State of the

Markets
Inside Views on the Health
and Productivity of the
Global Innovation Economy
State of the Markets: Fourth Quarter 2019

Wheels of Venture Keep Turning Despite Uncertainty

As we enter the final stretch of 2019, the global economic outlook is cloudy.
Multiple uncertainties, including the intensifying trade war and conflicting
economic indicators, have put investors and policymakers on edge. Trying to get
ahead of a broader slowdown, central banks are cutting interest rates.

Private markets remain buoyant. After a banner fundraising year in 2018, VC

dry powder is close to historic highs and PE fundraising is now having its own
record year. A diverse cast of investors, from VCs to large asset managers, is
participating in massive late-stage rounds, contributing to net new Unicorn
creation.

The United States has dominated exits this year, with total US Unicorn exit value
this year now standing at around $215 billion. Unicorns that have gone public
have generally performed well, with a couple of high-profile exceptions. This year,
Bob Blee public markets appear to reward unit economics more than growth-at-all-costs.
In addition, disruptive new routes to liquidity have entered the conversation, such
Head of Corporate Finance
Silicon Valley Bank as direct listings and secondary programs.

Despite jitters created by the WeWork saga, fear of a global economic slowdown,
and rising political uncertainty, the venture ecosystem remains robust — with
ample private capital stockpiled for years to come.

svb.com/state-of-the-markets-report 2
State of the Markets: Fourth Quarter 2019

4 11 21 28
Macro Private Public Liquidity
Markets Markets Options
A Window of Onward and An Update Alternative
Uncertainty Upward on IPOs Routes

svb.com/state-of-the-markets-report 3
Macro
A Window of
Uncertainty

svb.com/state-of-the-markets-report 4
Consumers Labor Markets and
Consumer Confidence
Production and
Business Confidence
Still Happy;
Producers Wage Growth Consumer Confidence Production* Business Confidence

Start to Hurt Average since 2010

110 *(Real Production)
102

101
65
105
60 100
Wage growth indicates 100
55
95 99
the labor market remains 50

2.9%
90
strong, and consumer 85
45 98

Jul

Jul
Apr

Apr
Jan

Oct
Jan

Jul

Jul
Apr

Apr
Jan

Oct
Jan
confidence is holding

Nov
Jun

Sep
Apr

Jul
Feb
Jan
Q3 Q1 Q3 Q1 Q3
2018 2019
steady. In contrast, 2017 2018 2019 2017 2018 2019 2018 2019

manufacturing activity and

business confidence are on 54 102
Average since 2010 101 *(PMI)
the decline, a product of the 52 101
50
continuing trade war and
2.7%
100 100
48
late-cycle anxiety. 99 46 99
44 98
98

Nov

Jul
Feb
Apr
May
Jan

Aug
Oct

Jul

Jul
Apr

Apr
Jan

Oct
Jan
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Nov
Jun

Sep
Apr

Jul
Feb
Jan

2017 2018 2019 2017 2018 2019 2018 2019 2018 2019

Notes: Wage growth figures include seasonal adjustment. Index readings below red line indicate a contraction.
Europe PMI index is for European Union; other Europe indicators are for the Euro Zone.
Source: Bureau of Labor Statistics, OECD, Eurostat, Markit Economics, ISM, University of Michigan and SVB analysis. svb.com/state-of-the-markets-report 5
A Declining Benchmark Rates for Major
Economies: 2009–2019
Yield Curve Inversion
as an Indicator
Rate
Environment 7%

6%
For the first time since 10Y - 2Y Months Before
Inversion Month Recession
2008, the US Federal 5%
Reserve cut rates amid Aug 1978 16
recession concerns, slowing 4% Sep 1980 10
economic indicators and
Dec 1988 19
political uncertainty. Other 3%
major economies have Feb 2000 13
followed suit, with the 2%
Dec 2005 23
Eurozone entering negative
Aug 2019 ?
territory and China 1%

effectively making cuts Median 16

0%
through re-benchmarking.
-1%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
China1 US2

