in our fundraising data.
However, investors are also paying
up for growth outside of the private
markets, as forward price to earnings
ratio of the S&P 500 growth versus
value moved to 1.37x—the widest gap
since 2008.
Driven by bigger deals at larger
valuations, the median time between
VC rounds remains extended, sitting
at 1.4 years for angel & seed, 1.5 years
for early stage and 1.8 years for late
stage, compared to long-term averages
of 1.2, 1.2 and 1.5 years, respectively. It
is logical that cash runways extended
following the run-up in valuations
over the last five years and, more
importantly, the parallel move in
deal sizes. Extended hold times have
caused some apprehension in the
VC community, where the balance
of power seems to have shifted to
founders and startups. Nonetheless,
VCs appear willing to continue funding
companies for prolonged periods in
private markets. Of course, GPs still
operate funds with defined timelines
and need to return capital to LPs. To
that end, some large VCs are even
raising separate vehicles to support
follow-on rounds for successful
portfolio companies, as the largest
companies start to outgrow original
funds.
Cash runways remain extended
Median time (years) between rounds
Source: PitchBook
*As of March 31, 2018
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Overview
Sponsored by
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The origin of rising late-stage
valuations is the sustained growth in
both deal size and valuations of angel
& seed rounds. Investors and founders
have noted that the upward shift in the
venture life cycle pushed angel & seed
financings to more closely resemble
historical early-stage financings,
remarking that “seed is the new
Series A.” The data corroborates this
sentiment. Median age at time of angel
& seed rounds reached three years in
2018—surpassing the maturity level
of companies securing early-stage
rounds in 2012. Median seed-round size
reached $2.0 million in 2018, edging
closer to 2012’s median Series A size
of $2.7 million. Startups are also raising
more rounds before their first early-
stage VC round (Series A or B).
The phenomenon of seed rounds
shifting to companies that in the recent
past would have received early-stage
financings appears to have led to a
stage of funding that some investors
are referring to as “pre-seed.” As one
might infer, pre-seed is the stage of
funding that precedes angel & seed
rounds. Some define this stage of
financing as either the first institutional
capital investment received by a
startup or simply as investment rounds
less than $1 million.
Using this working definition, we
analyzed the subset of rounds less than
$1 million to determine if they resemble
size and valuation of historical seed
rounds—or put simply, to see if “pre-
seed is the new seed.”
$0
$1
$2
$3
$4
$5
$6
$7
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012
2013
2014
2015
2016
2017
2018
Angel & seed valuations steadily climb to record highs
Median angel & seed pre-money valuation ($M)
Source: PitchBook
Spotlight: Pre-seed Valuations
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Median seed deal size edges closer to historical Series A
Median deal size ($M) by deal type
Source: PitchBook
*As of March 31, 2018
$0.5
$0.8
$1.6
$2.0
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Angel
Seed
Sponsored by
8
Indeed, pre-seed valuations at year-
end of 2017 and 1Q 2018 were $4.0
million and $3.4 million, respectively.
These metrics closely resemble angel
& seed valuations from 2012 and
2013 ($4.0 million and $4.5 million,
respectively). It appears that pre-seed
rounds are more founder-friendly, with
median equity acquired in 2017 sitting
at just 12.4% compared to 22.2% in all
angel & seed rounds.
The data also suggests that larger
angel & seed rounds ($1 million
or greater) command a greater
percentage of equity, with median
percentage of equity acquired sitting
at 25.0% in 2017, a value significantly
higher than that of pre-seed rounds.
Because recent angel & seed rounds
more closely resemble historical
early-stage rounds, it appears they
are pulling the percentage of equity
acquired upward. The key takeaway
for startups is that, even though the
bar has risen for companies seeking
seed financings, some investors are still
cutting checks at historically smaller
seed sizes and valuations. Though
the concept of pre-seed rounds is
still being solidified, it provides us
a glimpse of valuations in financing
rounds of very early-stage startups and
illustrates the emergence of a stage
resembling what seed financings used
to be historically.
