Big IPOs by the best-known brands tend to dominate attention in startup circles. Last year, for instance, it was hard to miss headlines about Snap’s monumental market debut.
But when it comes to delivering significant returns on invested capital, it’s often lower-profile companies that come out on top. Startups like personalized fashion provider Stitch Fix and cancer therapy developer Impact Biomedicines generated multi-billion-dollar valuations after raising a few tens of millions of dollars.
They’re not the only companies that generated a lot of bang for each investor buck. A Crunchbase News analysis of post-exit valuations for the past year’s crop of newly public and acquired later-stage startups showed that quite a few managed to amass valuations totaling impressive multiples of capital raised.
Startups that stood out for their capital efficiency hailed from both tech and life science sectors. We measured them using a valuation to invested capital (VIC) ratio, which is a metric equal to the post-exit valuation divided by the amount of venture and seed funding prior to exit.
Below, we look at some of the top-returning large exits, first for tech and Internet companies, and then for life sciences.1
Tech’s top performers are pretty diverse
In tech, there’s no single winning sector or strategy for generating a high valuation relative to invested capital. Instead, top performers come from a broad variety of sub-sectors, from fashion ecommerce to streaming media to identity management.
On the fashion front, the aforementioned Stitch Fix stands out as a leader across all tech and internet categories, based on its strong post-IPO performance. Shares of the San Francisco-based company are currently trading up about 50 percent from the October IPO price, with a market cap around $2 billion.
Having raised just $42 million in venture funding before going public, Stitch Fix now has a VIC ratio of a whopping 47. To boot, the seven-year-old company is modestly profitable and seeing growing demand for its service, which matches online customers with personal stylists who select clothes for them.
Stitch Fix isn’t the only consumer-facing company to deliver a big bang for the buck. Roku, the developer of a popular streaming device and platform, has also performed extraordinarily well.
Granted, Roku raised a lot more venture funding. Since its founding in 2001, the Silicon Valley company took in about $209 million in early through late-stage rounds. Investors’ risk-taking appears to have been rewarded following the company’s September IPO, however, with Roku now sustaining a market cap around $4.2 billion. That gives it a VIC ratio of around 20.
In the chart below, we compare the metrics for Stitch Fix, Roku and the three other members of our top-five list:
Life sciences delivers some large returns
Venture-backed life science companies generally pursue IPOs at a higher rate and earlier stage of development than their tech counterparts. That’s in part because public markets are a popular source of financing for clinical trials, and investors have historically been willing to buy shares of pre-revenue companies in the space.
This past year, with major stock indexes on a tear, going public proved a particularly lucrative strategy for several VC-funded biotechs, which saw shares rise dramatically post-IPO. Big acquisitions were less common but still delivered some large outcomes, including our top-returning company across all sectors: Impact Biomedicines.
Four of the five top performers in our life sciences list are working on therapies or diagnostics for cancer patients, and Impact is no exception. The company, which spun out of drug developer Sanofi a little over a year ago with a promising blood cancer treatment, sold to Celgene earlier this month for $1.1 billion upfront and up to $5.9 billion in milestone-based payments. That gives Impact a VIC ratio of at least 50 and as high as 318.
Second on our list is AnaptysBio, which has seen its shares soar more than 600 percent following its market debut in January 2017. The San Diego company has clinical-stage drugs to treat ailments including severe adult peanut allergy and asthma.
In the chart below, we compare the metrics for Impact, AnaptysBio and the three other members of our top-five list:
The case for capital efficiency
It’s worth noting that the VIC ratio is not a measure of investor returns, as it does not specify the size stake in a startup that backers obtained in return for their investment. Companies that relied on bootstrapping for much of their early development, for instance, may post high multiples without delivering commensurate returns to investors, who likely bought in at higher entry-level valuations. Ditto for startups that spun out of corporate parents with relatively mature technologies.
