U.S. Venture Activity Remains Steady as IPOs Rise in Second Quarter

Xconomy National — 

Venture-backed IPOs staged something of a comeback during the second quarter, as 22 VC-backed startups went public with an aggregated valuation of about $9.6 billion. Healthcare companies made up about half of those IPOs, according to the venture-data tracking firm, CB Insights.

Still, it was a relatively modest period for VC activity. CB Insights says U.S. venture investments totaled $7 billion in 807 deals during the second quarter that ended June 30th.

VC activity was marginally better than the first three months of 2013, when venture firms invested $6.9 billion in 841 deals. The deal count has remained fairly consistent, though, with an average of 825 deals a quarter over the past five quarters, according to CB Insights data. The $7 billion invested during the three months  was down 14 percent from the second quarter of 2012, when VCs invested $8.1 billion in 812 deals.

Mergers and acquisition deals also were in line with the five-quarter trend, and CB Insights counted 105 M&A deals during the second quarter. There was a clear upswing in venture-backed IPOs, though, with Seattle’s Tableau Software (NYSE: DATA) ringing the bell as the biggest tech IPO.

Life sciences, biotech, and medical device companies (the category CB Insights calls healthcare) also showed signs of recovery, with notable IPOs including San Diego’s Receptos (NASDAQ: RCPT) and Ambit Biosciences (NASDAQ: AMBI); Cambridge, MA-based Epizyme (NASDAQ: EPZM); and two companies from Watertown, MA—Enanta Pharmaceuticals (NASDAQ:ENTA) and Tetraphase Pharmaceuticals (NASDAQ: TTPH).

Venture investments in the life sciences sector also rebounded, as VCs sank more than $1.8 billion in 151 deals nationwide, according to CB Insights. That was a 24 percent gain over the $1.47 billion invested during the previous quarter (in 141 healthcare startups) and a 15 percent increase over the $1.53 billion invested during the second quarter of 2012 (in 142 startups).

The firm ranked San Diego as the top city for VC investments in the life sciences, with six healthcare companies getting a total of $126 million. No details were available, however. (While CB Insights provides a quick snapshot of venture activity each quarter, the MoneyTree Report is expected to provide more details when it is issued later this week.)

Research from CB Insights shows that the $1.8 billion invested in healthcare startups represented about 26 percent of the total capital deployed during the quarter. As usual, Internet startups accounted for the biggest amount—nearly $2.8 billion, or 40 percent—while VC funding for mobile and telecom startups amounted to $822 million, or 12 percent of the total. Social startups made up only 2 percent of VC funding in the Internet sector during the second quarter. Both funding and deals increased, however, for business intelligence and mobile app developers.

In its report, CB Insights says VC activity in cleantech and green startups has been “anemic and declining steadily” in both funding and deals since the second quarter of 2012, when $1.47 billion went into 49 companies. But the just-ended quarter picked up a little, with funding climbing sequentially by 14 percent—to $465 million from $408 million in the first quarter.

CB Insights says VC activity in the early-stage cleantech sector is dead, but the firm saw an overall increase in both funding and deals for Series A stage funding. “While it won’t end the [the Series A] crunch,” the report says, “the increase may relieve some of the pressure on seed VC-backed companies looking for funding, especially if the trend continues climbing.”

Startups in California—especially in Northern California—accounted for most of the venture dollars ($3.6 billion) and deals (377). In San Diego, CB Insights found $194 million invested in just 13 deals, but Los Angeles accounted for only $97 million invested in 14 deals.

The firm listed venture investments in three Norther California firms, Twilio ($70 million), Lyft ($60 million), and Roku ($60 million), as the biggest deals of the quarter nationwide, although no details were included.

CB Insights ranked Massachusetts as the second biggest state in venture dollars—a distant second—with $859 million invested in 70 companies throughout the Bay State, including Blu Homes, Merion, and Affirmed Networks.

In New York, VCs plunked down $619 million in 91 startups during the quarter, including Fab.com, Relationship Science, and Dataminr. In Texas, VCs invested $242 million in 29 startups, including Oxave Materials, Skyonic, and Convey Computer. Washington state followed, with CB Insights counting $208 million invested in 27 startups, including Apptio, Cardeas Pharma, and Socrata.