‘Pre-seed’ valuations similar to 2013 angel & seed metrics
Median pre-money valuation ($M) for rounds less than $1M
Source: PitchBook
*As of March 31, 2018
$4.00
$3.40
$0
$1
$2
$3
$4
$5
2010
2011
2012
2013
2014
2015
2016
2017
2018*
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Startups raising additional rounds before early-stage VC
Average number of rounds raised prior to first early-stage deal
2.1
2.0
0.0
0.5
1.0
1.5
2.0
2.5
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Source: PitchBook
*As of March 31, 2018
Larger rounds command greater percentages
Equity acquired (%) in pre-seed vs. larger angel & seed rounds
25.0%
27.5%
12.4%
14.3%
0%
5%
10%
15%
20%
25%
30%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Angel/Seed rounds greater than $1M
Pre-seed rounds
Source: PitchBook
*As of March 31, 2018
Spotlight: Pre-seed Valuations
Sponsored by
9
Data from the beginning of the year
suggests that the median valuation
step-up between VC rounds increased
to 1.6x in the first quarter. This is
the greatest increase we’ve seen in
recent years by a significant margin,
as median step-up over each of the
last three years settled into the 1.4x to
1.5x range. Median valuation step-up of
early-stage rounds reached a decade
high of 1.9x in the first quarter of 2018.
Given that equity acquired in early-
stage financings remained relatively
unchanged, it appears that founders
were able to negotiate significantly
larger financings and valuations
without giving up more equity.
We’ve seen a similar story in late-stage
financings, but to a lesser degree.
While late-stage rounds are also larger
than ever, a minor uptick in equity
acquired suggests mature startups
may be giving up slightly more in
exchange for higher valuations.
1.52x 1.61x
2.23x
2.04x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2013
2014
2015
2016
2017
2018
Median
Average
Valuations continue upward momentum
Valuation step-ups between pre-money & post-money across all rounds
Source: PitchBook
Upward movement in valuations of
late-stage rounds is widespread so
far in 2018, with only 4% of late-stage
down rounds recorded in the first
quarter, compared to 10% in the two
preceding years.
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Valuation Step-ups
1.7x
1.9x
1.3x
1.4x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Early-stage VC
Late-stage VC
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
Early-stage step-ups reach record high
Median valuation step-ups
Down rounds remain scarce
Up, flat & down rounds
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Down
Flat
Up
Sponsored by
10
1.5x
1.3x
1.5x
1.9x
0x
1x
2x
3x
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Late-stage VC
Early-stage VC
Median valuation step-up at exit climbs in 2018 to date
Median step-up from last VC round valuation to exit
1.5x
1.7x
0x
1x
2x
3x
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Late-stage valuation step-ups at exit fall to lowest level
since 2009
Median step-up from last VC round valuation to exit by stage
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
The significant valuation expansion
over the past few years has surfaced
worries that companies won’t be
able to maintain these lofty private
valuations at exit. This is most critical
at the top end of the VC market where
we’ve seen the greatest percentage
rise in median valuations. The data has
started to show signs of late-stage
valuations becoming inflated relative
to the public markets, as the median
late-stage valuation step-up at exit fell
to 1.3x through 1Q 2018—the lowest
value we’ve recorded since 2009.
So, while most late-stage companies
are exiting above their last private
valuation, the number failing to meet
that benchmark is growing.
Extended hold times brought on by
capital availability and the JOBS Act’s
elimination of the “500 Investor Rule”
have changed investor economics at
the late stage. Smaller valuation step-
ups at exit put more pressure on the
investors writing checks at the latest
rounds and who are already taking on
the risk of larger deal sizes. We expect
to see buyers of VC-backed companies
(strategic acquirers, PE firms and
public market investors) become more
selective or stringent in regard to
operating benchmarks as the current
business cycle matures, which should
drive further compression of the step-
up multiple.
Spotlight: Exit Valuation Step-ups
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Sponsored by
11
Rounds with CVC participation have
consistently carried higher valuations
than those without. But as valuations of
early-stage rounds reached new highs
in 1Q 2018, the difference between the
two appears to be converging. With
CVC-backed round valuations only
11% greater than those without CVC
backing, this is the smallest spread
we’ve seen since 2009. The surplus
of dry powder has provided non-CVC
investors with ample resources to
compete for higher valued companies
at the early stage, providing larger
checks that result in larger valuations.
Early-stage CVC investments in the
first quarter continued to tap into
emerging technologies, such as
robotics, VR and blockchain. The
trend toward larger early-stage
round sizes and subsequently larger
valuations may be an indication that
these strategic investors are willing
to provide ample funding at premium
prices to further develop desirable
technologies that will advance their
businesses. Blackmore Sensors and
Analytics, for instance, received an
$18 million financing (at a $68 million
valuation) to advance its LiDAR
sensor technology. Strategic funders
in the deal included BMW i Ventures
and Toyota AI Ventures, whose
autonomous vehicle efforts could
benefit from the production of cost-
effective LiDAR sensors.
