A few weeks back the SA国际传媒 News team published a raft of information regarding the global and U.S. venture capital markets, along with dives into popular markets like Texas domestically, China globally, and more. One data point that we don’t track, however, is the percentage of ‘up rounds’ versus ‘down rounds’ in the period.

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In English, that means we don’t keep tabs on how many startups out of 100 who raise more capital do so at a higher valuation (price increase) or lower valuation (price decrease). It’s useful data. And so, when a new report dropped including the information we took note. Let’s explore.

Up Rounds

The Q2 (a that works with startups) venture capital survey writes that in the second quarter, “[u]p rounds exceeded down rounds 86% to 6%, with 8% flat in Q2 2019, an increase from Q1 2019 when up rounds exceeded down rounds 81% to 11%, with 8% flat.” I imagined that the preceding 81 percent rate was high; to see it rise to 86 percent one quarter later in the same year was eye-opening.

Luckily for us, Fenwick et al graphed their findings. Observe:

The chart shows us that not only was the Q1 81 percent up-round percentage tied for the local maximum, Q2’s 86 percent is the highest result in years. (An extended version of the same chart shows that the Q2 2019 up-round percentage is roughly tied for the all-time high set in early 2015.)

In contrast, while up rounds reached their recent zenith, down rounds slipped to their smallest portion of new capital events. Indeed, while up rounds reached their highest known percentage, down rounds managed to dip under flat rounds.

This may be all a bit more grokkable if we turn to probabilities. Here’s how it shakes out: If a company raised in the second quarter of 2019, it had about a 1 in 16 chance of raising at a lower price, about a 1 in 13 chance of raising at a flat valuation, and a about a 1 in 1.16 chance of raising at a higher price. Those are good odds!

Not All Good News

The whole Fenwick document is worth reading () because you should imbibe the full context of the above information. That setting includes some weak points worth noting while we’re here highlighting yet another bullish indicator.

Chief among which is a modest dip in the pace at which companies raising their Series D can boost their valuation, and a slightly sharper drop in “Series E and higher” up valuation increases. What that means is that the amount that companies raising a Series D, Series E, or later round can expand their value in between rounds is falling.

Not much, mind; the amount that Series D rounds repriced companies聽up was still 89 percent after its decline. That’s not bad. But “Series E and later” price changes fell more sharply to a mere 39 percent gain.

This hints at a few things. Perhaps as startups reach deeper into the private markets, IPO prospects (ie the impact of public pricing on private valuations) is kicking in a bit more sharply, slowing private-market value accretion at late-stage startups. Or it could be that worry concerning the number of unicorns that will make it to a public offering before a correction is slowing super late-stage valuation growth.

You can fill in your own guess. What matters as a takeaway is that while early, and mid-stage startup valuations (Series B and C, say) are looking strong, things are weaker towards the end of the private capital game.

The Vision Fund 2 cometh, but perhaps not soon enough to reprice everyone at once. So, if you are looking for some big, late-stage checks, mind your expectations. For the rest of the startup world, the chances of raising at a nice premium from your last private round look good.

And those odds look the best for software-focused startup companies. Why? Because of all the categories of startups that Fenwick examined, the sharpest valuation increases were given, on average, to software firms. Once again, why? I’d reckon because as the public market rains favor on similar companies, venture capitalists can’t help but pay a little more for their smaller, private relatives.

Illustration: .

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Funding in US-based construction tech startups totals just $196.5 million across 44 deals halfway through 2019. Of course, there are caveats: reported data often undercounts seed and early stage rounds. Furthermore, it takes just a couple of big rounds (likes $865 million Series D last year) to skew those numbers pretty significantly. Still, $192.6 million across 44 deals is still significantly lower than the $1.274 billion raised by US-based construction startups in the first half of 2018.

By comparison, in February, I reported on how funding in U.S.-based construction technology startups had surged by 324 percent to nearly $3.1 billion in 2018 compared with $731 million in 2017, according to SA国际传媒 data. Of course those numbers were slightly skewed by a number of very large rounds.

