Venture capital data provider Pitchbook is out with their 2020 outlook for venture capital. After some amazing years of incredible valuation growth and funding grabs, one might think that the industry would take a breather – perhaps even decline a little. That is not what Pitchbook sees in 2020. Here are three interesting predictions from their analysts’ 2020 outlook.
Pre-Money Seed-Stage Valuation Rockets to Above $8.5 Million
If Pitchbook’s analysts turn out to be correct about 2020, the pre-money valuation for seed-stage companies may surpass $8.5 million. The incredible prediction is certainly the highest of the past decade and may be the highest of all-time (data on valuations from earlier years is spottier).
What is behind the rise in seed-stage valuations? According to Pitchbook, the answer lies in a mix of competition among investors, much larger funds searching for investments, and a shift towards investment in more mature seed-stage companies.
The Coming Year May the Year of Mega-Deals
If one has paid close attention to venture capital activity over the past couple of years, one is certainly aware that the venture capital world has had some massive deals, including such unicorns as Uber and Lyft. One might think it would be hard for some of these massive mega-deal years to be beaten. According to Pitchbook, it’s not only possible, but likely.
The analysts at Pitchbook see two factors driving the rise in the shift in financial capital from lower valued, earlier stage companies. The first is persistent, historically low interest rates. Rates around much of the world have been kept close to zero for an amazing amount of time. Low interest rates lower the return for such investment options as fixed income, and instead push investors to seek higher returns in other areas. One of those areas where investors seek alpha is venture capital. The second factor is the continued push for investors to do passive investing in public equities. With an ever-increasing percentage of capital allocated to passive investing, the remaining capital that investors push towards active management has gone to venture capital and private equity.
Corporate Venture Capital Reaches Another All-time High in 2020
The third prediction out of Pitchbook that may surprise some is that incredible growth in corporate venture capital (CVC). If Pitchbook’s analysts are correct, CVC may reach as much as 1,800 deals. The rise is an important shift in the venture capital world and presents perhaps a challenge to existing venture capital players.
Conclusion
After more than a decade of continued expansion in the venture capital industry, one might think that the industry would slow down a bit, perhaps even see some decline. According to Pitchbook’s venture capital forecaster, that is not what is going to happen in 2020. Instead, observers of the venture capital world may be in for a year to remember.
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