International growth, primarily in China, fuels the VC market today

The venture capital business model has gone global. VC is still an exclusive club of financiers, but now with worldwide scope and scale.

According to Crunchbase projections Crunchbase News reported in Q3 2018, worldwide VC deal and dollar volume each set new all-time records. In the U.S. and Canada, deal volume declined slightly from Q2 highs but growing deal sizes pushed total dollar volume to new heights.

Much of this global growth comes from markets outside the U.S. and Canada. A recent collaborative study between Startup Revolution and the Center for American Entrepreneurship indicates that Beijing, China was the city that contributed most to global growth in venture capital investment growth.

Here’s the geographic breakdown of projected deal volume over time. Note a somewhat choppy growth pattern in U.S. and Canadian deal volume, and compare that to a more consistent growth pattern in international deal volume. (For more about how and why Crunchbase makes these projections, check out the Methodology section at the end of the global report.)

In rapidly growing startup markets like China, venture deal volume is also at all-time highs, though venture dollar volume is down slightly.1 For the Asia-Pacific region as a whole, venture deal volume is up roughly 85 percent from the same time last year. Reported deal volume in China is up more than fourfold during the same period of time.

The rise of China’s venture market may be best seen from a city-level perspective. Below is a chart displaying the 10 most active startup cities in Q3, ranked by count of venture deals for each city as reported at the end of Q3. (The Methodology section of the global report also explains what “reported” data is and how it’s used.)

Of the top 10 cities displayed above, only three countries are represented. If it weren’t for the rest of Silicon Valley bolstering the Bay Area’s numbers, Beijing would beat out San Francisco in raw deal counts. (But, then again, Beijing is home to three times as many people as the entire Bay Area.)

Using deal and dollar volume as rough metrics for vivacity (if not necessarily health), this spread in VC activity could be seen as a good thing for the market as a whole. A rising tide of global VC activity lifts all startup markets, worldwide. However, much of that growth is still concentrated in just a few big markets.

The worldwide expansion and local reinterpretation of the Silicon Valley venture capital investment model is a phenomenon with which market participants (founders and funders alike) must reckon. Founders are responding by raising lots of money in ever-larger rounds, hoping that big investor checks are enough to buy large chunks of growing markets. Investors, in turn, are raising ever-larger funds to satiate these companies’ seemingly bottomless appetites for capital.

As in most mega-trends, participants who fail to adapt to changing market conditions will end up on the losing end of the market cycle.

  1. It should be noted that dollar volume declined mostly because Q2 numbers were skewed north by a $14 billion Series C round raised by Ant Financial. To this date, it’s the largest VC round ever closed.

Corporate venture investment climbs higher throughout 2018

Many corporations are pinning their futures on their venture investment portfolios. If you can’t beat startups at the innovation game, go into business with them as financial partners.

Though many technology companies have robust venture investment initiatives—Alphabet’s venture funding universe and Intel Capital’s prolific approach to startup investment come to mind—other corporations are just now doubling down on venture investments.

Over the past several months, several big corporations committed additional capital to corporate investments. For example, defense firm Lockheed Martin added an additional $200 million to its in-house venture group back in June. Duck-represented insurance firm Aflac just bumped its corporate venture fund from $100 million to $250 million, and Cigna lust launched a $250 million fund of its own. This is to say nothing of financial vehicles like SoftBank’s truly enormous Vision Fund, into which the Japanese telecom giant invested $28 billion of its own capital.

And 2018 is on track to set a record for U.S. corporate involvement in venture deals. We come to this conclusion after analyzing corporate venture investment patterns of the top 100 publicly traded, U.S.-based companies (as ranked by market capitalizations at time of writing). The chart below shows that investing activity, broken out by stage, for each year since 2007.

A few things stick out in this chart.

The number of rounds these big corporations invest in is on track to set a new record in 2018. Keep in mind that there’s a little over one full quarter left in the year. And although the holidays tend to bring a modest slowdown in venture activity over time, there’s probably sufficient momentum to break prior records.

