With the rise of unicorns (i.e., companies with private valuations of at least US$1 billion), startups are sucking up more investor money than ever before. Based on projections from startup database Crunchbase, the second quarter of 2018 may have set new records for global venture capital (VC) deals and dollar volumes.
Deals worth US$100 million or above accounted for 61 percent of equity funding into upstart tech firms during the period, up from 35 percent in the first quarter of 2017, Crunchbase found.
And the surge in the dollar volume of overall equity funding deals appears to be driven mainly by supergiant rounds. The reported dollar volume in nine and ten-figure venture deals jumped by about 325 percent, from US$11.63 billion in the first quarter of 2017 to US$49.4 billion in the second quarter of 2018, while that of sub-US$100 million deals rose by just 42 percent.
“It really does seem like mega-rounds are here to stay,” Crunchbase wrote in its analysis.
It expects the momentum of giant funding rounds will continue in the third quarter, citing as examples the US$1.2 billion round closed by e-cigarette startup Juul Labs, the US$500 million round by self-driving startup Zoox, and the fresh US$200 million capital received by Chinese café startup Luckin Coffee, all of which took place this month.
Crunchbase said the “SoftBank effect” could be the main reason for the surge in supergiant rounds. “SoftBank is building an index fund of emerging technology companies,” it said.
SoftBank can pour copious amounts into each deal; its US$100 billion Vision Fund plans to be invested in 70 to 100 technology unicorns.
In fact, SoftBank’s mammoth fund has prompted rival venture firms to raise deep-pocketed mega-funds to compete with the Japanese conglomerate.
Crunchbase also recognizes the shift toward preemptive funding in startup circles. With capital so cheap and plentiful, funds are investing more money and earlier than they used to in the past.
And because of the amount of easy money floating around, new tech firms are able to stay private longer. They now can raise more money in late-stage venture rounds than what many companies raise when they list on the stock market.
This article appeared in the Hong Kong Economic Journal on July 24
Translation by Ben Ng
[Chinese version 中文版]
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