2014 will go down as the most lucrative year for venture capital since 2000, largely because of a greater emphasis on late-stage funding of tech firms that choose to stay private longer than their predecessors did during the dot-com bubble at the beginning of the last decade, according to Dow Jones VentureSource data obtained by The Wall Street Journal.
In total, over $52.12 billion was invested nationwide in 2012, a 47 percent increase from the year before, although that is still nearly half the $94.1 billion invested in 2000, which was the height of the dot-com bubble. Broken down by state, California was the runaway leader with $29.8 billion in investments, followed by New York ($4.8 billion) and Massachusetts ($4.53 billion) at a distant second and third. Mississippi and Wyoming were the only two states that saw a negligible amount of investments, according to VentureSource.
The main difference between 2014 and 2000 for venture capital was the greater emphasis on late-stage funding in 2014, which occurs for companies after initial fundraising rounds and is determined to be a sign that the company is mature enough to offer an IPO, or at least that would have been the case 15 years ago according to WSJ author Russ Garland. An estimated $31.35 billion was invested in the later stages in 2014, an increase from the roughly $28 billion in 2000 at the same time. Garland suggests that the reason for the uptick in later-stage funding without the expected IPO release is that companies, and investors, are taking their time to develop the business models before jumping into an IPO release after the first few rounds of fundraising. This is what happened in 2000 with the dot-com bubble, when companies would go public first and raise funds later without a proven business model for success.
The two main companies at the forefront of the new fundraising model are Uber and Airbnb, two companies that are past the $1 billion valuation point that would mark them as IPO candidates, but are still currently private companies. Uber raised $2.4 billion in two equal funding rounds, yet hasn’t announced an IPO yet. According to WSJ statistics, only 105 IPOs backed by venture capital launched in 2014, half the total of 2000 and down from the high of 256 in 1999. Another feature this time around is the concentration of venture capital in fewer, larger firms like Blackrock and Fidelity (which invested in Uber along with other firms), with only 3,682 different firms investing, around 200 less than in 2013, according to VentureSource.