The other thing to note is that our subset of corporate investors have, over time, made more investments in seed and early-stage companies. In 2018 to date, seed and early-stage rounds account for over 60 percent of corporate venture deal flow, which may creep up as more rounds get reported. (There’s a documented reporting lag in angel, seed, and Series A deals in particular.) This is in line with the past couple of years.

Finally, we can view this chart as a kind of microcosm for blue-chip corporate risk attitudes over the past decade. It’s possible to see the fear and uncertainty of the 2008 financial crisis causing a pullback in risk capital investment.

Even though the crisis started in 2008, the stock market didn’t bottom out until 2009. You can see that bottom reflected in the low point of corporate venture investment activity. The economic recovery that followed, bolstered by cheap interest rates that ultimately yielded the slightly bloated and strung-out market for both public and private investors? We’re in the thick of it now.

Whereas most traditional venture firms are beholden to their limited partners, that investor base is often spread rather thinly between different pension funds, endowments, funds-of-funds, and high-net-worth family offices. With rare exception, corporate venture firms have just one investor: the corporation itself.

More often than not, that results in corporate venture investments being directionally aligned with corporate strategy. But corporations also invest in startups for the same reason garden-variety venture capitalists and angels do: to own a piece of the future.

A note on data

Our goal here was to develop as full a picture as possible of a corporation’s investing activity, which isn’t as straightforward as it sounds.

We started with a somewhat constrained dataset: the top 100 U.S.-based publicly traded companies, ranked by market capitalization at time of writing. We then traversed through each corporation’s network of sub-organizations as represented in Crunchbase data. This allowed us to collect not just the direct investments made by a given corporation, but investments made by its in-house venture funds and other subsidiaries as well.

It’s a similar method to what we did when investigating Alphabet’s investing universe. Using Alphabet as an example, we were able to capture its direct investments, plus the investments associated with its sub-organizations, and their sub-organizations in turn. Except instead of doing that for just one company, we did it for a list of 100.

This is by no means a perfect approach. It’s possible that corporations have venture arms listed in Crunchbase, but for one reason or another, the venture arm isn’t listed as a sub-organization of its corporate parent. Additionally, since most of the corporations on this list have a global presence despite being based in the United States, it’s likely that some of them make investments in foreign markets that don’t get reported.

Eventbrite goes public, and everyone else is raising hella money

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

This week we worked with an (excellent) skeleton crew. Our own Connie Loizos held down the fort with a guest that knew quite a lot: March Capital’s Jamie Montgomery.

There was a healthy blizzard of news to get through, so Connie and Jamie plowed ahead.

Up top, the Eventbrite IPO was big news. After a long path to going public, Eventbrite reported interesting revenue growth acceleration, attached to a standard set of GAAP net losses. (Standard in that most tech IPOs these days do not feature profitable companies.)

But Eventbrite’s IPO was just one thing going on the IPO front. X Financial also went public this week after a somewhat muted pricing event. But even that wasn’t all the IPO news. There was one more tidbit to hang our hat on: NIO’s recent IPO price see-saw.

Moving along, Uber may be going on a shopping spree, picking up either Careem (a rival car-sharing service) or Deliveroo (a competing food-delivery service), or both. Or neither! We’ll have to see when all the dust comes to rest.

But that wasn’t all! Ro has new capital to spend, bringing more drugs to the male health space. Oh, and UiPath raised a few hundred million as well.

And I think that that is it. Thanks for hanging with us over so many dozens and dozens of episodes. We think that you are just great!

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In VC fund creation, have we passed the peak?

In venture capital, a variant on the Glengarry Glen Ross mandate is most fund managers’ modus operandi: Always. Be. Raising.

And it seems like VCs have picked up on that. In the last few months, even casual readers of the tech press would notice many, many stories about VCs raising big new funds. So are venture investors spinning up new funds as often as they did in the past?

