Big Late-Stage Deals and Unicorns Drive U.S. Venture Activity Higher

Xconomy National — 

Two years ago, VC firms shrugged off sluggish economic conditions to invest $8.1 billion in 812 U.S. deals in the second quarter. It was the highest total in more than a decade—and represented a high water mark for venture dollars invested that stood until the first quarter of this year.

Now a surge in venture funding has erased that line, according to the latest report from CB Insights, a New York firm that tracks VC activity.

After investing almost $10 billion in 880 deals nationwide during the first three months of 2014, VCs went into overdrive, investing more than $4 billion per month during the spring quarter—a much higher pace than in recent years. As a result, venture firms deployed a total of nearly $13.9 billion in 974 deals during the three months that ended June 30—the highest level since the spring of 2001, according to CB Insights.

The 39 percent jump over the previous quarter in deployed capital was fueled partly by late-stage mega deals for such household names as Airbnb, Uber, and Pinterest, according to the firm’s analysts. During the first half of 2014, CB Insights also spotted more “unicorns”—the rare, first-time financings of companies like Eventbrite, Jasper Wireless, and Stripe that each carried an overall valuation of $1 billion or more.

Q2'14 CBInsights VC ActivityThe number of late-stage deals (Series D rounds and later) rose to a five-quarter high, taking 17 percent of all of all venture deals during the second quarter, and prompting the analysts at CB Insights to wonder if the tech IPO pipeline is heating up.

However, the number of venture-backed IPOs during the quarter declined slightly to 24, from 35 in the previous quarter. Meanwhile, mergers and acquisitions of venture-backed companies increased slightly, to 186 from 174, over the same two quarters.

CB Insights says that over 50 percent of all U.S. venture-backed IPOs were in the healthcare sector during the quarter. The biggest IPO valuation for a U.S. company was San Mateo, CA-based GoPro, which was valued at roughly $3.6 billion when it went public late last month.

California continues to dominate the geographical stats, accounting for more than $8.9 billion (55 percent) of all capital invested nationwide, and 442, or 45 percent, of all deals in the quarter. Most of that venture activity was focused in Silicon Valley, though, with San Francisco and eight cities representing more than 300 deals and $6.9 billion in startup capital.

Yet, VC investments in New York also showed strong growth, reaching more than $1.1 billion for the quarter. Nearly 90 percent of that was invested in New York’s Internet and mobile sectors, and the Empire State’s share of deals (108) eclipsed Massachusetts for the tenth consecutive quarter.

VCs invested $393 million in 27 deals in Washington state during the quarter, and $139 million in 32 startups in Texas, according to CB Insights.

As usual, the Internet sector accounted for the single biggest chunk of venture capital in the quarter, with $5.6 billion (45 percent) going into 437 deals (41 percent) throughout the United States.

Venture investments in the mobile and telecom sector, driven by mega investments in such companies as Uber, Lyft, Apigee, and Kony, leaped to a record $2.59 billion—132 percent higher than the $1.1 billion high set in the third quarter of 2013.

The healthcare sector rebounded during the quarter, with over $2.7 billion going into 161 deals. Venture activity even picked up in the cleantech sector, with $777 million invested in 51 deals. That was a 67 percent increase in funding and a 28 percent rise in deals compared with the same quarter in 2013, when venture firms invested $465 million in 40 deals.