Conversely, the median pre-money
valuation of late-stage rounds with
CVC investors pulled dramatically
ahead of those without CVC funding. In
1Q, 38% of deals with CVC participation
were larger than $25 million, compared
to a five-year average of just 24%.
Given this statistic, it follows that
late-stage valuations reached a record
high of $135 million in the first quarter.
Early-stage CVC & non-CVC valuations converge in 2018
Median pre-money valuation ($M)
Late-stage CVC rounds pull dramatically ahead of non-
CVC rounds
Median late-stage pre-money valuation ($M)
$25.2
$30.0
$19.0
$27.0
$0
$5
$10
$15
$20
$25
$30
$35
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
CVC investor
No CVC investor
$100.0
$135.0
$46.3
$56.6
$0
$20
$40
$60
$80
$100
$120
$140
$160
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
CVC investor
No CVC investor
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
The strategy of CVC participation in
late-stage deals appears to focus on
investments in more mature companies
(that may not fit as strongly into
strategic objectives) with lower risk
profiles, such as Lyft and DoorDash.
SoftBank Group also plays a role here,
single-handedly elevating valuations
with large allocations to seven late-
stage companies in 1Q alone.
Corporate VC Valuations
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Sponsored by
12
Negotiated deal terms and investor
rights play a key role in the ultimate
valuation figure. By increasing
the number of investor rights or
sweetening the payout, investors
are more willing to accept a higher
valuation. Both the stigma and the
economic reality of raising a down
round remain strong deterrents for
VC-backed companies, and adding
investor-friendly terms can sometimes
prevent this outcome. The adage that
“you can pick the valuation you want,
but I’ll pick the terms” still holds true,
but it seems this has become less of an
issue with company growth potential
justifying high valuations without
excessive protections.
Looking at the data, it seems that the
more “founder-friendly” sentiment
commonly mentioned in the media
seems to hold true. Inclusion of
liquidation participation continued
its steady decline, reaching 18.6% of
deals in 1Q 2018, a far cry from the
55.5% levels we recorded a decade
ago. A similar linear downtrend is
evident in the percentage of deals
with a cumulative dividend provision,
which is a way for VCs to secure
returns not linked purely to equity
valuation growth. Overall, it seems the
confidence in the portfolio companies
and bargaining power for founders
remains high, as investors have not
had to resort to increased rights or
protections thus far in 2018.
20.5%
18.6%
0%
10%
20%
30%
40%
50%
60%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
Deals with participation rights continue to decline
Percentage of deals with participation rights
Source: PitchBook
*As of March 31, 2018
Cumulative dividends provisions included in only 5% of deals
Percentage of deals with cumulative dividends
Source: PitchBook
*As of March 31, 2018
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Deal Terms
4.9%
5.3%
0%
2%
4%
6%
8%
10%
12%
2008 2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
Sponsored by
COPYRIGHT © 2018 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,
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cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to
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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.
Valuations
1Q 2018
Sponsored by
Copyright © 2018 Deloitte Development LLC. All rights reserved.
Can an audit propel you toward
an IPO?
Think an audit will slow your IPO down? Look again.™ A Deloitte audit is an opportunity for insight, one
that can help leaders see further and deeper into their businesses and can help inform vital decisions.
It can help prepare you for the seas ahead. See how at deloitte.com/us/egc.
Sponsored by
3
Contents
Key Takeaways
3
Overview
4
Spotlight: Pre-seed Valuations
7
Valuation Step-ups
9
Spotlight: Exit Valuation Step-ups
10
Corporate VC Valuations
11
Deal Terms
12
Credits & Contact
PitchBook Data, Inc.
John Gabbert Founder, CEO
Adley Bowden Vice President,
Market Development & Analysis
Content
Joelle Sostheim Analyst
Cameron Stanfill Analyst
Darren Klees Data Analyst
Contact PitchBook
Research
reports@pitchbook.com
Editorial
editorial@pitchbook.com
Sales
sales@pitchbook.com
Cover design by Jennifer Sam
Click here for PitchBook’s report
methodologies.
Key takeaways from the analysts
• Venture capital valuations continue
to move higher across all stages. The
most significant increase was at the
late stage, where the median pre-
money valuation as of 1Q 2018 pushed
to $75 million, a 19% increase from
2017.
