Prediction
New participants in VC will continue to proliferate
Rationale
As VC continues to break records, more new players are enticed to enter the field. Further, high prices in alternative assets—including management fees for traditional funds—have many firms looking at other ways to allocate capital to private markets. Many non-traditional VC investors are also interested in having more control over allocation and investment decisions, which can be realized through direct deals in VC. As a result, participants in the private markets are getting increasingly creative in their investment strategies and direct investment efforts.
Caveat
A downturn or significant challenges to economic conditions could dissuade potential new entrants.
Background
Over the last decade, a healthy venture ecosystem has encouraged non-traditional VC investors to become increasingly involved. We use the term “tourist investors” to address this audience—referring to essentially anyone outside of VC firms (including corporations, LPs, PE firms, sovereign wealth funds, hedge funds, investment banks, etc.). Despite historically making up a smaller proportion of VC, the number of new players is quickly growing—and they are injecting massive amounts of capital into the ecosystem.
Based on the latest data from our 4Q 2018 Venture Monitor report, tourist investors participated in deals totaling $86.5 billion in deal value for 2018. As VC capital invested hit a record-breaking $131 billion total last year, investment from this group contributes to about 66 percent of VC capital invested for the year.
Case study
1,443
venture deals in 2018 with corporate participation
16.1% of total
VC deal count
$66.8B
total venture deal value with corporate participation in 2018
50.9% of total
VC capital invested
In 2018, corporates participated in 1,443 venture deals, totaling $66.8 billion in deal value—contributing to 77 percent of capital invested by tourist investors and a record-breaking 50.9 percent of capital invested in VC (a staggering 83.2 percent increase over 2017). Despite higher levels of participation all around, no other entity has had nearly the impact that SoftBank has.
$100B
size of SoftBank's Vision Fund
$100M minimum for
investments
$8.7B
SoftBank's 2018 deal value across 40 disclosed deals
13% of all deals with
CVC participation
At a massive $100 billion, Softbank’s Vision Fund is the largest private market vehicle in history. The fund’s minimum investment is $100 million in capital and has so far invested in major players including WeWork, Slack, Uber and many more.
SoftBank participated in 40 disclosed deals in 2018, totaling approximately $8.7 billion. While these deals represent only 2.8 percent of CVC deal count, they constitute an impressive 13 percent of the value of all deals with CVC participation.
Conclusion
High performance in VC along with high prices in private equity (and many other factors) help drive new participants to the asset class. Helped by non-traditional VC investors that are interested in having greater control over their allocation decisions and the recent performance of VC, you can expect new types of investors to continue to get more involved in the space.
Get more insight into 2019’s major VC trends with our 2019 VC Outlook report.
