The venture capital-backed deal market recorded its largest quarter ever, according to a report by Preqin on Wednesday. Q2 2017 saw 2,062 venture capital-backed deals announced worth a combined $47 billion. This surpasses the previous record of $43 billion from Q3 2015.
Activity in the quarter was driven by record levels of deal-making in Asia. The region saw 550 deals worth a total $22 billion announced, almost half the global total by value. This is the fourth time in six quarters in which Asia has surpassed North America to become the highest region for venture capital-backed deal value. North America saw 936 deals worth $19 billion.
Asia also saw the largest venture-backed deal ever recorded, with the $5.5 billion financing of Didi Chuxing in April.
“The second quarter of 2017 has seen a record amount of capital deployed into venture capital-backed deals. This is particularly notable following the slowdown we saw in the second half of 2016, and reflects the changing nature of the global venture capital landscape,” Felice Edigio, head of venture capital products at Preqin, said in a statement.
Despite the record activity, capital available to venture capital fund managers rose in the first half of 2017 to a record $176 billion, the report found.
Exit activity, however, faltered in Q2. Just 244 exits were recorded globally, worth a combined $14 billion, down from 293 exits worth $18 billion in the previous quarter.
With records amounts of capital being invested and available to venture capitalists for future investment while exits falter, concerns about frothiness and liquidity that have long plagued private technology markets are bound to escalate further.
Despite high investment activity “the exit market for venture capital-backed companies does not seem to be enjoying the same level of success,” Edogio said. “With an increasing number of companies choosing to stay private rather than being sold or going public, it is perhaps not surprising that we have seen a slowdown in the volume of exits since they last peaked in the latter part of 2015.”
This raises a dilemma for venture capitalists, whose funds generally have a defined lifespan – usually 10 or 12 years.
“Fund managers will be looking for exit activity to regain some momentum in the coming quarters, or they may have to start looking for alternative ways to release capital back to investors,” Edigio said.
Other notable findings from the report include:
- Angel stage investments accounted for 28% of total deal flow, while series A deals represented an equal proportion.
- The average value of series A-C deals in 2017 YTD has fallen from levels seen in 2016. However, average series D deal size has hit a record $99 billion.
- Deals in software account for the greatest proportion of deal volume (31%), but telecoms deals represent the largest share of total deal value in Q2 (25%).
- Thirty-three venture capital-backed IPOs were announced in the quarter, worth 30% of overall exit value. Trade sales account for by far the largest proportion of both exit volume (73%) and value (62%).
- The largest exit announced in Q2 was the $3.4 billion sale of Chewy, Inc., to PetSmart, Inc., in April.