• The median time between VC rounds
remains extended, sitting at 1.4 years
for angel & seed and early-stage rounds
and 1.8 years for late-stage, compared to
long-term averages of 1.2 and 1.5 years,
respectively. Extended hold times have
caused some apprehension in the VC
community; however, VCs appear willing
to continue funding companies for
prolonged periods in private markets.
• While we continue to see valuation
increases across all stages, this is
not driven by an increase in investor
protections. For example, the
percentage of deals with cumulative
dividends, as well as those with
participation rights, fell steadily over the
past decade and hover at or near prior
lows so far in 2018.
19% increase
in late-stage median pre-
money valuations since 2017
1.4 & 1.8
years between rounds for
angel & seed to early-stage &
late-stage, respectively
5% of deals
in 1Q 2018 had cumulative
dividends
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Sponsored by
0
2,000
4,000
6,000
8,000
10,000
12,000
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
# of deals closed
Angel/seed
Early-stage VC
Late-stage VC
Source: PitchBook
*As of March 31, 2018
While valuations have risen in recent years, fears of
declining capital invested haven’t manifested
US VC activity
VC valuations trend higher in 2018
Overview
Following a decade high of VC
invested in 2017—and on a record
pace again in 2018—VC valuations
continue to move higher across all
stages. The most significant increase
was at the late stage, where median
pre-money valuations as of 1Q 2018
pushed to $75 million, a 19% increase
from 2017. We believe much of this
valuation expansion has been caused
by the buildup of dry powder and
general availability of capital to high-
growth companies, which has given
these companies pricing power in
negotiations with investors.
This phenomenon is transforming
the VC environment and contributed
heavily to the solidification of support
for mega-deals, which we categorize
as deals over $100 million. Historically,
companies seeking equity financing
of this size would turn to the public
markets to continue funding their
growth, but the size and maturity
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
4
Sponsored by
5
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
$6.3
$6.5
$20.0
$27.5
$63.3
$75.0
$0
$10
$20
$30
$40
$50
$60
$70
$80
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Angel/Seed
Early-stage VC
Late-stage VC
Late-stage valuations continue to soar
Median pre-money valuation ($M) by stage
22.2%
26.7%
26.7%
26.5%
23.5%
22.8%
16.7%
20.0%
12.5%
15.5%
0%
5%
10%
15%
20%
25%
30%
35%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
Angel/Seed
Series A
Series B
Series C
Series D+
Percentage acquired in angel & seed eclipses early-stage
Median percentage acquired by series
of the VC ecosystem now allows
companies to scale with VC backing.
Traditional VC firms raising $1 billion+
funds and increased activity by
SoftBank’s Vision Fund make these
mega-deals possible.
With older and more mature
businesses raising a greater number
of VC rounds, it is logical that
valuations rose in tandem. This
development also lengthened average
hold times for venture investments, so
not only is there more risk of a down
exit from an elevated valuation, but
time-weighted returns may also come
under pressure as companies sit in
fund portfolios longer.
The shift toward funding more mature
companies was especially present
in the angel & seed stage, where the
median age for companies receiving
financing pushed to three years—
twice as old as a decade ago. This
trend is explained by a multiplicity
of alternative funding options, such
as accelerators, equity or product
crowdfunding and a greater ability
to bootstrap thanks to tech-enabled,
low-capital-intensity business models.
As valuations and deal sizes at the
angel & seed stage steadily grew
larger over the last 10 years, investors
in these transactions consistently
took a 20% ownership position. But
so far in 2018, the median percentage
acquired has spiked to a decade high
of 26.7%. This is an intriguing change,
as large seed financings now come
with the trade-off of giving up more
equity. We see this shift as evidence
that companies are now being more
fully valued at the angel & seed
stage, with investors tempering their
expectations for unchecked valuation
growth going forward.
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Overview
Sponsored by
6
Growth at all costs?
In recent years, attractively priced
companies with strong growth
potential have been difficult to find—
even in public equity markets—because
quantitative easing raised valuations
across almost all asset classes by
decreasing the cost of leverage
and injecting cash into the market.
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
1.5
1.4
1.4
1.5
1.8
1.8
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Angel/Seed
Early-stage VC
Late-stage VC
While the backdrop is changing,
growth remains highly sought-after,
which was another force behind the
extended climb in VC valuations. Over
this decade-long bull market, VC
investments offered the ability to back
high-growth companies, attracting
greater demand from capital allocators,
as evidenced in our fundraising data.