VCs are certainly raising tons of money, and Crunchbase News reported earlier this week that these huge funds are bending the shape of the VC fundraising curve upward. But is that the full story? Even though 2018 has been a banner year so far for venture fund origination on the highest end of the assets-under-management spectrum, what about the market as a whole?

Aggregated venture capital and micro VC fundraising data from Crunchbase suggests that U.S.-based firms are spinning up fewer new funds than they did just a couple of years ago. In other words, the peak might be in.

Let’s take a look at the numbers, which we’ve segmented by U.S. Census region.

There are a few trends to glean from the chart above, and it comes down to pace and scale.

We’re able to see how the pace of venture fund creation varies by region. In the highly unlikely event you didn’t already know that the East and West coasts are responsible for the bulk of venture fund creation, the above chart makes that fact plainly obvious.

And at least when it comes to investors from Western and Eastern states, the difference is one of scale rather than direction. As the count of funds raised rises in the East, so it goes in the West.

Our data suggest that, in aggregate, new fund creation hit a local maximum in 2016. With more than 260 new funds announced that year, it’s a record that stretches back at least to the time of the first dot-com collapse — if it’s not an all-time record on its own.

Not all bad news

Even given historic patterns of when new funds are announced — which suggest fewer funds are announced in Q4 — matching 2017 levels of new fund creation is likely. Although nobody should hold their breath, it’s possible that 2018 will also break records for new fund creation and total capital raised.

To break the dollar volume record, VCs need to raise another $4.6 billion in new funds by the end of the year. Considering that approximately $40 billion has already been raised, this seems possible. But it’s important to remember that eighty percent of new funds are smaller than $250 million.

One of the things some might ignore about all the money currently going into venture capital funds (and, by proxy, into privately held tech startups) is that it is going to have to come back to limited partners with a hefty return.

The $45 billion U.S. VCs are on pace to raise in 2018 would have to net more than $135 billion in returns by 2028, presuming a 10-year term for the fund and a 3x realized multiple (the minimum threshold for venture scale returns).

That sounds unlikely, given that we are in the senescence of a bull cycle. But so long as public tech companies soar, SaaS booms and investors are so hungry for tech shares that middling Chinese firms can go public domestically twice in a week, there’s little reason to expect too much of a pullback in the short term.

Until the real correction comes, at which point we’ll see some far shorter bars added to our graph.

Crypto’s second bubble, Juul has 60 days and three Chinese IPOs

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

After a long run of having guests climb aboard each week, we took a pause on that front, bringing together three of our regular hosts instead: Connie Loizos, Danny Chrichton, and myself.

Despite the fact that there were just three of us instead of the usual four, we got through a mountain of stuff. Which was good as it was a surprisingly busy week, and we didn’t want to leave too much behind.

Up top we dug into the latest in the land of crypto, which Danny had politely summarized for us in an article. The gist of his argument is that the analogies relating crypto as an industry to the Internet may work, but most people have their timelines wrong: Crypto isn’t like the Internet in the 90s, perhaps. More like the 80s.

On the same topic, crypto companies formed a team lobbying effort, and a high-flying crypto fund is struggling to once again post strong profit figures.

Moving along, Juul is back in the news. Not, however, for raising more money or posting quick growth. Well, sort of the latter, as the government is after it. The Food and Drug Administration has put Juul on a countdown to get its act together regarding teens and smoking. That the financially-impressive unicorn is in as much trouble as it is nearly surprising.

Finally, we ran through the three most recent Chinese IPOs that hit our radar. Here they are:

  • Meituan Dianping: The Tencent-backed group buying, delivery, and everything company raised over $4 billion in its debut, which was impressive, but also short of expectations. The firm won’t begin trading until the 20th, but it’s one more massive deal that got done in 2018.
  • 111: We spent a minute on the show discussing what counts as a technology company thanks to 111. We voted that the Chinese online-to-offline pharmacy startup did in fact count. So, it’s in our list. Some notes on its debut can be found here.
  • NIO: Finally on our list was NIO, a Chinese electric car company with, as we have discussed on Equity before, a shockingly short history of revenue generation. Whether the company is a gamble or not, it did raise $1 billion in its own offering. And its stock is off like a rocket to boot.

