Following a record year, Illinois startups kick off 2019 on a strong foot

Illinois’s startup market in 2018 was very strong, and it’s not slowing down as we settle into 2019. There’s already almost $100 million in new VC funding announced, so let’s take a quick look at the state of venture in the Land of Lincoln (with a specific focus on Chicago).

In the chart below, we’ve plotted venture capital deal and dollar volume for Illinois as a whole. Reported funding data in Crunchbase shows a general upward trend in dollar volume, culminating in nearly $2 billion worth of VC deals in 2018; however, deal volume has declined since peaking in 2014.1

Chicago accounts for 97 percent of the dollar volume and 90.7 percent of total deal volume in the state. We included the rest of Illinois to avoid adjudicating which towns should be included in the greater Chicago area.

In addition to all the investment in 2018, a number of venture-backed companies from Chicago exited last year. Here’s a selection of the bigger deals from the year:

Crain’s Chicago Business reports that 2018 was the best year for venture-backed startup acquisitions in Chicago “in recent memory.” Crunchbase News has previously shown that the Midwest (which is anchored by Chicago) may have fewer startup exits, but the exits that do happen often result in better multiples on invested capital (calculated by dividing the amount of money a company was sold for by the amount of funding it raised from investors).

2018 was a strong year for Chicago startups, and 2019 is shaping up to bring more of the same. Just a couple weeks into the new year, a number of companies have already announced big funding rounds.

Here’s a quick roundup of some of the more notable deals struck so far this year:

Besides these, a number of seed deals have been announced. These include relatively large rounds raised by 3D modeling technology company ThreeKit, upstart futures exchange Small Exchange and 24/7 telemedicine service First Stop Health.

Globally, and in North America, venture deal and dollar volume hit new records in 2018. However, it’s unclear what 2019 will bring. What’s true at a macro level is also true at the metro level. Don’t discount the City of the Big Shoulders, though.

  1. Note that many seed and early-stage deals are reported several months or quarters after a transaction is complete. As those historical deals get added to Crunchbase over time, we’d expect to see deal and dollar volume from recent years rise slightly.

Global VC market sees highest-ever concentration of supergiant dollar volume in Q4 2018

For the global VC industry, 2018 was a supergiant year. Crunchbase projects that 2018 deal and dollar volume surpassed even the high-water mark left by the dot-com deluge and the drought that followed.

As covered in Crunchbase News’s global VC report reviewing Q4 and the rest of 2018, projected deal volume rose by 32 percent and projected dollar volume jumped 55 percent since 2017. For all of 2018, Crunchbase projects that well over $300 billion was invested in equity funding rounds across all stages of the venture-backed company life cycle. (This figure includes an estimate of transactions that were finalized in 2018, but won’t be publicized or added to Crunchbase until later. More on how Crunchbase projects data can be found at the end of that report.)

Is the market mostly buoyed by the billions raised by the biggest private tech companies, or is a rising tide in this extended aquatic metaphor raising all ships? In other words, is the bulk of the capital going to only a handful of the largest rounds? That’s what the numbers show.

In the global VC pool, capital is definitely sloshing toward rounds totaling $100 million or more. In the chart below, you can see what percent of reported global VC dollar volume was raised in “supergiant” rounds versus deals of smaller size.

 

In the year, over 56 percent of worldwide dollar volume can be attributed to supergiant rounds. With 61 percent of reported capital coming from supergiants in the final quarter, Q4 2018 has the highest concentration of supergiant dollar volume of any single quarter on record.

Big money weighs on the market

Following that same theme, the calendar year 2018 is the most concentrated year on record. In the chart below, we show how much capital was raised in non-supergiant (<$100 million) venture rounds over the past decade. (It’s basically the bottom part of the first chart, with the data aggregated over a longer period of time.)

For the first time in at least a decade (and likely ever) supergiant, $100 million+ VC rounds accounted for a majority of reported capital raised. So in summary: Q4 2018 had the highest share of supergiant VC dollar volume on record, and 2018 was the most concentrated year on record.

On the one hand, the results are not surprising, considering that the biggest-ever VC round (a preposterously large $14 billion Series C raised by Ant Financial) and several rivals for that top spot were closed last year. That big round made a big splash. It was the year of multi-billion-dollar global growth funds, SoftBank and scooter CEOs worth supergiant sums, at least on paper. But was it good for the smaller players too?

Seed and early-stage deal and dollar volume were both up in 2018, but then again, so is everything toward the end of a bull market cycle. The question is, when the bottom falls out, between supergiant and more normal-sized rounds, which has the farthest to fall?

