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F-Prime Capital: State of the Venture Market, Summer 2019

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Like the Fast and Furious franchise, you know what’s going to happen in every film. So too, seems to be the venture capital market these days. Deal volumes, valuations and exits all up and to the right. What could go wrong? Check out our State of the Venture Market report for some good data and pretty graphics.

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F-Prime Capital: State of the Venture Market, Summer 2019

  1. 1. F-Prime Capital Partners | CONFIDENTIALDecember 19, 2017 Advisory and related services provided as Impresa Management LLC State of the Venture Market, Tech and FinTech Summer, 2019
  2. 2. 2018 saw record deployment levels, and 2019 is on track to be equally robust; ~$400B of tech VC investment since 2010 2 (1) Excludes Hardware and Biotech; Categories not mutually exclusive. Updated 4/24/2019 Source: Pitchbook; Team analysis  2018 finished strong, crossing the $100B watermark for the first time since the height of the dot-com boom in 2000.  Q1 2019 results may suggest 2018 was somewhat anomalous, with significant mega-round activity slowing slightly. However, deployment still at historic rates and significant increase in median deal size appears poised to continue.  FinTech investment in Q1 indicates 2019 will be another frothy year for the category, with both total invested capital and median deal size looking on track to surpass 2018. U.S. Venture Investments in Technology1 U.S. Venture Investments in Financial Technology CONFIDENTIAL 100+ deals over $100M
  3. 3. CONFIDENTIAL Fundraising also reached new highs in 2018, with 2019 expected to be another strong year 3 2018 was a 10-year high for fundraising; Q1 sluggish, but several prominent firms on the road LPs may be exercising caution in the face of a multi-year bull run; first-time funds drop off precipitously in Q1 Likely to exceed run rate projections with several funds seeking $1B+ (Khosla, a16z, NEA, and Vivo Capital) Source: Pitchbook; Team analysis Growing portion raised in megafunds
  4. 4. CONFIDENTIAL Robust deal volume and continued growth in deal sizes and prices 4 Source: Pitchbook; Team analysis U.S. VC Pre-Money Valuation by StageU.S. VC Deal Size by Stage
  5. 5. CONFIDENTIAL Public SaaS valuations have caught up to the private market, setting the stage for a robust exit market 5 (*) Public SaaS index limited to Bessemer Nasdaq Emerging Cloud Index company list; Private denotes pre-money valuation to revenue Source: Nasdaq/Bessemer Cloud Index; Capital IQ; Pitchbook Public and private SaaS multiples have grown largely in tandem 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x Median EV/Sales Public Private * • Public SaaS multiples continue to rise along with private multiples • As late-stage private funding grows as a proportion of venture capital dollars, we are not surprised to see a convergence of multiples • Later-stage rounds see participation from firms investing on both sides of the IPO • Public markets exhibiting exuberance for tech companies after a long shortage of VC-backed IPOs • Current public company metrics against the current median of 11.4x EV/Sales • Median 1-yr growth rate: 33.5% • Median FCF: 34% • Median GM: 73.5%
  6. 6. CONFIDENTIAL After a strong exit market in last year, 2019 may break records with almost $200B in exit value already priced or announced 6 Facebook: $81B market cap at IPO Year founded IPO value* [estimate] Last round valuation Total prior funding Priced Lyft 2012 $22.2B $15B $4.9B PagerDuty 2009 $2.8B $1.3B $173M Zoom 2011 $15.9B $1B $160M Pinterest 2009 $12.9B $12B $1.5B Announced Uber 2009 [$120B] $72B $17.9B Slack 2009 [$10.0B] $7.1B $1.2B Postmates 2011 [$1.9B] $1.9B $681M Beyond Meat 2009 [$1.2B] $1.2B $193M Fastly 2011 [$925M] $925M $220M Total $187B $27B Bench stacked with unicorns2019 already on track to double 2018  Against ~$400B of fund deployment, over $600B of exit value since 2010, with nearly 200 unicorn companies still privately held  Massive exit volumes in 2019 could soften the impact of a public market correction as liquidity is rolled back into new funds Note: Potential IPO valuations are estimates based on triangulation between last round price, S-1 analysis, media reporting; Italics indicate assumed last round valuation (*) End of first day of trading ; Italicized IPO value estimates indicate last private round valuation assumed. Source: Pitchbook; S-1 analyses; Team analysis Up round
