2014 venture capital review - ey.comfile/ey-2014-venture-capital-review-1.pdf · global vc funding...
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2014 Venture Capital Review
Venture capital activity reaches 13-year highThe 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.
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,
VC investors put more capital to work
US$86.7b was raised globally, surpassing every year since 2000, when US$116.3b was raised. The strong growth in funding was evident in all three key VC markets — the US, Europe and China.
13.6
13.7
13.8
10.1
12.9
14.5
15.5
13.0
10.9
13.5
14.5
14.6
17.6
23.1
19.9
26.1
6.8
8.5
8.7
11.4
9.9
11.8
9.7
15.2
11.2
13.9
11.3
13.1
0
20
40
60
80
100
Amount invested during Q1 (US$b)Amount invested during Q3 (US$b)Number of rounds during the year/quarter
Note: Global total includes the US, Europe, Canada, China, Israel (all site) and India only.
Amount invested during Q2 (US$b)Amount invested during Q4 (US$b)
Am
ount
inve
sted
(US$
b) Num
ber of rounds
2008 2009 2010 2011 2012 2013 2014
5,500
4,813
5,458
6,040 6,085
6,551 6,507
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0
51.1 35.6 46.6 56.0 53.549.8 86.7
Global venture capital investment
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
Number of rounds
Amount invested (US$b)
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
Business and financial services
2011 2012 2013 2014
2011 2012 2013 2014
Consumer goods
Consumer services
Energy and utilities
Health care
Industrial goods and materials
Information technology
Business and financial services
Consumer goods
Consumer services
Energy and utilities
Health care
Industrial goods and materials
Information technology
1,170
186
1,332
240
1,179
253
1,163
191
1,475
181
1,095
214
1,670
9.9
2.1
13.4
4.7
12.7
2.4
10.4
9.4
1.4
11.7
2.5
11.0
2.1
11.3
12.1
1.5
12.6
1.7
11.7
2.1
11.5
20.2
1.7
29.0
1.7
14.0
4.7
14.7
1,745
1,535
218
1,544
163
1,130
213
1,738
1,682
226
1,690
121
1,064
145
1,554
32mmx55mm
Business and financial services
2011 2012 2013 2014
2011 2012 2013 2014
Consumer goods
Consumer services
Energy and utilities
Health care
Industrial goods and materials
Information technology
Business and financial services
Consumer goods
Consumer services
Energy and utilities
Health care
Industrial goods and materials
Information technology
1,170
186
1,332
240
1,179
253
1,163
191
1,475
181
1,095
214
1,670
9.9
2.1
13.4
4.7
12.7
2.4
10.4
9.4
1.4
11.7
2.5
11.0
2.1
11.3
12.1
1.5
12.6
1.7
11.7
2.1
11.5
20.2
1.7
29.0
1.7
14.0
4.7
14.7
1,745
1,535
218
1,544
163
1,130
213
1,738
1,682
226
1,690
121
1,064
145
1,554
Venture capital investment by industry
2 | 2014 Venture Capital Review
2014 was notable for the increase in mega-investments of more than US$50m. More than 300 companies received this level of
Mega-investments on the rise in 2014
investment in 2014 (US$39.4), double the number of mega-investments in 2013.
0.3
9.1
4.13.4
0.2
22.3
7.9
0.3
18.2
0.8
4.6
7.7
United StatesIndiaEuropeChinaCanada Israel0
5
10
15
20
25
0
5
10
15
20
Business and financial services
Consumergoods
Consumerservices
Energy andutilities
Health care Informationtechnology
0
50
100
150
200
Meg
a-in
vest
men
ts b
y re
gion
(US$
b)N
umber of rounds
4
81
3
107
7
57 62
61 38
14
197
3
0
20
40
60
80
100
120
Amount invested during 2014 (US$b) Number of rounds during 2014
Amount invested during Q3 (US$b) Number of rounds during the year/quarter
Amount invested during 2014 (US$b) Number of rounds during 2014
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)N
umber of rounds
0.3
9.1
4.13.4
0.2
22.3
7.9
0.3
18.2
0.8
4.6
7.7
United StatesIndiaEuropeChinaCanada Israel0
5
10
15
20
25
0
5
10
15
20
Business and financial services
Consumergoods
Consumerservices
Energy andutilities
Health care Informationtechnology
0
50
100
150
200
Meg
a-in
vest
men
ts b
y re
gion
(US$
b)N
umber of rounds
4
81
3
107
7
57 62
61 38
14
197
3
0
20
40
60
80
100
120
Amount invested during 2014 (US$b) Number of rounds during 2014
Amount invested during Q3 (US$b) Number of rounds during the year/quarter
Amount invested during 2014 (US$b) Number of rounds during 2014
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)N
umber of rounds
Mega-investments by region 2014 (US$b) — number of rounds
Mega-investments by sector 2014 (US$b) — number of rounds
3
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.