SoftBank’s Vision Fund inches closer to $100B

Much has been said about the SoftBank Vision Fund (SBVF), mostly in awe of the size of the investment vehicle.

It’s important to remember that the $100 billion number most often associated with the gargantuan fund is only a target. Today, however, the Vision Fund inched yet closer to that 12-figure goal as it continues to pour billions of dollars into technology companies around the world.

So far in 2018 the SoftBank Vision Fund has invested in more than 20 deals, accounting for over $21 billion in total investment. That sum didn’t all come from the Vision Fund of course — SoftBank’s Vision Fund typically invests alongside one or more syndicate partners who help fill out bigger rounds — but the amounts are nonetheless staggering. The chart below shows the Vision Fund’s investments since its inception in 2017.

In an annual Form D disclosure filed with the Securities and Exchange Commission this morning, SBVF disclosed that it has raised a total of approximately $98.58 billion from 14 investors since the date of first sale on May 20, 2017. The annual filing from last year said there was roughly $93.15 billion raised from 8 investors, meaning that the Vision Fund has raised $5.43 billion in the past year and added six new investors to its limited partner base.

In a financial report from November, SoftBank Group Corp disclosed (p. 21, Note 1) it has invested an additional $5 billion in the fund, which is “intended for the installment of an incentive scheme for operations of SoftBank Vision Fund.” It brings SoftBank’s total contribution to $21.8 billion, in line with original targets.

The most recent Form D also cites six more limited partners. Crunchbase News presumes that the $430 million in new capital we cannot source back to SoftBank came from those new partners. SoftBank declined to comment on who they are.

Uncertainty looms over Vision Fund 2

One of the primary challenges an investor as big as the Vision Fund faces is sourcing capital. SoftBank doesn’t have a lot of choice about who it can take on as limited partners. To fill out a $100 billion fund (or something larger), government-backed investors are some of the only market participants with the financial wherewithal to anchor its limited partner base. And, sometimes, international politics and venture finance collide.

Saudi Arabia’s Public Investment Fund committed $45 billion to the SBVF; it’s the single biggest backer of the fund. Saudi Crown Prince Mohammed bin Salman is implicated in the extrajudicial torture, murder, dismemberment and disposal of Saudi dissident and Washington Post columnist Jamal Khashoggi in early October.

In November, TechCrunch reported that SoftBank would wait for the outcome of Khashoggi’s murder investigation before it decides on Vision Fund 2. New revelations this weekend close the window of reasonable doubt around bin Salman’s involvement in the murder.

This past weekend, The Wall Street Journal reported that the U.S. Central Intelligence Agency intercepted 11 messages sent between bin Salman and one of his closest aides, who allegedly oversaw the execution squad, in the hours before Khashoggi’s death. Amid mounting international and intelligence community consensus, though, the White House continues to defend Saudi Arabia.

Given these recent developments, it’s uncertain how SoftBank’s relationship with the Vision Fund’s principal backer will change going forward. Whether anything changes at all is itself an unknown at this point too.

SoftBank COO Marcelo Claure said there was “no certainty” of a follow-up fund back in mid-October.

Asana raises $50M, Airbnb gets a new CFO and a 2019 IPO preview

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

This week as TechCrunch Disrupt Berlin came to life, Kate Clark and I snagged some mics and dug through the biggest news of the week (a $50 million check), and talked through who may go public next year and what those IPOs might look like.

Our usual fare, if you will. (If you are missing Danny and Connie, fear not, they will be back next week.)

This week we hit two news items and one roundup. Here’s the skinny:

  • Asana raises $50 millionYep, Asana went back to the funding well this week for its Series E, despite having raised a $75 million Series D earlier this year. The company’s funding pace might seem aggressive, but we’re hearing that many startups are looking to tack on extra cash. Why? Because the market might change, and so the savvy are stacking chips in case the cashier closes. Oh, and the company dropped a number of relative growth metrics that were, I have to say, impressive.
  • Airbnb gets a new CFO. After its old CFO took off, Airbnb’s eventual IPO was on hold. You can’t go public without a CFO. But now it has one! And that means that the company can eventually sell shares on a public exchange, whenever it deigns to sell equity to the hoi polloi. But put your checkbook down, as it’s far from clear precisely when Airbnb will pull the trigger and give us an S-1.
  • Speaking of which, let’s talk decacorn IPOs. Not my best segue, but it’ll do. There are a number of private tech companies worth $10 billion or more (10x unicorns, or, ahem, decacorns) that will probably try to go public next year. You can read about it here, but the gist is that Uber, Lyft, Pinterest and Airbnb need to go public, and there’s reason to believe that they are going to do it next year.