However, investors are also paying
up for growth outside of the private
markets, as forward price to earnings
ratio of the S&P 500 growth versus
value moved to 1.37x—the widest gap
since 2008.
Driven by bigger deals at larger
valuations, the median time between
VC rounds remains extended, sitting
at 1.4 years for angel & seed, 1.5 years
for early stage and 1.8 years for late
stage, compared to long-term averages
of 1.2, 1.2 and 1.5 years, respectively. It
is logical that cash runways extended
following the run-up in valuations
over the last five years and, more
importantly, the parallel move in
deal sizes. Extended hold times have
caused some apprehension in the
VC community, where the balance
of power seems to have shifted to
founders and startups. Nonetheless,
VCs appear willing to continue funding
companies for prolonged periods in
private markets. Of course, GPs still
operate funds with defined timelines
and need to return capital to LPs. To
that end, some large VCs are even
raising separate vehicles to support
follow-on rounds for successful
portfolio companies, as the largest
companies start to outgrow original
funds.
Cash runways remain extended
Median time (years) between rounds
Source: PitchBook
*As of March 31, 2018
Deloitte’s Emerging Growth Company (EGC) Practice
We understand that one size doesn’t fit all. Each emerging growth company has its unique needs and issues at
different stages of growth. As your company grows, we make the necessary changes to grow with you. Quality is our top priority; our
approach to client service focuses on the challenges of high-growth companies, the road to IPO and a commitment to the venture
community.
We are committed to delivering a distinctive client experience through service offerings tailored to address the specific circumstances
of your company. From startups to billion-dollar companies, Deloitte’s collaborative approach brings the full breadth of our technical
and industry capabilities, along with access to the global resources of our member firm network, to help you capture opportunities and
address challenges. Our extensive IPO experience, along with our experienced professionals, enables us to provide insights that others
may miss.
We have helped countless venture-backed companies achieve their goals. As you plan for your next stage of growth, make sure your
organization is well equipped. Engage with our team of professionals that understands your challenges as a growing company, with
specific industry knowledge and insights to the financial and operational challenges you may face.
www.deloitte.com/us/egc
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description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules
and regulations of public accounting.
Overview
Sponsored by
7
The origin of rising late-stage
valuations is the sustained growth in
both deal size and valuations of angel
& seed rounds. Investors and founders
have noted that the upward shift in the
venture life cycle pushed angel & seed
financings to more closely resemble
historical early-stage financings,
remarking that “seed is the new
Series A.” The data corroborates this
sentiment. Median age at time of angel
& seed rounds reached three years in
2018—surpassing the maturity level
of companies securing early-stage
rounds in 2012. Median seed-round size
reached $2.0 million in 2018, edging
closer to 2012’s median Series A size
of $2.7 million. Startups are also raising
more rounds before their first early-
stage VC round (Series A or B).
The phenomenon of seed rounds
shifting to companies that in the recent
past would have received early-stage
financings appears to have led to a
stage of funding that some investors
are referring to as “pre-seed.” As one
might infer, pre-seed is the stage of
funding that precedes angel & seed
rounds. Some define this stage of
financing as either the first institutional
capital investment received by a
startup or simply as investment rounds
less than $1 million.
Using this working definition, we
analyzed the subset of rounds less than
$1 million to determine if they resemble
size and valuation of historical seed
rounds—or put simply, to see if “pre-
seed is the new seed.”
$0
$1
$2
$3
$4
$5
$6
$7
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012
2013
2014
2015
2016
2017
2018
Angel & seed valuations steadily climb to record highs
Median angel & seed pre-money valuation ($M)
Source: PitchBook
Spotlight: Pre-seed Valuations
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Median seed deal size edges closer to historical Series A
Median deal size ($M) by deal type
Source: PitchBook
*As of March 31, 2018
$0.5
$0.8
$1.6
$2.0
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Angel
Seed
Sponsored by
8
Indeed, pre-seed valuations at year-
end of 2017 and 1Q 2018 were $4.0
million and $3.4 million, respectively.
These metrics closely resemble angel
& seed valuations from 2012 and
2013 ($4.0 million and $4.5 million,
respectively). It appears that pre-seed
rounds are more founder-friendly, with
median equity acquired in 2017 sitting
at just 12.4% compared to 22.2% in all
angel & seed rounds.