And that was the end of things. Thanks for sticking with us, as always. Speaking of which, our 100th episode is coming up. Who should we bring onto the show to celebrate?

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercast, Pocket Casts, Downcast and all the casts.

Supergiant VC rounds aren’t just raised in China

In the venture capital market, big is in. Firms are raising significant sums to finance a growing number of large startup funding rounds.

In July, there were 55 venture rounds, worldwide, which topped out at $100 million or more, totaling just over $15 billion raised in nine and 10-figure mega-rounds alone. This set a record for venture dealmaking.

We’ve already identified approximately when the uptick in huge VC rounds began: toward the tail end of 2013. But where in the world are all the companies raising these supergiant venture capital rounds?

In response to coverage of July’s record-breaking numbers, many commenters were quick to point out that startups based in China raised six of the top 10 largest rounds from last month.

Indeed, on a recent episode of the Equity podcast discussing the supergiant round phenomenon, Chinese startups’ position in the market was a hot topic of conversation. Someone suggested that a series of large venture rounds in China may have preceded the run-up in supergiant rounds being raised by U.S. startups.

At least in the realm of nine and 10-figure venture rounds, that doesn’t appear to be the case. The chart below breaks down the monthly count of supergiant rounds by the company’s country of origin.

Here is what this data suggests:

  • The first major run-up in nine-figure dealmaking took place in the U.S. around Q1 2014, whereas in China that first run-up didn’t occur until Q4 2014.
  • Especially in the last 24 months or so, supergiant round volume in China and the U.S. is highly correlated, perhaps implying competition in the market.
  • We can see, very clearly, the mini-crash in the U.S. through the second half of 2015. For its part though, China hasn’t yet had a serious “crash” in supergiant rounds during this cycle.
  • Startups outside the U.S. and China are beginning to raise supergiant rounds at a faster rate, although the uptick is significantly less dramatic.

What’s less obvious in the chart above is just how quickly China became a mega-round powerhouse. The chart below plots the same data as above, except this format shows what percent of mega-rounds originated in each market. Additionally, rather than displaying somewhat noisy monthly amounts, we aggregated data in six-month increments.

After the start of 2013, it only took a couple of years for Chinese companies to consistently account for roughly 30 to 40 percent of the $100 million-plus VC rounds raised in any given six-month period.

This also reinforces a trend shown in the prior chart: since the beginning of 2017, Chinese startups and U.S. startups are raising roughly the same number of supergiant venture rounds as one another. That number has risen fairly consistently over time.

Before concluding, it’s worth mentioning that our definition of “supergiant” is ultimately arbitrary. Indeed, $100 million is just a tidy, round-numbered threshold to measure against. Our findings would be similar (if somewhat less dramatic) if we counted, say, the set of rounds raising $50 million or more.

The important underlying trend is that round sizes are getting larger on average. And a supergiant wave of money ultimately lifts all rounds, at least a little bit.

Stay up to date with recent funding rounds, acquisitions and more with the Crunchbase Daily.

July sets a record for number of $100M+ venture capital rounds

In July 2018, the tech sector’s leisure class — venture capitalists — kicked investments into overdrive, at least when it comes to financing supergiant venture rounds of $100 million or more (in native or as-converted USD values).

With 55 deals accounting for just over $15 billion at time of writing, July likely set an all-time record for the number of huge venture deals struck in a single month.

The table below has just the top 10 largest rounds from the month. (A full list of all the supergiant venture rounds can be found here.)

It’s certainly a record high for the past decade. Earlier this month, we set out to find when the current mega-round trend began. We found that, prior to the tail end of 2013, supergiant VC rounds were relatively rare. In a given month between 2007 and the start of the supergiant round era, a $100 million round would be announced every few weeks, on average. And many months had no such deals come across the wires.

