State of the MarketsViews on Venture Investing in the Global Innovation Economy

June 25, 2019

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Tech Rises to the Top

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Note: 1) Technology industry includes Amazon as well as companies that were previously classified asTechnology prior to the GICS industry reclassification in September 2018.Source: PitchBook, S&P Capital IQ and SVB analysis.

Following the hype and subsequent collapse of the dot-com era, tech companies have proven their importance (and value) to the US economy. Nearly one-third of the S&P 500 Index is represented by tech companies – the largest of any industry.

S&P 500 Tech Industry1 Weighting: 1999—2019 Largest S&P 500 Companies by Market Cap

2015

2010

2005

Other

Q1’19

Tech

31%

0%

5%

10%

15%

20%

25%

30%

35%

1999 2003 2007 2011 2015 2019

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$16.7M

$30.0M

2014 2015 2016 2017 2018

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Data as of 12/31/18Sources: SVB Capital Proprietary Database

Valuations are on the RiseM E D I A N P O S T - M O N E Y V A L U A T I O N B Y S T A G E

Series C

Series B

Series A

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New Funds Move to Institutionalize Early RoundsAt the earliest stages, venture capital available to emerging innovation companies helped push round sizes for seed rounds well beyond their historical average, which had been in line with angel rounds. The return of capital from upcoming IPOs could push both round sizes higher.

Source: PitchBook and SVB analysis.

0

10

20

30

40

50

$0.0B

$1.0B

$2.0B

$3.0B

$4.0B

$5.0B

2010 2012 2014 2016 2018$0.0M

$0.5M

$1.0M

$1.5M

$2.0M

2010 2012 2014 2016 2018

AngelSeed

US VC Fundraising: First-Time Funds Early-Stage US Tech Median Round Size: 2010—2018

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Data as of 12/31/18. Revenue is annualized based on the latest quarter of revenue at the time of financing.Sources: SVB Capital Proprietary Database

A is the New B B is the New C$6.5M

$13.5M

$2.5M

$5.7M

$672K

$2.4M

2014 2015 2016 2017 2018

M E D I A N R E V E N U E A T F I N A N C I N G

C

B

A

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US Tech Venture: Median Round Size by Series US Tech Venture: 100th Largest Deal

Sources: PitchBook and SVB analysis.

20182016201420122010 2010 2012 2014 2016 2018

$32M

$40M

$25M

$63M

$74M

$60M

$70M

$100M

$0.5M

$7M

$3M

$10M

$2M

$18M

$8M

$30M

Startups Are Better Capitalized Than EverThanks to risk-incentivized investors and their buckets of cash, capital raises at every stage have more than doubled since the beginning of this decade. In fact, in order to make the top 100 deals of 2018, a startup would need to have raised a nine-figure round.

Series C: 3.0x Series B: 2.5xSeries A: 3.2xSeed: 4.0x

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Diverse Pools of Capital Chase Innovation Returns

Family Offices’ Venture Investment in US Tech2

Traditional venture firms are no longer the only game in town. Newly professionalized family office and capital-rich private equity investors are participating in venture rounds at an increasing pace, nearing the highs from 2015 in deal level and keeps surpassing those capital marks.

Note: 1) Deal count based on participation in US tech venture rounds from 2010–2018. 2) Investment dollarsinclude full rounds that received participation from at least one investor from the class.

Source: PitchBook and SVB analysis.

0

60

120

180

240

300

$0B

$3B

$6B

$9B

$12B

$15B

20182016201420122010

Capital Invested Deal Count

0

300

600

900

1,200

$0B

$5B

$10B

$15B

$20B

$25B

$30B

$35B

$40B

20182016201420122010

Capital Invested Deal Count

Private Equity Firms’ Venture Investment in US Tech2

Notable Family Offices Investors in Tech Venture1 Notable Private Equity Investors in Tech Venture1

VC Deals: 79

VC Deals: 63

VC Deals: 59

VC Deals: 42

VC Deals: 28

VC Deals: 42

VC Deals: 31

VC Deals: 31

VC Deals: 26

VC Deals: 22

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VCs Raising More Capital with Each Trip Back to LPsTop firms are attracting more capital for each successive fund, climbing to almost 50% more than their prior fundraise. This trend helped contribute to records in 2018, including the most $500M+ funds and the first year with double-digit $1B+ funds.