That said, capital efficiency does matter as a yardstick for the startup value creation. We see plenty of companies that raised copious sums of financing go on to be worth less than invested capital. One prominent 2017 example was storage technology provider Tintri, which raised about $245 million in private funding rounds before going public in June. It’s now valued at less than $200 million.
More commonly, however, companies that do go public are worth more than what they raised privately. Even newly public companies that traded below prior private valuations, like Cloudera and Blue Apron, are still worth several times invested capital.
But in a startup environment where investors continue to chase unicorns and mega-rounds, it’s worth noting that the largest returns don’t always go to the most predictable candidates.
For this article, we limited the data set to IPO valuations and reported acquisition prices in excess of $500 million.
Startup investors in the U.S. and Canada have been putting a little less money to work across a lot fewer deals in recent months.
After three quarters of rising investment at early through growth stage, VCs have cut back in the fourth quarter of 2017. They participated in fewer deals and invested less capital compared to both the prior quarter and year-ago periods, according to Crunchbase projected data. (For a quick explanation as to why this report now includes Canada, see the end of the post.)
Overall, investors put a projected $21.9 billion into seed through technology growth-stage rounds in Q4, down from a projected $28.1 billion in Q3. Deal count fell most markedly at the earliest stages, with the projected number of closed rounds for seed-stage startups down by more than one-third from the prior quarter.
The Q4 pullback contrasts with upbeat comparables for the full year. For all of 2017, U.S. and Canadian startup investors put a projected $89.4 billion to work, up from $82 billion in all of 2016. A smattering of really big, mostly late-stage rounds, boosted by SoftBank’s unprecedented spending spree, contributed to the higher annual totals.
Below, we look at some of the key data points for the just-ended quarter and year, including early and late-stage funding, round counts, M&A and IPOs.
Adding it all up
First, we’ll look at investment totals for the quarter and full year. Broadly, Q4 showed some pullback from Q3, but projected investment totals were still up year-over-year across most stages for 2017.
Let’s start with Q4 numbers. Out of the $21.9 billion in projected total investment for the quarter, about 44 percent, or $9.7 billion, went to late-stage deals.
Another 12 percent, or $2.6 billion, went to technology-growth rounds, a newly redefined category for Crunchbase News that includes many of the big financings for established unicorns. (For stage definitions, see the bottom of the post.)
Early-stage (Series A and B) rounds, meanwhile, drew $8.7 billion in Q4, boosted by some unusually large deals. Seed and angel deals, which are always the smallest in dollar terms of any stage, brought in a projected $886 million.
In the chart below, we look at investment totals by stage for Q4 and the preceding four quarters. It should be noted from this that the notion of a Q4 pullback is relative. The third quarter of 2017 was a particularly strong one for early through growth-stage investment. So while Q4 was down quarter-over-quarter, it still ranked third for total funding out of the past five quarters.
As usual, a handful of big deals made an outsized contribution to the quarterly totals.
At the late stage, the largest round was for Magic Leap, a developer of virtual reality display technology that raised $500 million in Series D funding in October. Another big funding recipient was Compass, a technology-driven real estate platform that secured $550 million in Series C financing during the quarter.
At the early stage, Grail, a developer of diagnostics for early cancer detection, closed a $1.2 billion Series B round, the largest early-stage deal for Q4. Following Grail was a $200 million Series B for augmented reality game developer Niantic, developer of the hit game Pokémon GO.
Now let’s turn to the 2017 numbers. Total projected venture investment was up year-over-year at every stage, but rose the most at growth and late stage.
As previously noted, for all of 2017, U.S. and Canadian startup investors put a projected $89.4 billion to work, up from $82 billion in all of 2016.
From early to the technology-growth stage, investment totals were up. Only seed-stage investments saw a reduction in year-over-year projected funding totals. Technology growth in particular saw the highest annual total in four years, driven in part by SoftBank’s voracious dealmaking.
In the chart below, we look at funding totals at each stage for the past four years. It’s noteworthy that while there have been fluctuations, totals across stages have ranged within the $80 billion to $90 billion range over the past three years.
