Earlier this month, Technology Crossover Ventures announced a huge new $2.33 billion growth fund. TCV’s new fund comes at a time when late-stage venture firms are seeing increased competition from a growing group of investors including hedge funds, mutual funds and corporate venture arms for promising late-state funding deals.
Anecdotally, recent financings suggest that late-stage VCs might be losing out on or getting pushed out of notable late-stage rounds. Cloudera’s recent $160M financing, for example, was led by T. Rowe Price with participation from Google Ventures and Michael Dell’s MSD Capital. Meanwhile, prolific hedge fund Tiger Global Management has announced deals to Actifio, Eventbrite, Hotel Urbano, Credit Karma and On Deck Capital just in March.
Using CB Insights data, we analyzed several later-stage VC firms (listed below). Interestingly, while the data does not indicate any clear trend in late-stage VCs completing fewer deals overall, the traditionally later-stage firms do appear to be doing fewer late-stage deals.
- DAG Ventures
- Institutional Venture Partners
- Meritech Capital
- Technology Crossover Ventures
The chart below highlights private company deal activity by the four late-stage firms over the past five years. ‘Coattail’ fund DAG Ventures has been the most active over the past five years completing over 140 deals in the period followed by Institutional Venture Partners.
But as the chart indicates, there has not been any consistent trend indicating a marked downturn in overall deal activity across the late-stage VCs.
More interesting however is the breakdown by stage of deal of these four firms since 2009. In particular, we looked at the number of late-stage and growth equity deals relative to the mid-stage deals (Series B & Series C) completed by the five firms by year. And while the number of total late-stage deals by the respective VC firms hit a high in 2011, it has since dropped off while mid-stage deal levels have remained largely level over the period. 2013 saw the four firms participate in nearly as many mid-stage as late-stage deals in 2013. These would be the likes of IVP’s $80 million Series B investment into Snapchat.
So how does this all play out, and what does it all mean?
- Will later-stage investors boost their mid-stage deals in light of the increased competition for hot late-stage fundings? If yes, is this what their LPs expect and are the skills required to be successful at investing in the late-stage transferable to earlier-stage companies? Is Investment Discipline being lost?
- Are hedge funds, mutual funds and corporates actually pushing out VCs in hot late-stage deals? Or are the late-stage investors remaining disciplined while new “dumb” money overpays for late-stage deals?
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