Of course, that hasn’t been the case recently.

Why is this happening? As with most things in entrepreneurial finance, context matters.

There are some obvious factors to consider. At the later-stage end of the spectrum, the market is currently awash in money. Billions of dollars in dry powder is in the offing as venture investors continue to raise new and ever-larger venture funds. All that capital has to be put to work somewhere.

But there’s another, and perhaps less obvious, cog in the machine: the changing part VCs play in a company’s life cycle. The current climate presents a stark contrast to the last time the market was this active (in the late 1990s). Back then, companies looking to raise nine and 10-figure sums would typically have to turn to private equity firms or boutique late-stage tech investors, or raise from the public market via an IPO.

Now some venture capital firms are able to provide financial and strategic support from the first investment check a private company cashes to when it goes public or gets acquired. On the one hand, this prolongs the time it takes for companies to exit. But on the other, some venture firms get to double, triple and quadruple down on their best bets.

But as in Newtonian physics, a market that goes up will also come down. The pace of supergiant funding announcements will have to slow at some point. What are some of the potential catalysts for such a slowdown? Keep an eye out for one or more of the following:

  • U.S. monetary policy could change. As stultifyingly boring as Federal Reserve interest rate policy is, very low interest rates are a major contributor to the state of the market today. With money so cheap, other interest rate-pegged investment vehicles like bonds perform relatively poorly, which drives institutional limited partners to seek high returns in greener pastures. Venture capital presents that greenfield opportunity today, but that can change if interest rates rise again.
  • A sustained public market downtrend for tech companies. While everything was coming up Milhouse in the private market, a few publicly traded tech giants got cut down to size. Facebook, Twitter and Netflix all reported slower than expected growth, leading to a downward repricing of their shares. So far, most of the steepest declines are isolated to consumer-facing companies. But if we start to see disappointing earnings from more enterprise-focused companies, or if asset prices remain depressed for more than just a couple of months, this could slow the pace of large rounds and lower valuations.
  • Narrowing or vanishing paths to liquidity. For the past several quarters, the count of venture-backed companies that get acquired has slowly but consistently declined, a trend Crunchbase News has documented in its quarterly reporting. At the same time, though, the IPO market has mostly thawed for venture-backed tech companies. Even companies with ugly financials can make a public market debut these days. But if IPO pipeline flow slows, or if otherwise healthy companies fail to thrive when they do go public, that could spell bad news for investors in need of liquidity.

All this being said, there’s little sign that the market is slowing down. Crunchbase has already recorded four rounds north of $100 million in the first two days of August. Most notably, ride-hailing company Grab snagged another $1 billion in funding (after gulping down $1 billion last month) at a post-money valuation of $11 billion.

If you believe the stereotypes, venture investors are either already on vacation or packing their bags for late summer jaunts to exotic locales at this time of year. But, as it turns out, raising money is always in season. So even though the dog days of summer are upon us, August could end up being just as wild as July.

Cisco buys Duo, Brandless raises $240M, and Apple broaches $1T

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

This week TechCrunch’s Matthew Lynley and Crunchbase News’s Alex Wilhelm were joined by Jyoti Bansal, the founder of AppDynamics and a partner at Unusual Ventures, among other startup work.

Our own Connie Loizos was off this week.

This episode was effectively a news grab-bag. There’s a little of everything: public company drama, big rounds, acquisitions, and more.

Up top: Apple’s broaching of the $1 trillion barrier, which some people called early and some people called late. It depends on how you were counting. But the venerable consumer electronics giant did indeed manage to hoist its market cap over the trillion dollar mark, making it the first American company to do so.

But as we all wind up agreeing, it’s just a round number.

Moving along Sonos’s IPO had a good first day but only after a disappointing pricing run. Or as Lynley explains on the show, the firm had to price under its target range to go out, but then closed above that target range by the end of its first day’s trading. This is more evidence that pricing an IPO is an occult art of sorts. (More here on the company’s numbers.)

