This week marks the twentieth anniversary of Redpoint Ventures’ initial announcement. On August 18, 1999, the Wall Street Journal broke the news on an exclusive about the formation of “Project T-Rex” comprised of partners from IVP and Brentwood. It was the year Marc Benioff founded Salesforce, @Home acquired Excite for $6.7B, and everyone was preparing for Y2K. Today we operate in the world of unicorns 🦄, mega-funds 💰, and mango seeds 💵. Venture has transformed a lot over the past two decades. In honor of the anniversary, we decided to take a look back on venture then versus now. We wanted to do an apples to apples comparison of annual figures so contrasted NVCA data from 1999 and 2018. Below are 10 data points on how venture has changed.
- The number of VC firms increased 47%. Venture capital under management grew from $144B to $403B in 2018, enlarging almost 3X. The trend of larger firms getting larger, and an influx of newer, smaller funds continues to unfold. Back in 1999 the median venture firm size was $195M. Now the average firm size is $39M but 86 firms manage $1B+.
2. Total annual U.S. VC capital deployed increased 138% and the number of investments per year increased 60%. 2018 marked the highest amount of capital invested into companies, above the $105B watermark set by 2000. While venture checks grew larger overall, the mega-deals (+$100M) accounted for 47% of total capital invested in 2018.
3. The number of investments in seed and early venture increased, 364% and 81%, respectively. However, the number of late stage deals decreased by 19% from 1999. The capital deployed across all stages increased +100% over the period. Late stage rounds are significantly larger than before.
4. California continues to receive the most venture capital of any state and is increasing its share. New York replaced Massachusetts as the state receiving the second most funding. These three states accounted for 79% of total U.S. venture dollars invested in 2018, a 15-year high.
5. California headquartered companies continue to represent the largest portion of total deals. Once again, New York pulled ahead of Massachusetts.
6. The absolute value and portion of first vs. follow-on investing significantly decreased. Investors funded fewer early-stage startups in 2018 than 1999.
7. The percentage of rounds Corporate Venture Capital (CVC) participated decreased, but its portion of capital deployed increased suggesting CVC is placing bigger bets in fewer companies. In 1999 CVC was the second most active in terms of % of deals they were involved, only after 2000 at 24%.
8. The total number of IPOs declined by 63% and venture-backed businesses represented a smaller portion. The total offer amount grew from $23B in 1999 to $64B in 2018, up 172%. The median size of an IPO in 1999 was $69M compared to $348M today, a 5X increase. In contrast the median IPO post-money valuation in 1999 was $298M compared to $443M in 2018. Companies are raising more capital at IPO, but the post-money valuations aren’t necessarily proportionally following suit.
Software continues to be the most frequent category of venture-backed companies that IPO. Software businesses represented 29% of IPO count in 1999 and 18% in 2018. They garnered 47% of 2018 IPO value, up from 24% in 1999. These businesses are valued more than other categories.
9. The number of M&As increased 242% and the total value of M&A grew 51% from 1999 to 2018. Median M&A deal value increased 23% from $86M to $105M.
Unlike IPOs, software startups didn’t represented the most M&A transaction value in 1999. Networking and equipment companies received that honor with $12B in M&A value representing 30% of total spend in contrast to software’s 14%. In 2018 software businesses comprised 51% of M&A value. Software is eating the world.
10. It took about twice as long to exit to M&A or IPO in 2018 than 1999. Interestingly, in 1999 it took longer to be acquired than IPO, the opposite of 2018.
Over the past two decades Redpoint has been honored to partner with ~500 companies on their journeys. While the venture industry has changed, our commitment to founders hasn’t. We look forward to what the future has in store.