So far in 2019, the biggest known round in U.S. construction and building material tech companies is raised by Los Angeles-based , which builds water waste prevention and monitoring tools. Next down the list is Woburn, MA-based , which instead of using traditional blast furnaces utilizes a patented molten oxide electrolysis process to make steel and other metal materials. Given ore and electricity, its process produces pure molten metal, with oxygen bubbles as the only industrial byproduct, according to . Boston Metal raised announced in January. led the deal, in which and also participated.

So, what could be behind the apparent slowdown? Some investors who have invested in the space have a few thoughts.

s 聽(who invested in Rhumbix) believes that what may be happening is that 鈥渨hile there are a ton of construction tech companies being started, the number of companies that can attract a lot of capital is small in number.鈥�

, managing partner of Colorado-based , is no stranger to the sector. In addition to also investing in Rhumbix, Blackhorn backed software startup , India-based and this year alone. It鈥檚 also made several other construction tech investments and 鈥減lans to continue investing heavily鈥� in the space, with more deals planned for 2019. According to Zimmerman, Dr. , another Blackhorn partner, is 鈥渁 construction tech guru鈥� and able to help startups in the space beyond capital.

In general, Zimmerman believes the 鈥渨hite space鈥� in construction tech to build on the infrastructure of the information and communications technology revolution 鈥渋s profound.鈥�

鈥淭oday, foreman and laborers have supercomputers in the form of smartphones in their pockets,鈥� he added. 鈥淭hat’s enabling companies like Rhumbix to bring efficiency gains to construction that other sectors, like manufacturing, were able to access over a decade ago with desktop computers.鈥�

With regard to the drop in funding, Zimmerman, just like us, wonders if 2018 was just 鈥渋nfluenced by an unusually large round or two.鈥�

Also, he believes the best is yet to come.

鈥淎necdotally, we鈥檙e seeing many of the most compelling construction tech companies coming to market this year,鈥� Zimmerman told SA国际传媒 News.

, managing partner of , said his firm has historically focused on data-driven companies and that aspect of Rhumbix鈥檚 offerings made it attractive to Tenfore.

He isn鈥檛 surprised at the fact that funding is down, citing the 鈥渞eally large investments鈥� that took place in 2018.

鈥淔or this reason alone, it鈥檚 not surprising that sector growth has appeared to slow down so far in 2019 鈥� it can be attributed to the ebb and flow of specific companies,鈥� Levine added. 鈥淗owever, I think the future holds continued growth for this industry as companies continue to grow and improve through new innovations.鈥�

, partner and co-founder of MetaProp (which invested in Avvir), remains bullish on the space.

“From our perspective, the market is hot. All of the deals are super competitive and we are scratching and clawing to win allocations,鈥� he told SA国际传媒 News via email.

Recent Deals

, a San Francisco-based startup with a mobile platform designed for the construction craft workforce that we鈥檝e covered in the past, announced the closure of a $14.3 million Series B led by and . And , a New York-based automated construction platform for monitoring and building digitization, announced a $2.5 million seed round led by partner with participation from and .

Rhumbix CEO Zach Scheel said via email that the company, which was launched by two U.S. Navy veterans in 2014, is using the new capital to hire across all departments including sales, engineering, product, and field operations. Rhumbix, he added, has seen year-over-year revenue growth 鈥渋n excess of 3x the past few years.鈥� According to Scheel, the company is seeing major demand for its 鈥渆nterprise-grade field tools for tradesmen and women that not only digitize paper and Excel-based workflows, but do so in a way that generates structured data that can be fed into BI tools, project management platforms, ERPs, and other back office software platforms.鈥�

Greylock Partners, , South Park Ventures, and also participated in the Rhumbix financing, which brought the company鈥檚 total raised to .

Meanwhile, Avvir says it is using its capital infusion to continue building a 鈥渟ystem of reality鈥� for buildings, or 鈥渁 system of record that connects building plans to built reality and syncs them automatically,鈥� eliminating the need for manual data entry. The goal of its system is to cut down on 鈥渞ework.鈥�

The Avvir platform uses computer vision algorithms to compare laser scans and photographs captured onsite to a building information model (BIM) and then automatically update it, 鈥渆ffectively creating a digital twin of the site,鈥� according to the company. This digital twin can be used for construction monitoring purposes during the construction project and as a platform for building management once construction is complete.

