New York: Venture capitalists have more cash on hand to invest than ever before, but private technology firms are seeing a shrinking share of the pie. “Tech privates continue to lead the total VC investment landscape, but other primary verticals such as healthcare, consumer, financials, industrials and energy continue to occupy roughly 40% of VC investment," Goldman Sachs Group Inc. analysts led by Heath Terry, wrote in a note to clients.
As Goldman points out, cash on the sidelines is sitting at an all-time high, so tech start-ups won’t likely see large declines in dollar terms. But it does mean some of the other areas Goldman will be focusing on in a new series of reports on venture capital (VC), such as healthcare and financials, could stand to benefit.
“With $64 billion in global capital raised by VC funds last year and $121 billion in dry powder in venture funds, we expect forward activity levels to accelerate even further," the Goldman Sachs analysts wrote, adding that just last year these funds raised $64 billion, up from $55 billion the year before. This comes despite exits, or ways for these firms to cash out on their investments, falling 24% from the peak in 2014.
Also shrinking is the US share of worldwide VC investing.
At the end of 2016, Asia accounted for a 38% share of the global VC investing landscape, compared with 11% in 2013. Part of that is due to the larger average deal size favoured in the Asia-Pacific region. Start-ups such as Didi Chuxing and Xiaomi Corp. raised more than $1 billion in individual rounds.
“While North American-based VC investments continue to hold the majority stake of total global VC funding, the Asia-Pacific region has gained significant share on an annual basis since 2012,’’ they said.
Goldman Sachs itself has an investing arm that has bought or invested in start-ups such as Spotify Ltd., Pinterest Inc., thredUP Inc. and retirement firm Honest Dollar. Bloomberg