Source: PitchBook and SVB analysis.

0.50x

0.75x

1.00x

1.25x

1.50x

2010 2012 2014 2016 2018

0

5

10

15

20

25

20182016201420122010

$1B+ $500M+

US VC Fundraising: Median Step-Up in Fund Size for Same Family of Funds

US VC Fundraising: $500M+ and $1B+ Funds

+50%

+25%

0%

-25%

-50%

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Sizeable Cash Piles as Bull Run Breaks Records

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Notes: 1) VC and PE dry powder as of 3/31/2018 with SVB estimates for amount expected for tech investment. 2) Vision Fund dry powder remaining as of year-end. 3) Cash includes cash and ST and LT investments, net ST and LT debt. Sources: LPL Research, Yahoo, S&P Capital IQ, PitchBook and SVB analysis.

A decade of prosperity following the recovery from the Global Financial Crisis has left both traditional and emerging investors flush with cash for venture investing.Longest S&P 500 Bull Market Runs Since 1945

Duration of Bull Market (Years)

$64B

$80B

$44B

$123B$115B

$55B

$41B

$6B$0B

$25B

$50B

$75B

$100B

$125B

Accumulated Net Cash: 12/31/2018

US VC1 US PE10%

50%

100%

150%

200%

250%

300%

350%

400%

450%

0 1 2 3 4 5 6 7 8 9

June 1949 - Aug 1956Oct 1974 - Nov 1980Aug 1982 - Aug 1987Oct 1990 - Mar 2000Oct 2002 - Oct 2007Mar 2009 - Present

Dot-Com

Dry PowderSB VF2

Net Cash3

Potential to be Invested in TechLikely to be Invested in Tech

Current

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Opting for Growth Capital vs. an Early Exit

US Tech Growth Rounds vs. Exits: 2010–2018

With the abundance of available capital, firms are increasingly choosing growth rounds – even mega-growth rounds – over similar-sized exits. This could signal that companies want to mature before securing an even bigger exit. Or are these firms simply shying away from public market scrutiny?

US Tech Mega-Rounds vs. Mega-Exits: 2010—2018

Source: PitchBook and SVB analysis.

0

25

50

75

100

125

150

201820162014201220100

25

50

75

100

125

150

20182016201420122010

Growth Rounds: $50M–$100MExits: $250M–$1B

Mega-Rounds: $100M+Mega-Exits: $1B+

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Expect IPOs to Continue Their Capital Climb

Median Equity Raised Prior to IPO and via IPO by US Venture-Backed Tech Companies

Before the flurry of private capital began in 2015, the average venture-backed tech company would raise $100M in private capital ahead of their $100M public offering. Looking at the current crop of US unicorns, more than 90% have already raised at least $100M in a single private financing.

Percentage That Raised a Private Venture Round of $50M+ and $100M+ Prior to IPO

Sources: CBInsights, PitchBook and SVB analysis.

$0M

$100M

$200M

$300M

$400M

2010 2012 2014 2016 2018 2019Current US Unicorns

0%

25%

50%

75%

100%

2010 2012 2014 2016 2018 2019Current US Unicorns

Capital Raised Prior to IPOCapital Raised at IPO

$50M+ Round$100M+ Round

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Data as of 5/1/19 Source: Capital IQ

The Bar for an IPO is Higher Than Ever BeforeM E D I A N S T A T I S T I C S O F V C - B A C K E D T E C H I P O S B Y Y E A R

$1.9B$226M

2018/19Market Capat IPO

Revenue at IPO

2014$639M

$91M

Market Capat IPO

Revenue at IPO

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Unicorns are Fundamentally Healthy

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Data as of 12/31/18Sources: SVB Capital Proprietary Database

M E D I A N S T A T I S T I C S

$116MRevenue

75%Annual Revenue

Growth

65%Gross Margins

$65MCash Balance

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Valuation Relative to Last Private Valuation1: ’18—’19 US $1B+ Tech IPOs

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Market Cap: Square and Snap

Note: 1) LPV is last private valuation from a priced venture equity round prior to IPO.Sources: S&P Capital IQ, PitchBook and SVB analysis.

Public and Private Investors Seeing Eye-to-Eye

+2,690%

Public and private investors have largely agreed on unicorn valuations, as the vast majority of the top billion-dollar debuts in 2018 and 2019 priced and remained above their last private round. That said, the IPO is just the beginning, as evidenced by Snap and Square’s reversal over the last couple years.