Whether 2018 funding numbers represented an anomaly remains to be seen. My gut says there鈥檚 still plenty of disrupting to be done in this space, and that could be reflected in funding dollars to come.

contributed data analysis and some text to this article.聽

Note: This article was updated post-publication with amended funding numbers as well as additional sourcing and information.

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Using data and projections from SA国际传媒, this report from SA国际传媒 News dives deep into the state of the global venture capital ecosystem. Here, we want to assess investment and liquidity: Money In versus Money Out.

In the Money In section, we will cover SA国际传媒鈥檚 projections of how鈥攁nd how much鈥攖he global venture capital ecosystem invested in Q2 2019 and in prior quarters for comparison. In the Money Out section, we鈥檒l review acquisition statistics and highlight other notable liquidity events, including the open season on technology IPOs.

To help you digest this report, each section will contain a bullish and bearish key finding. Without further ado, let鈥檚 dive in.

Money In

• Bullish key finding. Total deal volume is up for the first time in several quarters, which bodes well for the market as a whole.
• Bearish key finding. Dollar volume growth remains stagnant across multiple stages of the investing lifecycle. Total dollar volume in 2019 is unlikely to exceed the high water mark set in 2018.

Global Funding Activity: A View From Cruising Altitude

The time between Q4 2018 and Q1 2019 marked something of a turning point for the global venture capital ecosystem.

It brought pause to a generalized uptrend in global venture dollar volume and continued a gradual recession in venture deal volume. Global data for Q2 2019 points to continued stagnation in the former but a slight recovery in the latter. This means that, in general, there were more deals struck in Q2 relative to Q1. However, on average, less money was raised in rounds across all but one stage. At the seed-stage deal and dollar volume are up, as is average and median seed deal size. That鈥檚 the outlier.

We鈥檒l get to stage-by-stage analyses shortly, but in the meantime, let鈥檚 get a high-level snapshot of the numbers from last quarter.

Pace of Dealmaking

In Q2 2019, SA国际传媒 projects that just over 8,800 venture deals were struck worldwide across all stages of the private-company funding cycle. SA国际传媒 projections compensate for historical patterns of reporting delays, which is particularly pronounced in seed and early-stage venture.

Q2鈥檚 global deal volume is up markedly from Q1, snapping a multi-quarter slump. According to SA国际传媒 projections, quarter-over-quarter growth in deal volume was sufficient to reverse a year of declines, driven by an upswing in seed and early-stage deal counts. However, deal volume in Q2 2019 compared to Q2 2018 was virtually unchanged.

Projected VC Dollar Volume

SA国际传媒 projects that $69.8 billion was invested across deals at all stages. This figure also compensates for the known reporting delays and missing dollar amounts from many venture deals.

If two points make a line and three a trend, Q2 2019 marks the beginning of a sustained downturn in global dollar volume flowing into startup equity. The projected 1.2 percent decline in venture dollar volume from last quarter is a far smaller drop than the 20.5 percent drop between Q4 2018 and Q1 2019. Though SA国际传媒 projections point to a quarterly decline, however slight, it bears mentioning that those same projections suggest that dollar volume is markedly lower in Q2 2019 than in the same period of time last year, dropping 17.5 percent year-on-year.

Dollar volume declines are largely attributable to activity at the latest stages of the venture funding lifecycle. Though SA国际传媒 projects modest quarterly growth (on the order of a few hundred million dollars) in aggregate seed and early-stage dollar volume, the amount of capital invested in late-stage and technology growth deals (rounds labeled 鈥減rivate equity鈥� raised by previously VC-backed companies) declined by a couple billion dollars, offsetting gains further down the stack.

Most Active Lead Investors

Most of the time in venture capital deals, a 鈥渓ead鈥� investor is designated (and it鈥檚 possible for more than one firm to co-lead a round).

The lead is often the firm that originated the deal, is contributing the most capital to the round, is leading the due diligence and valuation negotiation processes, and is sometimes saddled with securing syndicate partners to fill out a round. Lead investors are often granted a seat on the board of directors, giving them governance power in their portfolio companies. Together, the roles of intra-deal coordination and negotiation, followed by post-deal directorship, grant lead investors a position of serious influence on the VC landscape.

Below, you鈥檒l find a list of the most-active lead investors from a combined set of early and late-stage deals struck in Q2. Keep in mind that not every deal in SA国际传媒 has a lead investor designated, and that there may be a reporting delay for certain deals.

