RESEARCH TRIANGLE PARK- At $84.3 billion raised, U.S. venture-backed companies have already raised more venture capital just three quarters into 2018 than ever before according to the just-released Pitchbook-NVCA Venture Monitor report. And North Carolina startups are cashing in, having raised more than all of 2017.
Funding to North Carolina-based VC-backed companies dropped to $287.89 million, a 38 percent drop from 2Q and 39 percent drop from 1Q. Even with the drop, the total VC investments in North Carolina VC-backed companies have already reached $1.15 billion—$223 million more than was raised in all of 2017.
In addition to the data, the Pitchbook-NVCA Venture Monitor report identifies trends found in the national VC market. North Carolina’s VC sector follows some trends but defies others.
The data is not comprehensive for granular county-by-county analysis either, only two North Carolina MSAs—Raleigh-Cary and Charlotte-Gastonia-Concord are regularly included in the report. But the data provide enough information to track progress, declines, patterns, and trends.
The major trend the Pitchbook-NVCA Venture Monitor report identifies is the continued increase in the median size of deals. Since 2012, the median deal size (or the median amount raised per deal) has steadily increased. As investors have increasingly invested in later stage companies and unicorns, deal sizes have increased, deal counts have stayed flat or decreased, and an increasing number of mega-funds have been established.
This year is accelerating this trend—in just three quarters, the median VC deal size increased by double digits since 2017. In 2018, the median angel or seed round is $1.19 million, whereas $1 million was the median size in 2017. For growth stage companies, the median deal size in 2017 was $5.6 million while it’s risen to $7 million in 2018.
In addition to the increased deal size, Bobby Franklin, president and CEO of NVCA, says another change shaking up the industry to watch is, “whether the increasing attention and interest of venture investors in non-coastal regions of the country turns from optimism into practice.”
The Council for Entrepreneurial Development’s Connections to Capital Manager Hunter Young believes North Carolina is one of these regions. He says the 3Q data confirms what CED sees on the ground, noting that four investors from outside and without previous investments in North Carolina connected with CED to learn more about the region and potential companies “that fit their investment thesis.” Young says the data shows that, “North Carolina has secured its position as one of the ‘non-hub’ places investors should be looking.”
Other national trends include:
- Angel and seed stage investments dropped by 21.9%.
- Investments from non-traditional investors and corporate venture capital (CVC) investors has increased.
- The number of exits is down, but value for those that exited rose again and could reach the highest valuation total since 2014 by year’s end.
- Life science companies continue to command the lion’s share of IPOs this quarter, 17 of the 23 IPOs in 3Q are life science companies.
- VC fund-size continues to grow, the median fund size is now $68 million.
- Software companies are raising more funding than other sectors—they have raised 42.5 2percent of all venture capital invested so far in 2018.
North Carolina Trends
North Carolina VC-backed companies have already raised $1.15 billion this year thus far and are on track to surpass the largest VC year in recent memory—2015—when the total raised was $1.3 billion according to Pitchbook-NVCA data. North Carolina VC-backed companies raised a total of $287.89 million across 47 deals in 3Q.
Even though 2018 may hit record heights, funding in 3Q continued 2Q’s decline from the highs set by 1Q nearly half-billion-dollar quarter. Young says a slight drop in fundraising is typical for the third quarter. He notes that summer travel and holidays interfere with fundraising and thus there tends to be a slight drop in funding each year during the third quarter.
Even with the drop, funding raised in Q3 2018 is greater than all third quarters since 2013 except for 2015. Young says, “We show greater than $250 million closed in Q3 which while below Q2 is still almost what the state did in all of 2012.”
North Carolina ranks 10th when compared to other states in terms of the total amount of funding raised. California, New York, and Massachusetts rank first, second and third.
Regionally, Raleigh-Cary outranked Charlotte in 3Q as it did in the first two quarters. While Charlotte companies raised nearly four times that of Raleigh-Cary companies in 2017, the roles have reversed in 2018. This quarter, Raleigh-Cary based companies raised $80.4 million and Charlotte companies raised $2.61 million.