-100%

0%

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300%

400%

500%

600%

700%

800%

900%

1000%

Value at IPO

2019 IPO: Value at 6/19/2019

2018 IPO: Value at 6/19/2019

$0B

$5B

$10B

$15B

$20B

$25B

$30B

$35B

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2017 2018 2019

Square LPV1

Snap LPV1

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Innovation is Global

= SVB OfficeSelect companies with $1B+ exit between 1/1/18 and 6/3/19. SVB Capital does not have exposure to all of the listed companies

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S E L E C T $ 1 B + E X I T S I N 2 0 1 8 & 2 0 1 9

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US Tech Looks To International Opportunities

Source: PitchBook, company websites and SVB analysis.

Notable Int’l Acquisitions by US Tech DecacornsInternational Acquisitions by US Tech Unicorns

The innovation economy’s best and brightest are putting their abundant capital to work abroad, with 20% of their acquisitions taking place outside of the US. On the back of a strong dollar, their capital is going even further for expansion overseas.

0

5

10

15

20

25

2010 2013 2016 2019

UAE$3.1B Acquisition

March 2019

United Kingdom$72M Acquisition

Oct.2018

Rest of WorldAsiaEurope

Canada$300M Acq.Feb. 2017

FranceAcquisitionDec. 2018

DemarkAcquisitionJan. 2019

United Kingdom

AcquisitionNov. 2017

Singapore$500M Acq.Aug. 2017

China$400M Acq.Apr. 2018

SpainAcquisitionNov. 2017

IsraelAcquisitionAug. 2017

Canada Serbia

UK Finland

Israel Italy

Switzerland

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Canada

South America

Russia

China

Australia

United Kingdom

India & SE Asia

Rest of Europe Middle East

Japan

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Unicorns Rely on Capital Boosts From Abroad

Notes: 1) * Represents beneficial ownership of more than 5% at IPOSource: PitchBook and SVB analysis.

It takes a village. In the cases of Uber and Lyft, a global network of investors played significant roles in financing their growth from startups to giants. Regulators will need to weigh both the benefits and consequences to foreign investment in U.S. tech companies.

Uber & Lyft: International Investors by Country

*

**

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Next Wave of Capital Will Come After LockupsEarly signs indicate 2019 should be the most robust year of value realization via IPOs for US venture-backed tech companies this decade. But the IPO listing is only the start of the journey for insiders, including venture firms, who must weather six months of market movement before exiting.

Source: PitchBook, S&P Capital IQ, CBInsights and SVB analysis.

Aggregate Valuation of US VC-Backed Tech IPOs Post-IPO Performance for 2010–2018 US Tech IPOs

-40%

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-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1 3 5 7 9 11 13 15 17 19 21 23 25

Percentiles:

90th

75th

50th

25th

10th

+

+

+

+

+

+

+

$0B

$25B

$50B

$75B

$100B

$125B

$150B

2010 2013 2016 2019

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% of Unicorn Value Realized in 2018

We Expect 2019 will be a Year of US Liquidity

Data as of 6/3/19Sources: PitchBook and Capital IQ

U N I C O R N V A L U E R E A L I Z E D I N 2 0 1 8 E X I T S R E L A T I V E T O T O T A L R E M A I N I N G V A L U E

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Europe China United States

2018 Exits

% of Remaining Unicorn Value

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We Expect 2019 will be a Year of US Liquidity

Data as of 6/3/19Sources: PitchBook and Capital IQ

U N I C O R N V A L U E R E A L I Z E D I N 2 0 1 8 E X I T S R E L A T I V E T O T O T A L R E M A I N I N G V A L U E

20

Europe China United States

2019 to Date

2018 Exits

2019 Candidates

% of Unicorn Value Realized in 2018 % of Remaining Unicorn Value

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Beauty & FemTech:

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Nontraditional Industries Prime for Disruption

AgTech: Construction Tech:

The traditional definitions for tech have eroded as innovation spreads to old guard industries. Areas ranging from beauty to construction are facing disruption from venture-backed companies.

Source: PitchBook and SVB analysis.