UK3 EU4

Notes: 1) One-Year Prime Lending Rate, 2) Fed Funds Rate, 3) Bank of England Official Bank Rate, 4) ECB Deposit Rate.
Source: S&P Capital IQ, Bloomberg, Federal Reserve Bank of New York, PBOC, Bank of England and SVB analysis. svb.com/state-of-the-markets-report 6
Tech Tapping Convertible Debt
Issuance
Tech Convertible Debt
Issuance by Sub-Sector
Convertible
Debt Total Convertible Debt Issuance

Tech Convertible Debt Issuance $62B

Software Internet Media

Semiconductor Measurement Instruments

Tech % of Convertible Debt Issuance
With a drop in benchmark E-Commerce Other
rates, stable credit spreads 51% Internet-Based Computer Hardware &
50%
and strong performance of Services Storage

the convertible asset class,

$50B

$49B
$48B
convertible debt issuance

$46B
has been robust year-to- 1%

$40B
date. Tech has continued to 34% 35% 10%
take a larger share of total 29% 6%
issuance and is on pace to
37%

$37B
surpass 2018’s record year.
$27B
10%
$22B

18% 10%
15%

11% 11% 16%

$24B
$16B

$14B

$25B
$13B
$6B
$3B

$5B

2012 2013 2014 2015 2016 2017 2018 2019

Source: SVB Leerink and SVB analysis. svb.com/state-of-the-markets-report 7

More Corporate Debt and Profit, 2001–2018

Corporate Value of Outstanding US Corporate Debt Securities

Debt in the US Corporate Profits

System $7T
Profits as a Percentage of Debt Securities

53%
Fomented by a low interest
$6T
rate environment and
economic expansion, 45%

corporate debt levels have $5T

risen to new heights after

remaining relatively steady $4T
throughout the last cycle.
26%
Since 2011, debt to 33%
$3T
profitability has reached 28%

a post-GFC1 high.
$2T

$1T

$0T
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Notes: 1) GFC = Global Financial Crisis.

Source: Bank for International Settlements, Bureau of Economic Analysis and SVB analysis. svb.com/state-of-the-markets-report 8
Trade With Effect of US Tariff Rounds
on High-Tech Sector1
Advanced Tech
Imports2 YTD3
China Matters
to Tech Est. Additional Tariff
Burden (in Effect)
10.1% $84B
Additional Tariff Burden as
The trade war with China a Percentage of US High- $35B
continues to linger as Tech Imports from China

Trump and Xi struggle to $16B

find common ground. Since
$15B
our last update, Trump has
levied new tariffs and $14B
threatened more increases. 6.0%
Despite this, the US remains $13B
heavily reliant on China —
$11B
and broader Asia — for
advanced tech imports. $11B

0.8% $10B
0.5%
$15B
$9B

$7B
Round 1 Round 2 Round 3 Round 4
July 2018 Aug. 2018 Sep. 2018 Sep. 2019

Notes: 1) Product codes associated with the High-Tech Sector are defined by the US Census. 2)
Advanced Tech Products as defined by the US Census. 3) Year-to-date data through August 2019.
Source: US Treasury, US Census and SVB analysis. svb.com/state-of-the-markets-report 9
Trade War
Begets Tech
Yuan strengthens vs. dollar by Yuan begins to weaken Yuan crosses the 7
~6.5% through 2017 as tariffs ramp up mark; US declares
China a “Currency

War Begets Manipulator”

FX War ¥7.2 7x

¥7.0 6x
The trade war has grown in
size, intensity, and scope. ¥6.8 5x
Tech has joined agriculture
and manufacturing in the ¥6.6 4x
Tariff rounds 1 & Tariff round 3 takes
crosshairs of tariffs and 2 take effect effect, with a
other sanctions. The yuan’s ¥6.4 greater emphasis 3x
on Tech
recent weakening has
US trade rhetoric China exports
brought currency to the ¥6.2
ramp-up and jump on yuan
2x
Huawei ban
fore, which may cushion the beginning of USTR depreciation and surfaces and
effects of the tariff increases. ¥6.0 investigation additional tariffs Chinese exports fall
1x