As is the case every quarter, this list contains most of the 鈥渦sual suspects鈥� one would expect to see.

was the most frequent lead investor worldwide in Q2鈥檚 early and late-stage deals. Structured as a hedge fund, it鈥檚 unique among the firms listed here, which employ closed-end fund structures traditional to the VC sector. (SA国际传媒 News profiled Tiger Global Management back in February.)

At the very beginning of Q2, (a16z) also restructured itself, surrendering its unregulated status as a venture capital firm (which in exchange for only investing money from wealthy individuals and institutions gets reduced regulatory, disclosure, and administrative burden) to become a fully-registered investment advisor (RIA), as detailed in of the firm published in April. A16z is not the only RIA in the VC game; as , and are also SEC-registered advisors. The designation gives these firms more options to invest their LPs鈥� capital in search of outsized returns鈥攁t the expense of the relative freedom from regulatory oversight enjoyed by less-regulated venture capital funds.

Also present among the most active investors in Q2 are corporate venture investors like (among the most prolific venture investors, corporate or not) and China-based . There are large, long-standing firms like (founded in 1977) and (founded as family office Bessemer Trust in 1911, but opened up a venture fund ). (founded in 1972) also makes several appearances on this list by way of its primary Menlo Park outfit and global network funds based in and .

And we鈥檇 be remiss not to mention , a Japanese telecoms conglomerate. The company has a long history of making venture investments directly out of its own coffers, and it serves as the principal manager and second-largest backer1 of the SoftBank Vision Fund, a nearly $100 billion capital pool administered by London-based . For its supergiant deal-making, SoftBank will sometimes invest its own money and later transfer the position to the Vision Fund portfolio. Other times, the Vision Fund (SoftBank Investment Advisors) will invest directly.

Founded in 2018, Bethesda, MD-based is the youngest firm featured on this list.

If you鈥檙e interested in U.S.-specific round leadership data that鈥檚 relatively recent (compiled on June 10, 2019), consider reading Joanna Glasner鈥檚 article published on SA国际传媒 News. In a follow-up piece, she highlighted the most-active investment firms that were founded within the past decade.

Stage-By-Stage Analysis of Q2 2019 VC Funding Trends

In our stage-by-stage analysis, we鈥檒l start close to the entrepreneurial metal with seed-stage deals. From there, we鈥檒l proceed up the capital stack, ending with the late-stage venture and pre-IPO private equity deals that typically cap off the financial histories of private companies before they graduate to raising from public markets.

Seed-Stage Deals

It鈥檚 at the seed stage where we find the only real bright spot in this quarter鈥檚 global investment numbers. This stage includes rounds labeled 鈥渟eed,鈥� 鈥減re-seed,鈥� 鈥渁ngel,鈥� and a subset of other round types. (More information can be found in the Methodology section at the end.)

SA国际传媒 projects that, worldwide, approximately $3.92 billion was invested across 5,481 seed-stage deals in Q2 2019. Q2鈥檚 projected deal and dollar volume are up significantly from Q1 2019 and are up year-on-year as well.

Not pictured in the chart above is a geographic breakdown of seed-stage deal and dollar volume, and within these numbers we find a trend.

According to SA国际传媒 projections, companies based in the U.S. and Canada accounted for just over 41 percent of global seed-stage dollar volume in Q2 2019, down from 50 percent in Q2 2018. Similarly, with deal volume, the rise of the rest of the world continues: companies based outside the U.S. and Canada raised 66.9 percent of seed-stage deals, compared to 59.5 percent of deals the same time last year.

In other words, the upswing in global totals for seed-stage deal and dollar volume is being driven by markets outside the U.S. and Canada.

Seed is also the only stage where we see quarterly gains in both mean and median round size.

Averages can be skewed by outliers. Upward movement in median deal size indicates a population-wide change. This all points to the shifting semantics of 鈥渟eed,鈥� and it appears to be a global phenomenon. Year-over-year, the average seed round size is up 60 percent worldwide and up 66 percent for U.S. and Canadian startups alone. Worldwide, the median seed-stage deal is now 80 percent larger than in Q2 2018; the median seed-stage deal in the U.S. and Canada ($1.4 million in Q2 2019) is up 180 percent from approximately $500,000 in Q2 2018.

