Busy week in our market. Private tech growth investors of all flavors – corporate, financial and crossover – deployed $2.5 billion since last Friday.
Interesting to note how active the corporate investors were. Strategic priorities such as mobile and virtual reality were backed by significant balance sheet commitments. The snapshot of this past week also reinforces how broad and how global the market has become.
Much-discussed tech bubble fears should be abating as Q3 growth financing activity slowed relative to the first half of the year and the same period last year. CB Insights has relevant data here (Subscribers Only).
Despite the mild drop in Q3 total capital commitments, CEOs considering raising capital can rely on a private growth market that is still very healthy. The chart above affirms that 2014 investments through September 30th have already exceeded all of 2013 in volume and capital. If Q4 stays on the Q3 pace, the market will have delivered in excess of $32 Billion of growth equity to the tech economy. The private market capital commitment will about equal to the IPO market with the inclusion of Alibaba’s $22Bn largest IPO in history. Normalized to exclude Alibaba, the private growth market in tech will have invested a bit more than 3x the tech IPO market to grow companies in our sector.
Private investors, traditional, crossover and strategic, continue to deliver capital in round sizes competitive with the IPO market. Halfway through October we have already seen rounds over $100M for Houzz and Docusign and rounds of $60M or more for MetricStream, TrueCaller, Solidfire, Beepi, Alteryx, Good Technology and Minerva Project. Rumors are about that Google may be making a $500M minority corporate venture investment in Magic Leap, a company that has not actually announced a product. Capital in the private markets remains very much available for compelling companies.
Unicorns and bubble fears are making headlines, but private growth investment in tech actually declined in Q3 relative to the same period last year. The market is still active and healthy. Investment volume increased 18%. However capital committed dropped a bit as average round size contracted from $67M to $50M. Our numbers are growth deals – those over $15M – so it is not intended to capture angel, seed, typical Series A, etc. We track the volume of growth investing in North America and Europe.
The private financing market is favorable. So much so that we now have Facebook pages set up to count and follow the unicorns – venture-backed companies that have raised capital at valuations above a billion dollars. This is not a bad thing. It means the private market has the depth to finance a company on attractive terms for as long as the Board decides the company should stay private.
However, the expansion of available private company valuations has implications a Board and a CEO should consider when pricing the next round. A big step up in valuation means the collective team – leadership, employees and existing investors – are signing up to produce a much bigger outcome.
Raising the Next Round 