US Venture Capital Investment: 2010–2018

$0M

$500M

$1,000M

$1,500M

20182016201420122010$0M

$500M

$1,000M

$1,500M

20182016201420122010$0M

$500M

$1,000M

$1,500M

20182016201420122010

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Mobility Tech and Notable US Tech Decacorns: Age at Which Unicorn Status Achieved

SoftBank $100M+ Global Investments in Mobility

Sources: PitchBook and SVB analysis.

The Future of Mobility: New Platforms Skyrocket The fastest unicorns ride scooters: Bird and Lime rolled to billion-dollar valuations as quickly as any in history. Startups are benefitting from advances in fundamental hardware, artificial intelligence, and communications ― not to mention plentiful capital from the likes of SoftBank’s Vision Fund.

0 2 4 6 8 10

Bird

Lime

Zoox

Airbnb

Uber

The We Company

Stripe

Pinterest

US Unicorn Average

Palantir Technologies

Lyft

SpaceX

US Unicorn Average

$0B

$10B

$20B

$30B

$40B

201820172016

$72B Valuation

$56B Valuation

$11B Valuation

$0.9B Valuation

Acquired for $1B

$4B Valuation

Mobility TechOther

Mobility TechOther

Age:

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$0B

$20B

$40B

$60B

$80B

$100B

2010 2011 2012 2013 2014 2015 2016 2017 2018

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Tech Giants Spend Big but Now Face Scrutiny

Source: PitchBook, S&P Capital IQ and SVB analysis.

The Big 5 US tech giants have gone unchecked despite their growing influence. Now, as they outspend the entire tech venture ecosystem in R&D dollars alone, they are facing increasing political scrutiny. Are their innovations a true benefit to society?

R&D Expenditure by Big 5 US Tech Companies vs. US Tech Venture Capital Invested

Ventu

re

2010 2011 2012 2013 2014 2015 2016 2017 2018

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CFIUS Could Impact 20% of VC-Backed Acquisitions

Strategic Acquisitions of US VC-Backed Tech Companies

As geopolitical tensions rise, the Committee on Foreign Investment in the United States (CFIUS) is paying close attention. This has the potential to limit foreign acquirers who have been buying a growing share of US start ups.

Most Acquisitions by Country: 2010–2018

Source: PitchBook and SVB analysis.

Country DealCount

Deal Value

#1 United Kingdom 137 $15B

#2 Canada 116 $8B

#3 Japan 59 $22B

#4 Germany 58 $32B

#5 France 49 $8B

#6 China 43 $5B

#7 Israel 35 $1.3B

#8 India 31 $1.3B

#9 South Korea 28 $1.6B

#10 Netherlands 27 $24B

0%

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35%

0

100

200

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20182016201420122010

Domestic AcquirerInternational Acquirer% International

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SVB’s Outlook for Venture in 2019

2018 Themes 2019 PredictionDeal counts at the early stages fell for another year from their 2015 highs. Capital remained robust, however; the

median Seed deal size reached $2M for the first time.Early Stage

Without the robust pool of Seed-funded companies from years past, SVB anticipates another year of steady capital in the early stages, despite declining deal counts.

Records were shattered at the later stages, with nearly 200 venture deals of $100M+ in the US in 2018. Median

pre-money valuations for Series D+ crossed $300M.Late Stage

2018 could well be an anomaly for mega-round activity without renewed support from SoftBank or sovereign wealth funds. Expect valuations in aggregate to slide.

International startups took advantage of calm markets and strong valuations to list in 2018. The US, however, still has

$500B worth of unicorns on paper waiting to be realized.Exits

If the marquee names in venture set a positive sentiment early, 2019 could represent the tipping point between demand for private and public capital at the late stage.

US venture firms secured more than $50B in committed capital, the highest total since the dot-com era. 43% went

to funds of $1B+, like Sequoia’s $8B Global Growth III.Fundraising

The velocity of US venture firms’ fundraising efforts foreshadows another big year for capital commitments. 2019 should top $40B, even with a decrease from 2018.

Corporates participated in one-in-six US VC deals in 2018, with new CVC groups forming in old guard industries

facing disruption late in the economic cycle.Corporates

If stock prices (and management teams) remain stable, CVCs will remain heavily involved. Look for nearly 1,000 tech venture deals to have corporate participation.

Sources: PitchBook, S&P Capital IQ and SVB analysis.

Records were broken in 2018 as both venture-backed companies and their investors stockpiled private capital. Will this be the year we finally see exits for many of the high-profile startups built during this decade of prosperity?

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