So what鈥檚 going on? In a word, stratification. There was a time when 鈥渟eed鈥� definitively meant something like 鈥渢he first institutional check raised by a new startup, typically in an unpriced round, prior to raising a Series A round.鈥� (Traditionally, a Series A round is when the price of a startup鈥檚 stock is first established during the valuation process.)

Now, it鈥檚 not so cut and dry as professional startup investors are writing checks to ever-earlier-stage startups. Between the money raised from friends and family (which is rarely captured in investment datasets), wealthy angels, accelerator programs, and dedicated pre-seed funds, a founding team could have raised tens or hundreds of thousands of dollars from investors鈥攂uying them time and early traction鈥攂efore setting out to raise a 鈥渟eed鈥� round.

Seed investors, once reliably the first money into a startup, can now invest more because an increasing portion of their deal-flow comes pre-filtered by upstream capital providers.

Early-Stage Deals

SA国际传媒 projects that $27.63 billion has been invested across 2,695 early-stage deals in Q2 2019.

The following will become a recurring theme throughout the remainder of the report: worldwide, deal volume is up, but dollar volume remains basically flat relative to the prior quarter. It鈥檚 true at early-stage and beyond. (鈥淓arly-stage鈥� deals include all Series A and Series B rounds, plus a subset of other round types within a certain range of funding raised in the transaction.)

Early-stage deal volume appears to be reversing a roughly year-long downtrend, which comes as good news for an uncertain segment of the startup equity market. This appears to be driven largely by international growth.

In Q2 2018, startups outside the U.S. and Canada accounted for 50.6 percent of all early-stage deal volume; in Q2 of this year, this same cohort of global startups raised 58 percent of early-stage deals. Here too, the center of gravity is shifting outside the U.S. and Canada.

In prior quarters鈥� reports, we鈥檝e discussed the long-term implications of these declines. Just as fewer seed rounds could portend a pull-back in early-stage deals, so it goes that a decline in early-stage deals results in constrained late-stage deal flow down the road. To be a signal of market strength, though, we鈥檇 need to see continued growth in subsequent quarters, or else this high note is just statistical noise.

And although a resurgence in early-stage deal volume is bullish news, it is paired with negligible growth in dollar volume. This brings average round size down slightly from last quarter, but early-stage median deal size is still on the rise.

Worldwide, average deal size at the early stage has fluctuated between $10.2 million and $17 million over the past two years. (Note: numbers for Q2 2017 through Q1 2018 are not pictured in the chart above.) The trendline is still generally upward, even if on a quarter-to-quarter basis there are ups and downs. In Q2, SA国际传媒 data indicates that, relative to Q1, average deal size shrank by 8.8 percent to $15.5 million; however, compared to the same time in 2018, the average grew by 34.8 percent. It鈥檚 two steps forward and one step back.

Growth in worldwide median early-stage deal size, however, has been much more straightforward, literally. Worldwide, there hasn鈥檛 been a quarterly decline in median early-stage deal size since Q4 2017, which was $5.1 million according to SA国际传媒. Fast forward to Q2 2018 and the median early-stage deal was $5.5 million. In Q2 of this year, that grew by 45.5 percent to $8 million.

Again, this indicates a worldwide shift in early-stage dealmaking. Though most of this growth appears to be driven by the U.S. and Canadian startup market (where median deal size is up 88.7 percent year-over-year) median round size in the rest of the world is also up, albeit by a comparatively more modest 12 percent from Q2 2018.

Late-Stage Venture & Technology Growth Deals

In prior quarters, huge late-stage and technology growth deals dominated the headlines and bent the curve of the startup investment market upward. This quarter, not so much. The story with the later stages of venture finance is very similar to what鈥檚 happening earlier on. Deal volume is up; dollar volume is down (slightly).

SA国际传媒 projects that there was a total of $38.25 billion in combined late-stage and technology growth (private equity transactions raised by previously VC-backed companies) dollar volume across 641 deals.

Of these combined figures, late-stage deals account for the surpassing majority of both deal and dollar volume. (SA国际传媒 defines late-stage as the set of rounds including Series C, Series D, Series E, and beyond, plus a subset of rounds from other transaction types.)

