Alt Investments

Venture Capital Dealflow Surges; China Stands Out

Tom Burroughes, Group Editor, 12 July 2018

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With VC exits being important liquidity events, the surge in activity in the quarter should be welcome news for wealth managers hungry for new clients.

Venture capital-backed deal making chalked up a record high in the second quarter of this year, with 3,686 deals made with a combined value of $74 billion - with the Spotify deal proving one of the hightlights.

Deal value is more than $20 billion more than the previous record of $53 billion recorded in the fourth quarter of 2017, with "unprecedented deal-making for China-based companies", according to Preqin, a research firm tracking alternative asset classes such as private equity, real estate and hedge funds.

 Venture capital-backed exits also saw a record quarter: although the number of exits (236) was about the same as in the previous quarter, total exit value hit $70 billion, which was far above the previous record of $46 billion in the third quarter of 2014, the report said.

While the $16 billion sale of Indian electronics firm Flipkart led exit activity, initial public offerings the quarter accounted for $21 billion.

As VC deals and exits can be significant liquidity events, creating potential and actual new millionaires, they are important developments for wealth managers to track in building a pipeline of clients. With high net worth clients seeking superior yields to those from conventional markets - and prepared in some cases to tolerate lower liquidity and longer holding periods - VC has seen its fortunes improve in a number of regions.

Rising China
Preqin noted that deals in Greater China drove deal-making, seeing $40 billion in aggregate value across a total of 1,155 transactions, making up 54 per cent and 31 per cent of global totals, respectively.

North America, meanwhile, saw 1,374 deals, worth a total of $23 billion. In Europe, there were 636 deals worth a total of $5.7 billion.

Sectorally, the most active area was in software, with firms in this space taking up 24 per cent of financings.

"The sale of Flipkart to Walmart is the largest by some distance in Q2, but the standout story is the resurgence of IPO activity. Public offerings of venture capital-backed companies made $21 billion, the third-highest quarterly total on record. This is only surpassed by the quarter in which Alibaba went public, which accounted for almost all exit value in the quarter," Christopher Elvin
head of private equity products at Preqin, said.

Elvin noted that the listing this year of streaming music service Spotify accounted for $7.4 billion, suggesting the quarter was less dominated by any one single deal, as has been the case in the recent past.

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