Why venture capital investing is booming again

Venture capital deal activity in key markets picked up in the fourth quarter of 2013, soared in 2014, and is projected to stay strong this year, according to EY trend reports.

Last year, venture capitalists invested a total of $86.7 billion in the US, Canada, Europe, China, Israel, and India – more than in any year since the height of the dot-com bubble in 2000. EY also reported a rise in initial public offerings and mergers and acquisitions – two traditional exits that allow venture capital investors to reap the rewards from previous deals.

“Improving macroeconomic conditions underpinned investor confidence and fueled an active exit and positive fundraising environment, which supported the increase in global VC activity in 2014,” EY’s 2014 Venture Capital Review stated.
 
Median deal sizes increased significantly in all industries and all stages of development, particularly in the US, Europe, and China. The rate of growth was highest in China, which was also the market that recorded the highest median deal value.

Other VC trends highlighted by EY:

• As in the previous three years, the biggest share of last year’s global VC investments went to consumer services. The $29 billion invested in the sector was more than twice as much as each of the preceding years ($12.6 billion in 2013, $11.7 billion in 2012, and $13.4 billion in 2011). Business and financial services came in second ($20.2 billion), information technology came in third ($14.7 billion), and health care was fourth ($14 billion).
• More than 300 companies worldwide received venture capital investments of $50 million or more, twice as many as in 2013. Most of these mega-investments went to US companies (57%, or $22.3 billion). China came in second (23%, or $9.1 billion), followed by Europe (10%, or $4.1 billion).
• IPOs of venture-backed companies raised $9.2 billion in the US, $7.1 billion in China, and $4.8 billion in Europe. In China, the IPO volume tripled in 2014. Mergers and acquisitions of venture-backed companies raised $79.8 billion in the US, $10.6 billion in Europe, and $6.5 billion in China. The amount raised through M&A exits was the highest since 2008.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.