All that and we managed to mispronounce “EBITDA” a few times.

That’s Equity for this week. Have a listen and we’ll be back in just seven days!

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

Equity podcast: A Thanksgiving-ish special episode

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

It’s the day after Thanksgiving, so if you are reading this in America I hope there is a pet leaned up against your legs and that you are sitting next to a fire while staring down one more plate of leftovers.

We made this episode for just such a moment. Welcome to our take on a relaxed episode of Equity, a show normally featuring four people arguing about this or that. This week, it’s just TechCrunch’s Kate Clark and myself digging into some of the strangest and most interesting rounds of the year. Thus far, at least.

So what made our cut?

We hope that you are well and that the holidays are as delightful and full of joy as they can be. And if you are having a bad run of the end of the year, big hugs from the Equity crew. We think you are just perfect.

Stay warm!

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

The top 10 cities for $100M VC rounds in 2018 so far

Crunchbase News recently profiled a selection of U.S. companies’ largest VC raised in 2018, and no surprise here: the 10 largest rounds all topped out well north of $100 million.

A major driver of global venture dollar growth is the relatively recent phenomenon of companies raising $100 million or more in a single venture round. We’ve called these nine and 10-figure deals, which shine brightly in the media and are hefty enough to bend the curve of VC fund sizes upwards, “supergiants” after their stellar counterparts.

And like stars, venture-backed companies tend to originate and co-exist in clusters, while the physical space between these groups is largely empty.

We noticed that many of the companies behind these supergiant rounds are headquartered in just a few metro areas around the United States. In this case, it’s mostly just the SF Bay Area, plus others scattered between Boston, Los Angeles, San Diego and one (Magic Leap) in the unfortunately named Plantation, Florida.

The San Francisco Bay Area is perhaps one of the best-known tech and startup hubs in the world. Places like Boston, NYC and Los Angeles, among others, are perhaps just as well-known. But how do these cities stack up as clusters for companies raising supergiant rounds?

Superclusters

That question got us wondering how these locales rank against other major metropolitan areas throughout the world. In the chart below, we’ve plotted the count of supergiant venture rounds1 topping out at $100 million or more through November 5. These numbers are based off of reported data in Crunchbase, exclude private equity rounds and do not account for deals that may have already been closed but haven’t been publicly announced yet.

Although U.S.-based companies have raised more supergiant rounds (168 year to date) than their Chinese counterparts (160 year to date), Chinese companies raise much bigger rounds, even at this supergiant size class.

How much more? U.S. companies have raised $38.4 billion, year to date, in nine and 10-figure venture rounds alone. Chinese companies have raised $69 billion across their 160 supergiant deals, which includes the largest-ever VC deal: a $14 billion Series C round raised by Ant Financial.

2018 in perspective

2018 is already a record year for venture funding worldwide. With more than $275 billion in projected total venture dollar volume so far, 2018’s year-to-date numbers have already eclipsed 2017’s full-year figures (a projected $220 billion, roughly) by more than $55 billion.2

And there’s still about eight weeks left to go before it’s New Year’s Eve.

  1. We use the same classification rules for what is and is not a “venture” round as we’ve used in our quarterly reports. Check out the methodology section of our most recent global VC report, from Q3 2018, to learn more about how Crunchbase News categorizes rounds.
  2. We’re referring to the same type of projected data we use in the quarterly reports. Check out the methodology section of our most recent global VC report, from Q3 2018, to learn more about how Crunchbase News uses projected and reported data.

The SaaS VC gap: China & other markets trail the US

Chinese startups rule the roost when it comes to total reported venture dollars raised so far in 2018. That is, mostly. In one key category at least — software-as-a-service, better known as SaaS — they do not.

Ant Financial raised the largest-ever VC round in June, a mind-boggling $14 billion in Series C funding. And nearly a dozen privately held Chinese companies, including SenseTimeDu Xiaoman FinancialJD Finance and ELEME, raised $1 billion (yes, with a “b”) or more in single venture rounds thus far in 2018.

But if there’s one thing to note from that shortlist of 2018’s largest China venture rounds, it’s this: almost all of them involve consumer apps and services. Despite being one of the largest economies in the world and currently holding the top spot in the national venture dollar ranks, China doesn’t seem to have too much in the way of enterprise-focused software funding.

But why trust your gut when the trend is borne out in the numbers? In the chart below, we show the top five global markets for SaaS investment (plus the rest of the world). We compare each market’s share of SaaS-earmarked funding against their share of total venture dollars raised in 2018 so far.