¥5.8 0x
May

November

May

November

May
October

October
February
March

August

February
March

August

February
March

August
January

April

June

September

January

April

June

September

January

April

June

September
December

December
July

July

July
2017 2018 2019

China Exports to Imports Ratio with US Yuan per Dollar

Source: US Census, United States Federal Reserve and SVB analysis. svb.com/state-of-the-markets-report 10
Please reach out
to your SVB
Relationship
Manager for the
complete report

svb.com/state-of-the-markets-report 11
About the Authors
Bob Blee
Head of Corporate
Finance
bblee@svb.com
Bob Blee heads Silicon Valley Bank’s
Corporate Finance Group, which leads SVB’s
relationships with public and late-stage
private companies in the Innovation sector
throughout North America, providing a full
suite of lending and banking products, and
guidance as a trusted partner, helping our
clients succeed and quickly scale.
Previously, Bob held a variety of roles in SVB’s
California and Midwest regions, including
heading seed, early and mid-stage
Infrastructure, Hardware and Consumer
Internet and Fintech banking in the Bay Area
and Southern California, and was responsible
for SVB’s Mezzanine Lending and Loan
Syndications practices.
Bob sits on the nonprofit board of the Network
for Teaching Entrepreneurship (NFTE) and the
Silicon Valley Advisory Council of the
Commonwealth Club. He is also active with his
alma mater, the University of Illinois.
Nick Candy, CFA
Vice President,
Research
ncandy@svb.com
Nick Candy, a Vice President of Research based
in San Francisco, is responsible for the capital
market research and data-driven analysis of the
innovation economies that SVB serves globally.
In this role, he has led global research efforts
exploring investment, fundraising and exit
dynamics in the venture ecosystem.
Prior to his research role, Nick managed
strategic advisory and valuation engagements
for venture-backed technology companies as
part of SVB Analytics.
Nick earned a master of business administration
from Chapman University and a bachelor of
science in design from Bournemouth University.
In addition, he holds the Chartered Financial
Analyst (CFA) designation.
Andrew Pardo
Sr. Associate,
Research
apardo@svb.com
Andrew Pardo is a Senior Research
Associate based in San Francisco who is
responsible for the capital market research
and data-driven analysis of the innovation
economies that SVB serves globally. In this
role, he supports research efforts exploring
investment, fundraising and exit dynamics
in the global venture ecosystem.
Prior to this role, Andrew was a buy-side
equity research analyst for a $100B+ asset
manager based in the Bay Area. His area
of coverage spanned the domestic and
international Financials sector. Andrew
earned a bachelor of science in accounting
from Loyola Marymount University.
svb.com/state-of-the-markets-report 12
Disclaimers
This material including, without limitation, to the statistical
information herein, is provided for informational purposes only. The
material is based in part on information from third-party sources that
we believe to be reliable but which have not been independently
verified by us, and for this reason, we do not represent that the
information is accurate or complete. The information should not be
viewed as tax, investment, legal or other advice, nor is it to be relied
on in making an investment or other decision. You should obtain
relevant and specific professional advice before making any
investment decision. Nothing relating to the material should be
construed as a solicitation, offer or recommendation to acquire or
dispose of any investment or to engage in any other transaction.
All non-SVB named companies listed throughout this document, as
represented with the various thoughts, analysis and insights shared
in this document, are independent third parties and are not affiliated
with SVB Financial Group.
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FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN
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California bank subsidiary of SVB Financial Group (Nasdaq: SIVB).
svb.com/state-of-the-markets-report 13
About Silicon Valley Bank
For more than 35 years, Silicon Valley Bank has
helped innovative companies and their investors
move bold ideas forward, fast. SVB provides
targeted financial services and expertise through
its offices in innovation centers around the world.
With commercial, international and private
banking services, SVB helps address the unique
needs of innovators.

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See complete disclaimers on previous page.

© 2019 SVB Financial Group. All rights reserved. SVB, SVB
FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT
HAPPEN NOW and the chevron device are trademarks of SVB
Financial Group, used under license. Silicon Valley Bank is a
member of the FDIC and the Federal Reserve System. Silicon
Valley Bank is the California bank subsidiary of SVB Financial
Group (Nasdaq: SIVB).

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