Scooting along, Duo Security is exiting to Cisco for $2.35 billion. This deal came at quite literally the perfect moment as the company our guest founded sold to Cisco for $3.7 billion last year. Why? Recurring revenue, which is seeing its value rise.

And finally, Brandless, which picked up a massive $240 million round led by the ever-hungry SoftBank Vision Fund. A deal to which I had a question: Why?

All that and we even managed to tell a joke and mangle a segue. More next week!

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercast, Pocket Casts, Downcast and all the casts.

WeWork is just one facet of SoftBank’s bet on real estate

This week WeWork announced that its Chinese subsidiary — WeWork China — raised an additional $500 million in capital in a deal led by SoftBank, Temasek Holdings and others. The deal reportedly values the Chinese branch of the shared workspace and real estate management company at $5 billion, up from $1 billion (post-money) in the round WeWork China announced almost a year ago in July 2017.

SoftBank rarely doubles down on a particular company. At time of writing, SoftBank itself has made 175 investments in 144 different companies, according to Crunchbase data. Of those, just 23 companies raised more than one round from SoftBank. And in conjunction with its China branch, with four cumulative transactions on record, WeWork is tied for first place in a ranking of companies most-engaged with SoftBank’s investment arm.

That being said, SoftBank’s investment strategy appears to be one of taking stakes in leading companies from a given sector. And although it’s sometimes difficult to tell just how large some of those stakes are as a percent of equity in the company, SoftBank finds itself involved in many companies’ biggest rounds to date.

Take WeWork for example. If you take all of the equity funding rounds raised by its main corporate entity and regional offshoots like WeWork China and WeWork India, you’ll find that SoftBank was either the sole investor, the round leader or a syndicate participant in the rounds that delivered the lion’s share of capital to the company.

If the market opportunity is big, SoftBank will typically make investments in regionally dominant companies operating in that sector. After all, if worldwide dominance is difficult to obtain for any one company, SoftBank is so big that it can take positions in the regional leaders, creating an index of companies that collectively hold a majority of market share in an emerging industry.

It’s a bold strategy that involves taking some big risks and writing big checks. As a result, SoftBank is typically the largest single investor — in terms of dollars committed — in the fastest-growing companies in an industry.

Real estate is just one theme

WeWork is just one facet of SoftBank’s real estate investment efforts. The table below shows a selection of SoftBank’s investments in the real estate and construction sector. It’s ranked by the amount of money invested in rounds involving SoftBank (either as the sole investor or as part of a broader syndicate). We also show what percent of total known equity funding SoftBank-involved rounds account for.

SoftBank’s strategy of writing big checks to successful startups in large and growing market segments extends past real estate, of course. It touches many other industries, including e-commerce and logistics, insurance and healthcare, and, perhaps most contentiously, ride-hailing and on-demand transportation.

SoftBank also has a strong portfolio of artificial intelligence companies to flex at some point down the road. It has invested in the likes of Nvidia, Improbable, Brain Corporation, Pentuum and others. Furthermore, its stakes in Mapbox and Cruise Automation are advantageous to SB Drive, its own autonomous vehicles effort.

SoftBank is one of the cases of everything old being new again. In the late 1990s, SoftBank and its founder Masayoshi Son were some of the biggest investors in tech. Then, like today, Son aimed to forge a kind of virtual Silicon Valley in SoftBank’s portfolio, a platform for symbiotic, cooperative relationships and business partnerships to emerge. There’s definitely the possibility for this sort of bonhomie to emerge today, given the thematic nature of the firm’s investment strategy. But at the same time, Son is famous for losing a lot of money when the first tech bubble collapsed. It remains to be seen whether the firm will make it out on top the second time around.

Inside the rise and reign of supergiant venture capital rounds

There was a time not so long ago when nine-figure venture capital rounds weren’t a near-daily feature of tech business news.