As of mid-October (when we pulled the data for the above chart), Chinese companies accounted for about 39.3 percent of venture funding raised in 2018. Compare that to 38.4 percent for U.S.-based companies, overall. In this respect, the venture markets in the U.S. and China are running neck-and-neck.

Yet for SaaS funding, the China-U.S. gap is about as wide as the Pacific Ocean. The U.S. — top ranked by this measure — accounted for approximately 70.1 percent of known SaaS startup funding. China, by contrast, accounted for just 11.7 percent. No even matchup here. It’s not even close.

This asymmetry goes beyond just aggregate dollar figures. The contrast is starker when we use a slightly more exotic measure for the market.

One of our favorite (if somewhat arbitrary) metrics at Crunchbase News is the count of supergiant venture rounds. These VC deals weigh in at $100 million or more, and they’re reshaping both sides of the venture market for founders and funders alike.

Whereas the United States played host to at least 15 supergiant SaaS VC rounds so far this year, just four rounds raised by three different Chinese SaaS companies crossed the nine-figure mark:

Keep in mind that, in general, U.S. and Chinese markets are fairly even in their output of supergiant venture rounds. However, that’s not the case when we look specifically at SaaS rounds, where the counts and dollar volumes involved are so different.

These disparities suggest a structural difference, not just between the U.S. and Chinese markets, but between the U.S. and the rest of the world when it comes to building and backing SaaS businesses.

At this point it’s unclear, apart from funding metrics, what differentiates the U.S. SaaS market from the rest of the world’s. What conditions exist in this market that don’t exist elsewhere? And are those conditions replicable in a local market with a still-nascent SaaS ecosystem? These are questions meriting a follow-up. Even though its cause might be unclear, for now, it’s nonetheless important to mind the gap. 🚇

Early-stage SaaS VC slip snaps recovery as public software stocks soar

A few months ago, Crunchbase News reported that a longstanding period of SaaS investment stagnation had come to an end.

However, the investment boom times didn’t necessarily carry over to the seed and early-stage end of the subscription software businesses.

The chart below displays deal and dollar volume of seed and early-stage venture investments1 made into companies from around the world in Crunchbase’s SaaS category. Note that it is subject to historically documented reporting delays, which are most pronounced in seed and early-stage deals.

As can be plainly seen that Q3 2018 took quite a turn in terms of investment into SaaS. And it’s a bit bewildering as to why.

Overall, the venture market in Q3 hit record heights, and nearly every stage of investment saw more dollars and more rounds. Yet, as shown above, SaaS startups don’t appear to be beneficiaries of this influx of cash.

The public comparison

The picture becomes even more distorted when we account for public market SaaS comps, which set the benchmark for private companies. And that benchmark hasn’t been suffering. Public cloud companies have enjoyed a steep run up in asset value over the past several years.

The newly revamped BVP Nasdaq Emerging Cloud Index (formerly known as the Bessemer Cloud Index) tracks a basket of publicly traded SaaS stocks, including the likes of SalesforceAdobe and more recent debuts like DropboxDocuSign and Okta, among others.

Public cloud stocks soar

Public companies in the Bessemer Cloud Index grew their public valuations much faster than more broad-based indices like the Dow Jones Industrial Average and the S&P 500. Carried by the high and still-growing value of recurring revenuewarm reception of SaaS companies new to public markets and (with the exception of the past couple of weeks) generally stable markets overall, public SaaS companies have done well. Despite a pretty absurd rate of growth on the public side, no such consistent growth could be found on the early-stage, private end of the market.

However, rather than viewing Q3 2018 as a disappointment for the early-stage SaaS investment market, it’s more like a reversion to the mean. It’s the first half of the year that’s the outlier, not Q3.

Big deals, slowing pace

The first half of 2018 had some truly huge early-stage deals cross the wires. In March, Robotic process automation software company UiPath raised $153 million in its Series B. (UiPath just raised another $225 million in a Series C round in September.) Collaborative email inbox Front App raised $66 million in its January Series B. Rival Chicago logistics software companies FourKites and project44 each raised $35 million Series B rounds earlier in the year. On a one-off basis, these are big rounds, but collectively they add up to a huge pile of money.

The conclusion we’re drawn to here is that we were perhaps premature in declaring the long-time downtrend snapped to the upside.

  1. On the seed-stage side, that includes pre-seed, seed and angel rounds, as well as smaller convertible notes and proceeds from small equity crowdfunding campaigns. Early-stage deals include Series A and Series B rounds, as well as larger convertible notes and equity crowdfunding campaigns.

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.