Corporate Financing Analysis - Trouble Up Ahead For Current Record VC Run - 23 OCT 2017


Armed with a mountain of dry powder to tap into, the global venture capital (VC) dealmaking arena is on fire at present, and the bull run for activity in this corner of the alternative assets market looks set to continue in the near-term with the US arena at the centre of the charge. Over the medium to long term, however, we caution that the current record run of deals being announced is not sustainable and will soon begin to slow once VC reserves begin to be depleted and the uncertainty surrounding US economic growth see investors become more cautious with their cash once more. More specifically, we point to the decline in the volume of deals being announced, which is taking place at the same time that the combined value of VC investment deals is trending higher, as a key indicator that the current rally is built on a foundation of bumper deals rather than a broader-based uptick in activity, and is subsequently unlikely to continue at its current clip.

2017 A Bumper Year For Deals

Our core view is that there is trouble up ahead for the VC arena, but in the meantime, the numbers very much suggest that the market is in good health. According to data from research house Preqin, the global VC-backed dealmaking industry registered a second consecutive record-breaking quarter by deal value in Q317, with 2,362 deals worth a combined USD49bn announced. This follows on from a record-breaking second quarter when 2,512 deals worth a combined USD48bn were announced, putting total global VC activity across the first nine months of the year at a level of USD128bn and on course to post a full-year record haul in 2017. Significantly, however, at the same that deal values are climbing higher, deal volumes are in decline, and as the numbers show, they have been for some time now. In fact, Q317 represented the sixth consecutive quarter that global announced VC dealmaking has been slower. As Preqin data show, the 7.552 VC deals announced across the first three quarters of the year is well down on the 8,792 VS deals announced during the first nine months of 2016.

The Late Show
US VC Late-Stage Investment Deal Value, USDbn
Source: Crunchbase

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