Rounds get fewer and bigger
The typical venture round has gotten bigger, but fewer startups are managing to secure funding.
That’s the broad takeaway from Crunchbase projections for round counts at seed through growth stage. Here’s a breakdown of what we saw.
Quarterly round counts
After three quarters of holding up at levels relatively flat, the number of startups securing seed and venture funding fell sharply in Q4 of 2017.
Across all stages, Crunchbase projects a total of 1,880 companies will close funding rounds in Q4, down 28 percent from Q3 and 21 percent from the year-ago quarter.
The most pronounced decline was at the seed stage. The projected Q4 seed and angel round count is just 944, down more than a third from the prior quarter and down about 25 percent from year-ago levels.
Early-stage (Series A and B) is also down. Crunchbase projects a total of 742 early-stage rounds for Q4 of 2017, down about 20 percent from the prior quarter and down about 13 percent from year-ago levels. Round counts were also down at late and technology-growth stage, as evident in the chart below.
While it’s not entirely clear what’s driving the pullback in seed and early-stage rounds, industry insiders have been documenting the drop for a while and raised a number of possibilities. Reasons include a cyclical investor backlash to inflated seed-stage valuations, increasing preference among established investors for later-stage and larger deals and a decline in funding for new mobile app and SaaS-focused startups.
Annual round counts
The late-in-the-year decline in seed-stage rounds was pronounced enough to affect year-over-year comparisons. For all of 2017, projected round counts total 9,353 across all stages, down about 13 percent from the 2016 total of 10,711.
In the chart below, we look at round counts by stage over the past four years to get a picture of how 2017 ranks. Overall, the number of late-stage and growth deals stayed relatively flat year-over-year, with investors continuing to chase big rounds for unicorns and near-unicorns. Virtually all of the decline is due to seed and early-stage trends.
As noted in the sections above, investors did put an exceptionally large amount of capital to work in 2017. But how did they do in terms of getting money back?
It’s tough to provide a precise accounting of annual or quarterly venture returns, given that purchase prices are undisclosed in many M&A transactions and share prices fluctuate massively in many IPO exits.
However, if we were to generalize for both the quarter and full year, it would probably be along these lines: Exits were pretty so-so. The IPO window was open, but public market investors were picky and fickle. Acquirers, meanwhile, kept up a decent dealmaking pace, but didn’t do a lot of really big deals.
Let’s look at some of the numbers, and significant deals.
Those waiting for big, profitable acquisitions involving venture-backed unicorns will have to keep waiting.
The fourth quarter of 2017 delivered a number of solid, high-return exits. However, like the prior two quarters, we didn’t see deals above the $1 billion mark. Instead, we saw a lot of smaller deals involving early-stage companies, a few purchases at apparent markdowns from private market valuations and some larger transactions in the mix.
One company that made a big hit on the M&A market in Q4 was Musical.ly, the developer of a popular lip-syncing app that sold to China’s Toutiao in a deal reportedly valued at between $800 million and $1 billion. Other large transactions involved Black Duck Software, a security provider that sold to Synopsis for $565 million, and Shipt, an online grocery delivery service that Target bought for $550 million.
For all of 2017, venture-backed M&A was decidedly lackluster. Cisco’s $3.7 billion acquisition of enterprise software provider AppDynamics, announced in January, ranked as the year’s only known multi-billion dollar M&A transaction involving a venture-backed company.
As for IPOs, 2017 was certainly more action packed than 2016, an unusually dull year for venture-backed public offerings. The biggest IPO event of the past year was Snap’s Nasdaq debut in March. And although the self-deleting messaging provider subsequently managed to delete a huge chunk of its market capitalization, the blockbuster offering did seem to usher in a period of greater tech IPO activity.
But 2017’s IPO cohort delivered mixed results.
Top performers for the year included streaming media device maker Roku, analytics provider Alteryx and tech-enabled real estate company Redfin.
Yet some startups that achieved IPO turned laggard. Snap made that list. So did meal kit company Blue Apron and storage technology provider Tintri, both of which ended the year with shares down more than 50 percent from their initial offer price.