Positive exit and fundraising environments drive activity
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.
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$50.2b).
20
United States IndiaEurope China Canada Israel
Businessand financial
services
Consumergoods
Consumerservices
Energy andutilities
Health care Industrialgoods andmaterials
Informationtechnology
Meg
a-in
vest
men
ts b
y re
gion
(US$
b)
Num
ber of IPO exits
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
Num
ber of IPO exits
0
2
4
6
8
10
0
1
2
3
4
5
6
7
8
9.2
2.51.8
7.1
0.9
5.0
0.5
4.2
4.8
7.1
0.20.9 0.5
0
20
40
60
80
100
120
0
20
40
60
80
100
120
105
188 25
7
114
2636
55
61
4 2 7
Amount invested during Q3 (US$b)Number of rounds during the year/quarter
120
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
Amount raised through IPO exits (US$b) Number of IPO exits
Amount raised through IPO exits (US$b) Number of IPO exits
20
United States IndiaEurope China Canada Israel
Businessand financial
services
Consumergoods
Consumerservices
Energy andutilities
Health care Industrialgoods andmaterials
Informationtechnology
Meg
a-in
vest
men
ts b
y re
gion
(US$
b)
Num
ber of IPO exits
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
Num
ber of IPO exits
0
2
4
6
8
10
0
1
2
3
4
5
6
7
8
9.2
2.51.8
7.1
0.9
5.0
0.5
4.2
4.8
7.1
0.20.9 0.5
0
20
40
60
80
100
120
0
20
40
60
80
100
120
105
188 25
7
114
2636
55
61
4 2 7
Amount invested during Q3 (US$b)Number of rounds during the year/quarter
120
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
Amount raised through IPO exits (US$b) Number of IPO exits
Amount raised through IPO exits (US$b) Number of IPO exits
Amount raised through IPO exits by sector 2014 (US$b) — number of exits
Amount raised through IPO exits by region 2014 (US$b) — number of exits
4 | 2014 Venture Capital Review
VC contacts Global Strategic Growth Markets
Maria Pinelli +44 20 7980 0960 [email protected]
Global VC Leader
Bryan Pearce +1 617 585 0499 [email protected]
Regional VC 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 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
the back of big-ticket deals, with the amount raised through M&A exits at its highest level since 2008.
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.
United States IndiaEurope China Canada Israel
Businessand financial
services
Consumergoods
Consumerservices
Energy andutilities
Health care Industrialgoods andmaterials
Informationtechnology
0
10
20
30
40
50
60
70
80
0
5
10
15
20
79.8
14.9
1.2
18.8
1.0
10.4 10.4
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
10.6 6.5 0.6 1.0 1.0Meg
a-in
vest
men
ts b
y re
gion
(US$
b)
Num
ber of M&A
exits
Amount raised through M&A exits (US$b) Number of M&A exits
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
Num
ber of M&A
exits
Amount raised through M&A exits (US$b) Number of M&A exits
2.0
0
100
200
300
400
500
0
50
100
150
200
250
300
350
400
483
377
15
145
23
153
11
143
181
19 22 17 11United States IndiaEurope China Canada Israel
Businessand financial
services
Consumergoods
Consumerservices
Energy andutilities
Health care Industrialgoods andmaterials
Informationtechnology
0
10
20
30
40
50
60
70
80
0
5
10
15
20
79.8
14.9
1.2
18.8
1.0
10.4 10.4
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
10.6 6.5 0.6 1.0 1.0Meg
a-in
vest
men
ts b
y re
gion
(US$
b)
Num
ber of M&A
exits
Amount raised through M&A exits (US$b) Number of M&A exits
Meg
a-in
vest
men
ts b
y se
ctor
(US$
b)
Num
ber of M&A
exits
Amount raised through M&A exits (US$b) Number of M&A exits
2.0
0
100
200
300
400
500
0
50
100
150
200
250
300
350
400
483
377
15
145
23
153
11
143
181
19 22 17 11
Amount raised through M&A exits by sector 2014 (US$b) — number of exits
Amount raised through M&A exits by region 2014 (US$b) — number of exits
5
Regional VC leaders
Markets and Operations Sandra Feldner Vandergriff +1 213 977 3253 [email protected]
United States Jeff Grabow +1 408 947 5607 [email protected]
Israel Oren Bar-On +97 2 3568 7102 [email protected]
EMEIA Demet Ozdemir +90 212 408 5405 [email protected]
France and Luxembourg Franck Sebag +33 1 46 93 73 76 [email protected]
India Mayank Rastogi +91 22 6192 0850 [email protected]
Asia-Pacific Ringo Choi +86 755 2502 8298 [email protected]
Greater China Lawrence Lau +862 1222 82816 [email protected]
Outlook positive but global economy at an inflection point
Investors remain keen
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.
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.
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