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Wilmerhale 2021 Venture Capital Report

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Wilmerhale 2021 Venture Capital Report Venture Capital Report 2021 Attorney Advertising 2021 Venture Capital Report – What’s Inside 2 US Market Review and Outlook 6 Regional Market Review and Outlook 10 Selected WilmerHale Venture Capital Financings 12 Law Firm Rankings 13 Management Carve-Out Plans in Sales of Private Companies Technique Provides Retention Incentive When Common Stock Has Little Value 15 Cross-Border Operations? Transfer Pricing Required Early-Stage Companies Ignore Compliance at Their Own Risk 16 SEC Rule Amendments Expand the Pre-IPO Financing Toolkit Recent Changes Broaden Exemptions and Facilitate Investor Communications 17 Trends in VC-Backed Company M&A Deal Terms 18 Trends in Convertible Note and SAFE Terms 19 Trends in Venture Capital Financing Terms 2 US Market Review and Outlook REVIEW US Venture Capital Financings – 2000 to 2020 # of deals $ in billions espite the arrival of the COVID-19 12,372 164.1 pandemic in early 2020 and the 11,920 D 11,346 11,356 ensuing economic dislocation, venture 10,697 10,948 10,139 134.6 capital financing proceeds, median 9,513 126.7 amount raised, and median pre-money 8,057 6,906 83.4 86.8 valuation all increased from 2019 levels, 78.7 5,531 71.5 although reported deal flow dipped. 4,858 4,394 4,583 50.8 3,387 44.5 46.8 2,960 3,034 41.4 2,209 2,662 37.7 37.0 VC-backed company liquidity activity 2,280 29.5 31.6 1,850 25.2 23.7 27.0 followed a similar pattern in 2020. The 19.8 18.7 21.8 number of VC-backed IPOs increased, while M&A activity declined modestly, 202020192018201720162015201420132012201120102009200820072006200520042003200220012000 but the median pre-money valuation Source: PitchBook at the time of IPO and the median acquisition price both reached their highest levels in more than 15 years. EQUITY FINANCING ACTIVITY The number of venture capital financings contracted by 4%, from Median Size of US Venture Capital Financings – 2000 to 2020 12,272 in 2019 to 11,920 in 2020. Once Angel/Seed Early Stage VC Later Stage VC $ millions all financings are counted, the gap 21.0 between the two years is likely to close. The record $164.1 billion invested in 15.0 the US venture capital ecosystem in 10.0 10.0 10.0 10.0 2020 represents an increase of 22% 9.4 9.0 8.8 8.1 8.4 8.0 8.0 8.0 8.2 8.2 8.5 from the $134.6 billion in 2019. 7.5 7.2 7.0 6.0 6.0 6.4 6.0 6.0 6.5 5.0 4.9 4.9 5.0 4.2 4.5 4.4 Overall, the median size of venture 4.0 3.7 3.5 4.0 3.0 2.6 2.6 2.8 3.0 1.8 1.1 1.2 1.4 capital financings increased by 9%, from 1.0 0.7 0.7 0.7 0.7 0.8 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.6 0.7 0.8 1.0 $2.8 million in 2019 to $3.0 million in 202020192018201720162015201420132012201120102009200820072006200520042003200220012000 2020—the highest annual level since Source: PitchBook 2008, when angel and seed financings comprised a smaller portion of the market. sectors, median financing size reached occurred in 2018, when the total jumped The median size of angel and seed its highest annual level since 2008. to 208, from 112 in 2017 and 77 in 2016. financings increased by 15%, from $1.2 The number of very large financings Increases in super-sized rounds are driven million in 2019 to $1.4 million in 2020. rounds continued to grow in 2020. There largely by private equity, crossover and The median size of early-stage financings were 750 financing rounds of at least hedge funds, which are attracted to pre- increased by 8%, from $6.0 million $50 million in 2020, up 24% from 603 in IPO companies that can offer the potential to $6.5 million. At $10.0 million, the 2019, continuing a trend that saw rounds for sizeable investment returns, especially median size of later-stage financings in of this size grow from 242 in 2016 to when investors are able to negotiate ratchet 2020 matched the prior year’s figure. 