For Q4 of 2017, a couple of tech offerings stood out for aftermarket performance. Shares of Stitch Fix, an online provider of clothes curated by personal stylists, were recently trading up more than 70 percent from their initial offer price. Shares of email delivery platform Sendgrid also climbed sharply following the company’s October debut.
While the seed-stage slowdown has raised concerns about the health of the startup ecosystem, the venture industry remains awash with cash. Whether investors remain flush, however, will depend to a great extent on their ability to produce exits.
Optimists have reason to expect improvement on the exit front. In particular, some industry insiders are predicting a pick-up in big M&A deals in 2018.
Additionally, the passage of tax reform, including lower corporate tax rates and greater incentives to repatriate capital, could lead to a rise in big-ticket deals involving U.S. startups.
Others, however, maintain that inflated startup valuations are keeping acquirers away. And while those valuations could certainly be corrected, it’s not the outcome startup investors would prefer.
The data contained in this report comes directly from Crunchbase, and in two varieties: projected data and reported data.
Crunchbase uses projections for global and U.S. trend analysis. Projections are based on historical patterns in late reporting, which are most pronounced at the earliest stages of venture activity. Using projected data helps prevent undercounting or reporting skewed trends that only correct over time. All projected values are noted accordingly.
Certain metrics, like mean and median reported round sizes, were generated using only reported data. Unlike with projected data, Crunchbase calculates these kinds of metrics based only on the data it currently has. Just like with projected data, reported data will be properly indicated.
Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events as reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.
Why U.S. and Canada?
For the first time, in this latest quarterly and annual report, we shifted our data collection to include both the U.S. and Canada. Previously, we reported U.S.-only quarterly numbers, in addition to our global reports. The reason for including Canada was in part to provide a differentiated data set. We noticed there are a few reports that come out covering the U.S. venture scene, and some data on Canada, but not much focused on North America more broadly. (We thought about a broader North American data set that includes Mexico, but due in part to differences in the rate and timing of self-reporting of startup funding, we deemed this might not fully capture the breadth of Mexican investment activity.)
Glossary of funding terms
Seed/angel include financings that are classified as a seed or angel, including accelerator fundings and equity crowdfunding below $5 million.
Early-stage venture include financings that are classified as a Series A or B, venture rounds without a designated series that are below $15 million and equity crowdfunding above $5 million.
Late-stage venture include financings that are classified as a Series C+ and venture rounds greater than $15 million.
Technology growth includes private equity investments in companies that had previously raised venture funding.
Blue Apron founder Matt Salzberg is stepping aside as the company’s CEO, the company announced Thursday. CFO Brad Dickerson has been promoted to take his place.
It’s been a volatile past few months for the cooking kit company, which went public in June. Shares closed Thursday at just $2.99. Blue Apron had gone public at $10 per share, after originally hoping to go public between $15 and $17.
But Amazon purchased Whole Foods just days before its debut and investors were concerned that this would eventually impact Blue Apron. There was also skepticism about Blue Apron’s customer retention.
Blue Apron’s costly new warehouse also put a dip in investor enthusiasm, as it was revealed that the company would spend less on marketing to help finance it. Marketing had been a key element of Blue Apron’s growth.
Salzberg will be staying on as Executive Chairman and Chairman of the Board of Directors.
Meal kits have been in the mainstream as of late thanks to Blue Apron going public and HelloFresh’s IPO pricing.
I’ve tried both Blue Apron and HelloFresh before, but I don’t like being locked into some subscription, so I decided to go with Chef’d this time around.
Chef’d, which raised $35.2 million in August from strategic investors like pork producer Smithfield Foods and online grocer Fresh Direct, is different in that you don’t need to subscribe to anything, ever. There is, however, an option to set up a recurring meal kit plan. Chef’d also partners with The New York Times as the exclusive meal kit for the publication’s cooking section, Coca-Cola, WeightWatchers and other brands.