But now funding rounds of $100 million or more cross the wires with stunning frequency.

The era of supergiant rounds is now the new normal. This is attributable, in part, to billions of dollars flowing into new venture capital funds — the largest of which are raised by the oldest, most entrenched firms — and competition from relative newcomers, like SoftBank.

Q2 2018 may have set new records for worldwide VC deal and dollar volume in this post-dot com cycle, but that belies an important fact: Investors are dumping the bulk of capital into a relatively small number of companies. The rise of supergiant rounds wound up in a “takeover” of the market.

The chart below shows the proportion of capital raised in rounds of $100 million or more, tracing the period between Q1 2017 and the end of Q2 2018.

Just a little over a year ago, in Q1 2017, nine and 10-figure venture capital deals accounted for a healthy 35 percent of global dollar volume. Five quarters later, in Q2 2018, $100 million-and-up deals accounted for a majority — some 61 percent — of equity funding into upstart technology companies.

It’s not just that these mega-rounds are eclipsing smaller counterparts as a percent of dollar volume totals. Supergiant rounds also appear to be driving most of the growth in reported dollar volume, as the chart below shows.

Between Q1 2017 and Q2 2018, reported dollar volume in sub-$100 million deals grew by around 42 percent. By that same token, dollar volume in nine and 10-figure venture deals ballooned by about 325 percent over that stretch of time.

Granted, this is all based on recorded data in Crunchbase. And like all private-market databases, Crunchbase is subject to some reporting delays. Those delays primarily affect seed and early-stage rounds, which tend to be smaller. Still though, unless billions of dollars in small rounds get added to recent quarters, these figures are likely to remain relatively stable.

Why the takeover?

The obvious question to ask here: Why are $100+ million rounds more prevalent these days, and what explains their slow-motion takeover of the global venture capital market?

As with most things, the answer is, “it’s complicated, and it depends.” The rise and reign of supergiant rounds is a phenomenon that emerges from a confluence of different factors:

  • The SoftBank effect. Much hay has been made about SoftBank’s ludicrously large $100 billion Vision Fund, a pool of capital raised partly from large sovereign wealth funds in Saudi Arabia and Abu Dhabi. With this pool of capital, SoftBank can commit hundreds of millions of dollars to each deal, and the fund intends to invest in 70-100 unicorns over its five-year investment period. In doing so, SoftBank is building an index fund of emerging technology companies.
  • The rise of supergiant funds. This is a related but separate phenomenon from the SoftBank effect. Venture firms are raising ever-larger funds to compete with SoftBank for room in attractive venture deals. It’s likely that investors are trying to outdo each other by offering more money to companies. Why take money from Investor A when Investor B is offering more capital on comparable terms?
  • Companies are able to stay private longer. Although the IPO window is very much open for tech companies, it’s not like there is a line out the door. Many of the most highly valued companies are still far from profitable and simply aren’t ready for the scrutiny brought on by going public. With more capital available, companies can raise more in late-stage venture rounds now than what many companies raise in their IPOs.
  • A shift toward preemptive funding. Because of all this money floating around, investors may be investing more money earlier than they have in the past. Rather than using a catalyzing event, or some marked improvement in metrics to justify raising a new round, some companies raise money from their existing investors just because they can. Venture investor Elad Gil calls these “preemptive rounds.”

It really does seem like mega-rounds are here to stay. And, based on just the last couple of weeks, it looks like the third quarter is likely to see a continuation of the trend.

Here are just a few examples from the first weeks of Q3: e-cigarette maker Juul is raising $1.2 billion, self-driving car company Zoox just raised $500 million, Chinese cafe chain Luckin Coffee raised $200 million and scooter and bike giant Lime raised $335 million in a Series C round.

Bigger funds are able to invest in bigger rounds. And as competitors raise big rounds, it becomes more strategically important for companies to also raise big rounds. It’s a positive feedback loop. What stops the fundraising arms race, though, remains to be seen.