331 in 2017, and then to 534 in 2018. or other provisions guaranteeing them a Median financing amounts at each minimum return at the time of an IPO, The number of financing rounds of at financing stage have either increased or typically in the form of additional shares if least $100 million show a similar pattern, remained steady each year since 2013. the offering occurs below a specified price. as VC-backed companies increasingly The median financing size for life sciences rely on “IPO-sized” later-stage rounds of There were five billion-dollar financing companies increased by one-third, from financing. There were 330 financing rounds rounds in 2020. This elite club was led by $3.4 million in 2019 to $4.5 million in raising at least $100 million in 2020, a Waymo, with its $3.0 billion financing, 2020. Among technology companies, 33% increase from the 248 rounds in 2019. followed by Rivian Automotive ($2.5 the median financing size grew by 11%, This jump, in turn, followed the 86% surge billion), SpaceX ($1.9 billion), Epic Games from $3.3 million to $3.7 million. In both in $100-million financing rounds that ($1.78 billion) and Generate ($1.0 billion). 3 US Market Review and Outlook The median pre-money valuation for all Median Pre-Money Valuation in US Venture Capital Financings – 2000 to 2020 venture financings continued its upward Angel/Seed Early Stage VC Later Stage VC $ millions trajectory, increasing 17%, from $17.1 93 million in 2019 to $20.0 million in 2020. Among angel and seed rounds, the median 75 pre-money valuation held steady at $7.0 65 million in each of the last two years. The 60 50 46 47 median pre-money valuation in early-stage 43 40 40 37 37 38 39 rounds increased 12%, from $26.9 million 34 30 30 31 30 26 27 in 2019 to $30.0 million in 2020, while 23 23 23 18 18 15 17 14 12 14 later-stage rounds saw a 15% increase, 9 10 9 10 10 10 10 10 6 8 8 8 8 6 6 7 7 from $65.0 million to $75.0 million. 3 5 4 4 4 3 4 3 4 4 4 4 5 5 5 202020192018201720162015201420132012201120102009200820072006200520042003200220012000 The median pre-money valuation in the technology sector increased 11%, from Source: PitchBook $18.0 million in 2019 to $20 million in 2020. Among life sciences companies, the median pre-money valuation jumped 49%, from $17.5 million to $26.0 million. Angel and seed financings accounted for 42% of all venture financings in 2020 US Venture Capital Financings by Industry – 2000 to 2020 (down from 44% in 2019) and represented 6% of all venture capital financing Biopharmaceuticals Medical Devices Other Life Sciences Software Communications & Networking Other Tech Life Sciences 4,608 4,642 proceeds (down from 8% in 2019). Early- 4,524 4,472 4,445 4,093 4,200 stage financings accounted for 29% of Technology 3,987 all financings in 2020 (down from 32% 3,431 2,912 in 2020) and 26% of all proceeds (down 2,780 2,621 from 33% in 2019). Later-stage financings 2,389 2,252 2,207 2,089 2,085 1,990 accounted for 28% of all financings in 1,879 1,856 1,846 1,730 1,692 1,512 1,585 1,544 1,333 1,415 2020 (up from 24% in 2019) and 67% of 1,166 1,194 1,246 1,087 1,027 1,089 1,107 all proceeds (up from 59% in 2019). 813 655 731 513 533 372 343 The technology sector accounted for 37% of the year’s financings in 2020, 202020192018201720162015201420132012201120102009200820072006200520042003200220012000 down from 38% in 2019. The life Source: PitchBook sciences sector’s market share increased to 23% in 2020 from 21% in 2019. The LIQUIDITY ACTIVITY The median offering size for US VC- market share for consumer goods and backed IPOs increased by 65%, from $110.5 services companies declined from 21% The number of IPOs by VC-backed US million in 2019 to $182.7 million in 2020. in 2019 to 19% in 2020, while business issuers increased by 32%, from 72 in In 2020, life sciences companies accounted services companies saw their market 2019 to 95 in 2020—the highest annual for 70% of all VC-backed IPOs, up from share increase from 13% to 14%. figure since the 102 in 2014. VC-backed companies accounted for 64% of all US- their 59% market share in 2019 and the California produced 34% of all venture issuer IPOs in 2020, down slightly from 62% that prevailed over the five-year period financings in 2020 (4,037 financings) their 65% share of the market in 2019. from 2014 to 2018. The VC-backed IPO and 51% of the year’s proceeds ($84.43 market share for technology companies billion). New York, home to companies Gross IPO proceeds raised by VC-backed declined to 27% in 2020 from 40% in 2019, with 1,475 financings raising $18.53 US issuers increased by 21%, from $25.04 compared to the 36% market share over billion in 2020, finished second in the billion in 2019 to $30.38 billion in 2020.
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