Though deal volume mostly recovered from a significant dip between Q4 2018 and Q1 2019, Q2 2019鈥檚 deal volume is effectively unchanged from the same period of time last year, which remains a local maximum for late-stage investment counts since the end of the first dot-com bubble in the early 2000s. It鈥檚 possible that the global venture market has hit a plateau of sorts, at least with respect to deal volume.

Relative to the same period last quarter, late-stage dollar volume shrank back by 2.4 percent, a relatively small setback given the wild swings just a few very big rounds can introduce to these numbers. On a year-over-year basis, however, late-stage dollar volume presents slightly more disappointing results, declining by a third relative to Q2 2018.

And here is deal and dollar volume, charted for 鈥渢echnology growth鈥� rounds. Typically, we include these deals mostly for the sake of completeness in reporting. But in Q2 they really matter in the broader context of this quarter鈥檚 numbers.

Because technology growth deals are relatively few and far between, it鈥檚 hard to place too much analytical weight on its deal and dollar volume trends. However, in terms of absolute value, the often large-dollar nature of late-stage PE deals means that they can swing the overall numbers by a fair bit. And that鈥檚 what happened in Q2, with a $1.31 billion decline relative to Q1.

In other words, given the small-dollar sums at seed-stage鈥攑lus stagnation at early and late-stage鈥攁 slump in technology growth dollar volume is the unlikely driver of declines in overall dollar volume. Projected seed-stage dollar volume is up by a bit over $650 million; early-stage dollar volume is up $700 million; and late-stage dollar volume is down $860 million, offsetting all early-stage gains. The loss of $1.31 billion in tech growth dollar volume wiped out any remainder and then some.

Tech Growth And Late-Stage As A Stronghold For U.S. And Canadian Venture

Taken together, late-stage venture and technology growth is where U.S. and Canadian startups are gaining (or at least holding) their ground relative to international ventures. U.S. and Canadian startups accounted for 50.9 percent of the combined late-stage and tech growth dollar volume in Q2 2019, up from 31.8 percent in Q2 2018. The resurgence in North American latter-stage venture dollar volume primarily comes at the expense of Chinese startups, which were many of the most-funded companies from quarters past are headquartered.

The tables have turned. According to a SA国际传媒 Pro search2 struck between 2018 and the end of Q1 2019 were raised by Chinese tech companies; just one U.S. venture round, smart glass-maker , made that cut. In Q2 2019, were raised by U.S.-based companies, with just one Chinese company, , making the top ranks last quarter.

Money Out

• Bullish key finding. Given the history of declining M&A deal volume, sideways momentum beats a continued downturn.
• Bearish key finding. High-flying private valuations are facing the tough scrutiny of public market investors.

The venture game is one of risk, return, and often dead reckoning toward an exit.

In general, there are only a few ways for money to get out of a privately-held company. We鈥檙e talking about risk capital here, so failure is always an option. This, of course, is not ideal. But especially at the earliest stages, fizzling out due to a dearth of funds is a grim reality for many founders. Those early years are called the 鈥溾�� for a reason.

Startups burn through heaps of investor cash in the name of building value, so how do stakeholders realize that value? The most common exit path is via merger or acquisition, the other is to turn shares in a privately-held company into shares in a publicly-traded company. Traditionally, that鈥檚 via an initial public offering, but some notable upstarts鈥�like Slack鈥攁re looking to bypass the bankers by listing their shares directly on a stock exchange.

Venture-Backed Acquisitions

SA国际传媒 data signals some strength in venture-backed M&A activity. Now, obviously, there were more than 357 M&A transactions in Q2, but the universe of companies with known venture backing which were privately-held at the time of the M&A transaction is relatively small. However, from this limited subset of deals we can see some trends.

M&A deal volume is relatively flat, both on a QoQ and YoY basis. For any other metric in this report, deal volume doldrums like these would disappoint. (Dollar volume matters less as a metric because just a few really big deals can skew these numbers significantly.)

In prior reports we鈥檝e highlighted declines in M&A deal volume as a problem facing startups and their investors alike. It was particularly problematic when the IPO market was a lot slower, but now that that side of the liquidity equation has opened back up, investors and their portfolio company teams can find upside even in a sideways M&A market.