The data also suggests that larger
angel & seed rounds ($1 million
or greater) command a greater
percentage of equity, with median
percentage of equity acquired sitting
at 25.0% in 2017, a value significantly
higher than that of pre-seed rounds.
Because recent angel & seed rounds
more closely resemble historical
early-stage rounds, it appears they
are pulling the percentage of equity
acquired upward. The key takeaway
for startups is that, even though the
bar has risen for companies seeking
seed financings, some investors are still
cutting checks at historically smaller
seed sizes and valuations. Though
the concept of pre-seed rounds is
still being solidified, it provides us
a glimpse of valuations in financing
rounds of very early-stage startups and
illustrates the emergence of a stage
resembling what seed financings used
to be historically.
‘Pre-seed’ valuations similar to 2013 angel & seed metrics
Median pre-money valuation ($M) for rounds less than $1M
Source: PitchBook
*As of March 31, 2018
$4.00
$3.40
$0
$1
$2
$3
$4
$5
2010
2011
2012
2013
2014
2015
2016
2017
2018*
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Startups raising additional rounds before early-stage VC
Average number of rounds raised prior to first early-stage deal
2.1
2.0
0.0
0.5
1.0
1.5
2.0
2.5
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Source: PitchBook
*As of March 31, 2018
Larger rounds command greater percentages
Equity acquired (%) in pre-seed vs. larger angel & seed rounds
25.0%
27.5%
12.4%
14.3%
0%
5%
10%
15%
20%
25%
30%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Angel/Seed rounds greater than $1M
Pre-seed rounds
Source: PitchBook
*As of March 31, 2018
Spotlight: Pre-seed Valuations
Sponsored by
9
Data from the beginning of the year
suggests that the median valuation
step-up between VC rounds increased
to 1.6x in the first quarter. This is
the greatest increase we’ve seen in
recent years by a significant margin,
as median step-up over each of the
last three years settled into the 1.4x to
1.5x range. Median valuation step-up of
early-stage rounds reached a decade
high of 1.9x in the first quarter of 2018.
Given that equity acquired in early-
stage financings remained relatively
unchanged, it appears that founders
were able to negotiate significantly
larger financings and valuations
without giving up more equity.
We’ve seen a similar story in late-stage
financings, but to a lesser degree.
While late-stage rounds are also larger
than ever, a minor uptick in equity
acquired suggests mature startups
may be giving up slightly more in
exchange for higher valuations.
1.52x 1.61x
2.23x
2.04x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2013
2014
2015
2016
2017
2018
Median
Average
Valuations continue upward momentum
Valuation step-ups between pre-money & post-money across all rounds
Source: PitchBook
Upward movement in valuations of
late-stage rounds is widespread so
far in 2018, with only 4% of late-stage
down rounds recorded in the first
quarter, compared to 10% in the two
preceding years.
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Valuation Step-ups
1.7x
1.9x
1.3x
1.4x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Early-stage VC
Late-stage VC
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
Early-stage step-ups reach record high
Median valuation step-ups
Down rounds remain scarce
Up, flat & down rounds
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Down
Flat
Up
Sponsored by
10
1.5x
1.3x
1.5x
1.9x
0x
1x
2x
3x
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Late-stage VC
Early-stage VC
Median valuation step-up at exit climbs in 2018 to date
Median step-up from last VC round valuation to exit
1.5x
1.7x
0x
1x
2x
3x
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Late-stage valuation step-ups at exit fall to lowest level
since 2009
Median step-up from last VC round valuation to exit by stage
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
The significant valuation expansion
over the past few years has surfaced
worries that companies won’t be
able to maintain these lofty private
valuations at exit. This is most critical
at the top end of the VC market where
we’ve seen the greatest percentage
rise in median valuations. The data has
started to show signs of late-stage
valuations becoming inflated relative
to the public markets, as the median
late-stage valuation step-up at exit fell
to 1.3x through 1Q 2018—the lowest
value we’ve recorded since 2009.
So, while most late-stage companies
are exiting above their last private
valuation, the number failing to meet
that benchmark is growing.
Extended hold times brought on by
capital availability and the JOBS Act’s
elimination of the “500 Investor Rule”
have changed investor economics at
the late stage. Smaller valuation step-
ups at exit put more pressure on the
investors writing checks at the latest
rounds and who are already taking on
the risk of larger deal sizes. We expect
to see buyers of VC-backed companies
(strategic acquirers, PE firms and
public market investors) become more
selective or stringent in regard to
operating benchmarks as the current
business cycle matures, which should
drive further compression of the step-
up multiple.
