Strong Q4 drives growth for global venture capital investment
London, 11 March 2014
2013 was a solid year for the global venture capital (VC) industry marking a reversal in the declines witnessed in 2012. An exceptional fourth quarter, in which the number and value of deals both soared by 10% vs. Q4 2012, suggests that 2014 will be an even stronger year for VC, according to EY research published today: Adapting and evolving – global venture capital insights and trends 2014.
- Global VC investment in 2013 up 2% to US$48.5b
- Global number of deals up 0.2% to 5,753
- Significant growth in VC activity in Europe, Israel and Canada
- Continued US IPO activity points to further growth in 2014
Commenting on the research, Bryan Pearce, EY’s Global VC Leader says:
“Improving economic conditions and growing levels of liquidity combined with higher investor confidence and a more positive exit environment were the primary drivers underpinning solid global VC activity in 2013. Growth towards the end of 2013 in the US economy, which accounts for 68% of global VC activity, augurs well for 2014 as do the substantial rebounds in VC activity.”
Key trends reveal a global venture funding ecosystem becoming more robust
Start-up entrepreneurs in particular are benefitting from additional sources of funding.
New technology has enabled crowdsourcing making it easier for seed and start-up businesses to access projects, debt and equity funding.
Angel and incubator investors are becoming more significant and better organized. Since 2007, angel/incubator participation at the startup stage in US businesses has quadrupled and in Europe it’s risen over 500%.
“Angels and incubators are a real bright spot in the funding ecosystem particularly in the US, Europe, Canada and India,” said Bryan. “Given their importance to entrepreneurs we really hope they will start to feature more strongly in Israel and China in 2014.”
The research also suggests that corporate investors are pioneering new ways to collaborate with fast growth businesses and with VCs. And importantly governments in many countries are also taking the steps that encourage and enable much-needed funding for their entrepreneurial businesses to thrive.
Exit environment buoyed by US IPOs in 2013
The exit environment in 2013 was mixed with the volume and value of exits by IPO both down on a global basis compared with 2012, yet with a substantial growth in US IPOs offset by a precipitous drop in Chinese IPOs due to the closure of their domestic stock exchanges. M&A exits for VC-backed companies was flat or down in all markets except China where M&A was the only exit option available other than a foreign listing. However, on a more positive note, M&A pre-money valuations in many markets were at recent highs.
The US continued to be the most active market for VC-backed IPOs in 2013 - the number of deals rose nearly 50% to 74, with biopharmaceuticals the leading sector for new listings in terms of both volume and value. However, the amount raised fell back by 27% to US$8.2b. “The open IPO window has created a strong tailwind for 2014 and we hope the improving economic picture will improve the number of M&A exits” said Jeff Grabow, US EY’s West Region VC Leader.
The continued closure of China’s domestic exchanges resulted in stronger, Chinese companies listing on foreign exchanges and those companies saw a 77% rise in median pre IPO valuation to US$398.6m, surpassing US levels for the first time since 2010. “These increases are indicative of high levels of confidence in the Chinese companies that are mature enough to sustain foreign listing requirements,” said Lawrence Lau, EY’s Greater China VC Leader.
In Europe, the number of venture-backed IPOs held steady compared to 2012, with the amount raised increasing slightly to US$0.6b. Commenting on the statistics, Franck Sebag, EY’s France and Luxembourg VC Leader said: “Although exits were flat, 2013 was a watershed year for the European VC industry. The number of rounds grew for the first time since 2010 and the funding environment is now more positive and better balanced than it has been for many years.”
VC prefers industries with fast route to value
“Favorite sectors for investment globally are overwhelmingly consumer services and information technology” concludes Bryan. “Consumer services have a direct and immediate connection with the buying public that offers extremely rapid feedback on whether investments are likely to pay off, plus a rapid path to value realization. Exciting developments in cloud, SAAS, big-data and analytics and the move of companies to become essentially digital has driven continued investment in information technology.”
The report, Adapting and evolving: Global VC capital insights and trends 2014 can be downloaded from: ey.com/vccenter
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