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Four Venture Capital Trends That Will Define the Future

By Rebecca Hinds

Last year was a whirlwind year for venture capital. Competition grew more intense. Scores of new capital emerged. Growing fund sizes, an increase in the number of venture deals, and a focus on diversity have become trends in the venture capital industry intended to stay for good and shape investment decisions going forward. The push for more women in VC gained much-needed traction. 

As we look back on the year that was, four key trends defined the industry:

1. Escalating fund sizes

The last few years marked a namber of bloated fund sizes. The median venture fund size grew to a staggering $80 million in 2018, up from $40 to $50 million for the previous five years. 2018 also marked a decade record in terms of the most number of billion-dollar VC funds. Not only have fund sizes grown in the past year, but the entire venture capital industry has increased in size.  

Smaller funds have reacted quickly to escalating fund sizes. They’ve started to make earlier bets, doubling down on investing at the seed stage. This has presented an exciting opportunity for earlier startups looking to secure initial capital.

Will the trend continue? Experts from Pitchbook don’t think so. They expect fund sizes to “hit a ceiling as GPs refrain from raising excess capital to maintain venture-like returns.” Only time will tell.

2. Firms injecting capital in fewer deals

Somewhat counterintuitively, growing fund sizes did not result in more deals being funded. On the contrary, firms injected capital into fewer deals in 2018. According to Pitchbook, at the end of Q3 2018, the total deal value in the US had risen to more than $84 billion, a level already more than any other year of the past decade. Yet there had been fewer than 7,000 total investments, a rate that was on pace for the lowest level since 2012! This is certainly a VC investment trend to watch for in 2019.

In response to the decline in deals funded, startups have needed to become savvier in finding a way to stand out from the masses. The money is there. The challenge lies in finding a way to differentiate.


3. Direct listings gain momentum

In April, Spotify made a bold move to reinvent the IPO by filing with a direct listing. In a nutshell, Spotify posted its available shares on the New York Stock Exchange and let the market decide on a fair price. Spotify (thanks to its positive cash flow and strong brand) was able to cut out the usual Wall Street underwriters from the equation.

Many experts predicted that Spotify’s strategy would backfire from the get-go. But that didn't happen. Instead, Spotify’s shareholders, which included VCs as well as corporate venture capital investors like Sony BMG and Tencent, were very profitable and saw their investments grow without dilution from institutional investors and investment banks.

Spotify's move attracted a lot of attention. Airbnb and Slack are both allegedly considering direct listings. The flurry of discussion on around the benefits of direct listings will mark a key VC and corporate venture capital trend in 2019.

 4. Venture Capital gender balance?

The number of senior women VCs has increased in the last two years, yet nearly 75% of major firms still have no women as senior partners. Motivated to correct the gender imbalances in venture capital, more new women joined several reputable funds in 2018. This was a step forward. Yet, as Aileen Lee, the co-founder of All Raise, a nonprofit that promotes diversity in the industry, has pointed out the percentage of women in leadership roles only increased from 8.9% to 9.5%. Progress for equality in venture capital seems to be moving forward, but more firms will have to truly commit in 2019 to change the game.  

The VC landscape changed markedly in 2018. 2019 marks another exciting year. There are reports that Lyft, Uber, Airbnb, Pinterest, Slack, Postmates, Palantir, and Zoom will all go public. From changing fund sizes to changing avenues to capital, both VCs and entrepreneurs will need to continue to find ways to differentiate. Click here to read more about how VCs can differentiate from the pack.

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