Spotlight: Exit Valuation Step-ups
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Sponsored by
11
Rounds with CVC participation have
consistently carried higher valuations
than those without. But as valuations of
early-stage rounds reached new highs
in 1Q 2018, the difference between the
two appears to be converging. With
CVC-backed round valuations only
11% greater than those without CVC
backing, this is the smallest spread
we’ve seen since 2009. The surplus
of dry powder has provided non-CVC
investors with ample resources to
compete for higher valued companies
at the early stage, providing larger
checks that result in larger valuations.
Early-stage CVC investments in the
first quarter continued to tap into
emerging technologies, such as
robotics, VR and blockchain. The
trend toward larger early-stage
round sizes and subsequently larger
valuations may be an indication that
these strategic investors are willing
to provide ample funding at premium
prices to further develop desirable
technologies that will advance their
businesses. Blackmore Sensors and
Analytics, for instance, received an
$18 million financing (at a $68 million
valuation) to advance its LiDAR
sensor technology. Strategic funders
in the deal included BMW i Ventures
and Toyota AI Ventures, whose
autonomous vehicle efforts could
benefit from the production of cost-
effective LiDAR sensors.
Conversely, the median pre-money
valuation of late-stage rounds with
CVC investors pulled dramatically
ahead of those without CVC funding. In
1Q, 38% of deals with CVC participation
were larger than $25 million, compared
to a five-year average of just 24%.
Given this statistic, it follows that
late-stage valuations reached a record
high of $135 million in the first quarter.
Early-stage CVC & non-CVC valuations converge in 2018
Median pre-money valuation ($M)
Late-stage CVC rounds pull dramatically ahead of non-
CVC rounds
Median late-stage pre-money valuation ($M)
$25.2
$30.0
$19.0
$27.0
$0
$5
$10
$15
$20
$25
$30
$35
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
CVC investor
No CVC investor
$100.0
$135.0
$46.3
$56.6
$0
$20
$40
$60
$80
$100
$120
$140
$160
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
CVC investor
No CVC investor
Source: PitchBook
*As of March 31, 2018
Source: PitchBook
*As of March 31, 2018
The strategy of CVC participation in
late-stage deals appears to focus on
investments in more mature companies
(that may not fit as strongly into
strategic objectives) with lower risk
profiles, such as Lyft and DoorDash.
SoftBank Group also plays a role here,
single-handedly elevating valuations
with large allocations to seven late-
stage companies in 1Q alone.
Corporate VC Valuations
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Sponsored by
12
Negotiated deal terms and investor
rights play a key role in the ultimate
valuation figure. By increasing
the number of investor rights or
sweetening the payout, investors
are more willing to accept a higher
valuation. Both the stigma and the
economic reality of raising a down
round remain strong deterrents for
VC-backed companies, and adding
investor-friendly terms can sometimes
prevent this outcome. The adage that
“you can pick the valuation you want,
but I’ll pick the terms” still holds true,
but it seems this has become less of an
issue with company growth potential
justifying high valuations without
excessive protections.
Looking at the data, it seems that the
more “founder-friendly” sentiment
commonly mentioned in the media
seems to hold true. Inclusion of
liquidation participation continued
its steady decline, reaching 18.6% of
deals in 1Q 2018, a far cry from the
55.5% levels we recorded a decade
ago. A similar linear downtrend is
evident in the percentage of deals
with a cumulative dividend provision,
which is a way for VCs to secure
returns not linked purely to equity
valuation growth. Overall, it seems the
confidence in the portfolio companies
and bargaining power for founders
remains high, as investors have not
had to resort to increased rights or
protections thus far in 2018.
20.5%
18.6%
0%
10%
20%
30%
40%
50%
60%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
Deals with participation rights continue to decline
Percentage of deals with participation rights
Source: PitchBook
*As of March 31, 2018
Cumulative dividends provisions included in only 5% of deals
Percentage of deals with cumulative dividends
Source: PitchBook
*As of March 31, 2018
PITCHBOOK 1Q 2018 VC VALUATIONS REPORT
Deal Terms
4.9%
5.3%
0%
2%
4%
6%
8%
10%
12%
2008 2009
2010
2011
2012
2013
2014
2015
2016
2017 2018*
Sponsored by
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