Initial Public Offerings

There鈥檚 this saying: 鈥淭he IPO window is open.鈥� In Q2, public markets, especially in the U.S., had to open a barn door to fit all the quarter鈥檚 big offerings through.

Years of speculation about many of our favorite brand-name ventures came to an end. What happens when Uber goes public? Slack? Pinterest? Zoom? Tens of billions of dollars worth of pent-up private-market value finally made Wall Street debuts this quarter.

Though there aren鈥檛 any Uber-scale ventures on the docket to go public in Q3 (at least not yet) the current quarter is likely to provide a similarly favorable market to new offerings, barring the non-zero chance of macroeconomic turbulence.

A Small Note About Secondary Market Transactions

There is a fourth way: what鈥檚 known as a secondary market transaction. The sale and transfer of existing private company stock is rarely reported publicly and, accordingly, is difficult to track in any dataset of venture capital transactions.

As interesting as this exit path would be to cover with greater depth and frequency, there isn鈥檛 much available data on the numerous small-dollar transactions which take place directly between shareholders, or which get mediated through a private stock marketplace platform, broker-dealer, or dedicated .

When news of big secondary market transactions does come out, it鈥檚 typically only for big deals. A prime example of this from Q2 is the by in May. The deal gave 鈥渉undreds鈥� of employees and some of its prior investors time to liquidate some or all of their positions, according to SA国际传媒 News, , and , among other outlets. Reading between the lines this helped the company clean up its capitalization table. Though such financial tidy-up might be construed as pre-IPO prep, that the company didn鈥檛 intend to go public 鈥渁nytime soon.鈥� By offering liquidity to employees and early investors, its capital consolidation was similar to an IPO in function, if not in form.

As more startups enter the latter stages of the private-company lifecycle, keep an eye out for more novel ways in which founders and first funders find a path to liquidity.

What It All Means

Q2 brought many investors the moments they鈥檝e been looking forward to for years. To all of those who exited with some upside, congratulations.

Public-market debuts are great for folks who were able to get money out of those ventures. However, for prospective backers of similar businesses and founders looking to start up in a sector 鈥渄isrupted鈥� by one of the new incumbents, greater transparency into new business models is double-edged.

Many of the companies which just went public (or are on the shortlist of IPO candidates for the remainder of 2019 and into 2020) got big by pioneering new service models attempting to capitalize on changing patterns of behavior brought about by economic conditions (the Great Recession resulted in a lot of folks willing to do on-demand 鈥済ig economy鈥� work in the absence of more traditional employment) and changing patterns of technology use.

An example: Uber, founded in early 2009, utilized a core location API that was only added to iOS one year earlier. In this lens, mobile-enabled on-demand transportation seems inevitable. Smartphones as we know them today (pocketable glass and metal silicon sandwiches) have only been around for a dozen years or so. That鈥檚 just over the typical 10-year lifespan of a closed-end venture capital fund.

The point here is that new service models built on new technology can prove to be valuable. But the transparency of public-market reporting brings up another question: sure the service is valuable, but what鈥檚 the value of the business built around it? The challenge for market entrants is that public-market comparables are no longer theoretical. Privately-held, on-demand transportation companies will be valued against the very real metrics reported by Uber and Lyft. Pure-play workplace collaboration upstarts will be assessed against the likes of Slack and Zoom. No longer subject to speculation, benchmarks are now concrete.

As the wave of massively-funded private companies breaks into public markets, expect a fair amount of foam. This too will subside at some point. Flatness now may just be a trough between swells. It鈥檚 too early to tell if the tide is going out.

Methodology

The data contained in this report comes directly from SA国际传媒, and in two varieties: projected data and reported data.

SA国际传媒 uses projections for global and U.S. trend analysis. Projections are based on historical patterns in late reporting, which are most pronounced at the earliest stages of venture activity. Using projected data helps prevent undercounting or reporting skewed trends that only correct over time. All projected values are noted accordingly.

Certain metrics, like mean and median reported round sizes, were generated using only reported data. Unlike with projected data, SA国际传媒 calculates these kinds of metrics based only on the data it currently has. Just like with projected data, reported data will be properly indicated.