For my first go with Chef’d, I ordered three meals kits with two servings each: pork and udon noodles, gnocchi and salmon. The total cost came out to $88, including shipping.
First up was the roasted glazed salmon, which Chef’d told me to expect to spend 30 minutes prepping and cooking. That estimate ended up being true, taking me about 29 minutes from the second I started pre-heating the broiler to the moment I put the salmon on my plate.
The directions were easy to follow and required very little preparation. The hardest part for me was zesting the lemon. I had to Google what that even meant, but I was good to go once I figured it out. In the process, I learned how to zest a lemon, and cooked kale and okra for the first time in my life.
The pork and udon dish was super easy, but the gnocchi preparation is what gave me a hard time. Unbeknownst to me, Chef’d warned me that the gnocchi dish would be hard — clocking the prep time at 45 minutes — but I somehow missed that label before I placed my order.
The most time-extensive part was the actual gnocchi preparation, which entailed mixing up flour, eggs and ricotta, rolling it out and then cutting them up into smaller, gnocchi-sized pieces. Had I known I would’ve been making gnocchi from scratch, I’m not sure I would’ve picked this dish. But, surprisingly, I had a lot of fun. And it only took me about 10 minutes longer than Chef’d said it would.
In the last year, I’ve been to the grocery store no more than four times and I’ve cooked for myself about the same amount. What I’m about to say is probably not news for anyone who is comfortable in the kitchen and makes meals for themselves on the regular, but cooking is a lot of fun. And it’s quite a rewarding experience.
That’s what the promise of these meal kits is about. It’s about teaching people how to cook. It’s about democratizing access to healthy ingredients by getting rid of the requirement to be close to a grocery store. It’s about minimizing the amount of thinking involved in the decision-making process around what to make. But it’s also not necessarily for those without a healthy, steady income.
Meal kit startups have received a good amount of flack for the amount of waste they leave behind. It’s important that meal kit companies ensure the food arrives at a safe temperature. But it’s at a cost to the environment.
Chef’d, Blue Apron, HelloFresh and the gang of meal kit companies all package their meal kits similarly — in a large cardboard box that’s insulated with a foam liner. The ingredients are individually packaged in plastic and stay cold thanks to several ice packs.
The box is easy enough to recycle. But the foam liner needs to be taken to a polyurethane recycling depot! I didn’t even know those existed. Chef’d says the foam liner is reusable, but in what normal context one would reuse it, I’m not sure. TL;DR about foam liner recycling is that the foam liner is currently sitting in my closet because I haven’t made it to the polyurethane recycling depot yet.
My overall experience with Chef’d was solid, but it did have a bit of a rocky start. I placed my order on a Monday for a Wednesday delivery, but the box didn’t arrive until Saturday due to some weirdness on the company’s end processing my credit card, and then some “system issue.” Because of the delay, Chef’d gave me a $30 code to use on a future order.
My rationale for placing another order via Chef’d instead of from some other meal kit company comes down to not being locked into a subscription. It also didn’t hurt that they gave me a discount code to use on my next order. It took me a full week to get around to cooking all three meals and eating the leftovers. Blue Apron and HelloFresh like to remind people that they can pause their subscriptions whenever, but I’d rather just not be locked in from the get-go.
Part of the issue was that the costs of goods sold increased 13 percent from the same time last year. The company says it is “primarily as a result of increased costs associated with the launch of new operational infrastructure to support the company’s product expansion initiatives, including its new Linden, New Jersey facility.”
In addition to increasing costs, there have been other reasons for Blue Apron’s disappointing run on the stock market. Amazon bought Whole Foods just weeks before the IPO, and investors were concerned that this could be a threat to Blue Apron. The company has also struggled with customer retention.
But going forward, CEO Matt Salzberg said in a statement that “we are now focused on optimizing our operations so that we can drive progress on our product roadmap in order to further our mission to make incredible home cooking accessible to everyone.”
Blue Apron’s JuneIPO was a recipe for disaster. Shares are down almost 58 percent since.