  7. 7. CONFIDENTIAL Another $500B+ of unrealized exit potential among unicorn companies alone, with value creation across many verticals 7 Note: Includes all private companies with last known valuation of $1B+ that have not yet filed for IPO; Median age of unicorns = 8 years. Source: Pitchbook Value creation occurring across a broader set of verticals as the surface area for tech VC expands $500B+ in exit value potential remaining from 188 unicorns alone Total funding raised by these companies: $120B Transportation Hospitality Real estate Banking
  8. 8. Company Ticker IPO Date Amount Raised ($M) Last private valuation ($M) Mkt. Cap at IPO* ($M) Δ since IPO LTM Revenue ($M) Rev. Growth Rev. Multiple EBITDA Margin Pinterest PINS 4/18/2019 1,400 12,300 12,920 5.9% 756 59.9% 18.1x -7.1% Zoom Video ZM 4/18/2019 357 1,000 15,900 11.3% 331 118.2% 53.5x 4.0% PagerDuty PD 4/11/2019 218 1,300 2,820 4.1% 118 48.0% 24.9x -34.5% Tufin TUFN 4/11/2019 124 n/a 620 20.4% 85 31.7% 8.8x -1.1% Lyft LYFT 3/29/2019 2,340 15,100 22,400 -23.1% 2,157 103.5% 8.0x -44.3% Anaplan PLAN 10/12/2018 164 1,410 2,960 58.5% 241 42.9% 19.5x -47.9% Elasticsearch ESTC 10/5/2018 252 1,000 4,860 29.6% 241 - 26.2x -33.9% Upwork UPWK 10/3/2018 187 n/a 2,200 -6.6% 253 25.1% 8.1x -2.7% SurveyMonkey SVMK 9/26/2018 180 2,000 2,110 5.4% 254 16.3% 8.7x -39.1% Eventbrite EB 9/20/2018 230 1,500 2,770 -37.1% 292 44.7% 6.0x -5.5% Tenable TENB 7/26/2018 250 n/a 2,760 14.9% 267 42.4% 11.9x -25.1% Domo DOMO 6/29/2018 193 2,280 681 46.8% 143 31.3% 7.0x -97.7% EverQuote EVER 6/27/2018 84 220 447 -51.5% 163 29.4% 1.3x -8.1% Avalara AVLR 6/14/2018 180 925 2,930 34.1% 272 27.7% 14.4x -19.9% Greensky GSKY 5/23/2018 800 3,600 1,210 -35.8% 415 27.2% 1.9x 37.9% PluralSights PS 5/16/2018 311 n/a 1,200 108.5% 232 39.1% 10.8x -43.8% Carbon Black CBLK 5/3/2018 152 692 1,580 -41.4% 210 30.4% 4.4x -30.2% DocuSign DOCU 4/27/2018 629 3,070 6,040 55.4% 701 35.2% 13.4x -55.8% Smartsheet SMAR 4/27/2018 150 852 1,930 125.8% 178 59.8% 24.5x -26.7% Pivotal Software PVTL 4/20/2018 555 2,800 3,940 34.4% 658 29.1% 8.1x -19.3% CONFIDENTIAL Late-stage tech start-ups are seeing significant step-ups in valuation at the IPO with continued growth post-IPO 8 Up round Down roundIPOs, last ~12 months Note: Public market data as of 4/24/2019; If no arrow, no private round valuation data available. (*) End of first day of trading; Revenue multiple reflects market cap to LTM revenue Source: Capital IQ
  9. 9. CONFIDENTIAL Strong market performance is rooted in companies growing at hyper-scale and enjoying consumer-like network effects 9 High, sustained topline revenue growth • Companies are pursuing massive global end markets that support growth at scale • Even at $100M revenue, the best companies grow >50% YoY; median growth of 38% YoY for 2018 IPO cohort • Stand-outs include Zoom (+118% YoY), Elastic (+79%), Smartsheet (+68%), and Zscaler (+53%) Enterprise IT enjoying consumer-like network effects • Viral adoption of certain B2B SaaS products has mirrored that of social media apps • Free trials, quick time-to-value, and credit card-based billing help drive adoption • Smartsheet generates 100K+ new trials a month Significant upsell within the customer base • Of the 15 high-growth SaaS IPOs in 2019, 12 companies showed net dollar retention (‘NDR’) greater than 100% • Median NDR for the 2018 class was 117% • Pivotal (158% NDR), Elastic (142%), and Smartsheet (130%) led the class 1 2 3 Example Companies Data / Insight Note: All public data as of 4/10/2019 Sources: Capital IQ; Nasdaq; SEC Edgar
  10. 10. CONFIDENTIAL Market is primarily valuing growth and valuations are 2-3x above historical averages despite deep unprofitability 10 Profitability of companies at IPO near 20-year low Multiples at IPO quickly accelerating above historical norms Note: Analysis on roughly 500 tech IPOs over last 20 years; Full N of tech IPOs = 696, remainder excluded for data gaps Source: Pitchbook; Team analysis
  11. 11. Questions? Comments? Let us know on twitter: @FPrimeCapital
  • fyietc

    Sep. 7, 2019

Like the Fast and Furious franchise, you know what’s going to happen in every film. So too, seems to be the venture capital market these days. Deal volumes, valuations and exits all up and to the right. What could go wrong? Check out our State of the Venture Market report for some good data and pretty graphics.

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