Please note that all funding values are given in U.S. dollars unless otherwise noted. SA国际传媒 converts foreign currencies to US dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs, and other financial events as reported. Even if those events were added to SA国际传媒 long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of Funding Terms

• Angel & Seed-stage is comprised of seed, pre-seed, and angel rounds. SA国际传媒 also includes venture rounds of unknown series, transactions of undisclosed type, and convertible notes totaling $1 million (USD or as-converted USD equivalent) or less. Equity crowdfunding rounds with no listed dollar value, as well as those totaling less than $5 million, are also counted as seed-stage.
• Early stage is comprised of Series A and Series B rounds, as well as other round types. SA国际传媒 includes venture rounds of unknown series, transactions of undisclosed type, and convertible notes totaling between $1,000,001 and $15,000,000. Convertible note rounds with missing dollar values are also counted as early-stage.
• Late stage is comprised of Series C, Series D, Series E, and later-lettered venture rounds following the 鈥淪eries [Letter]鈥� naming convention. Also included are venture rounds of unknown series, transactions of undisclosed type, and convertible notes of $15,000,001 or more.
• Technology growth is a private equity round raised by a company that has previously raised a 鈥渧enture鈥� round. (So, basically, any round from the previously-defined stages.)

These classification rules differ slightly from those used in SA国际传媒 Pro, which does not include the subsets of series-unknown, equity funding of undisclosed type, convertible notes, or equity crowdfunding rounds.

For more information about SA国际传媒 News鈥檚 methodology, check out the Data Methodology page on our site.

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There are scores of China-based unicorns, and some of the country’s biggest names are well-known even where their products aren’t popular. Companies like , , , and others. And then there’s, say, , which is owned by a China-based company and apparently gave us Lil Nas X.

Meme-powered rappers aside, if you care about technology and its good bits (change! innovation! the future!) and its bad bits (surveillance! clustering! podcasts!), China has been a key participant, even driver, of the boom that the venture-backed startup world still finds itself in the midst of.

However, that state of affairs is changing somewhat. Let’s see how.

China Falling

As the following chart shows, China’s share of the world’s supergiant rounds鈥攙enture rounds of $100 million or more鈥攈as fallen from its world-leading position in 2016 to third place today.

Supergiant rounds are the power plays of the unicorn world; by raising nine- and ten-figure rounds, the hottest, and sometimes even the best private technology firms, can avoid going public, operating off-the-radar to some degree while they accrete size. Capital for such companies is a weapon. (Examples include , , and .)

But sometime after seemingly peaking in mid-2018, China went from being the country where the most supergiant rounds were raised to the below state of affairs:

As you can see, the downward trend regarding China’s participation in the supergiant venture space has continued. And now China’s two-quarter moving average (the lines of various color) has dipped to third place.

Losing the supergiant race implies that companies based in China are no longer the most capable at raising late-stage money. This could lead to earlier IPOs from China-based companies or simply slower activity in the Chinese Internet sector; you cannot spend as much as you might want if your next $100 million round might not be there when you need it.

So What

A single country finding itself in third place after the traditional market leader and the rest of the world grouped into a single collective is no sin, of course. As you can tell from the chart, only two countries in the world have had a shot at managing a leading supergiant tally on their own. But for China to fall as far as it has鈥攏ote that China’s Q2 2019 result is lower than what we’ve seen from the country since what looks like late 2015鈥攍ikely tells us two things.

First, China’s rise in the rankings of supergiant rounds was is somewhat connected to its macro condition. Trade tariffs continue to impact the country at the direction of the Trump Administration, and it appears that the startup scene (as measured through venture capital) is slowing as well.

We often discuss the impact of tech stocks (good or ill) on investors deploying capital into similar, private companies. That the macro picture would impact the former, and thus either ding or bolster the latter, makes good sense. Venture data concerning China underscores the point.

Second, China isn’t going to take over the entire world of startups in one go. A few years back, if you spoke with VCs, you would hear impressed comments about China-based companies. Long hours (the dreaded “996” model) and a huge market with strong smartphone penetration and fewer hang-ups around privacy seemed to indicate that China was what’s next.

However, that ignored the fact that China’s population is rapidly aging, cost of living is rising (when compared to other emerging economies), and annual economic growth for the country has been steadily declining since 2012.

For all those reasons, China as a startup hub that is capable of supporting cash-burning enterprises seems less certain.

Illustration: . Data: .