VC Funding Still Robust as Year-to-Date Total Exceeds 2013 (and Top 10 Deals)

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roughly the same pace. The MoneyTree report counted a total of 4,134 venture investments in 2013, and 2014 is on track to come in at more than 4,100. Some 3,154 deals have been done through the first three quarters of the year.

“We’re not undisciplined in the number of deals we’re doing,” says Mike Krupka, a managing director in the Boston office of Bain Capital Ventures. But in Krupka’s view, VCs have allowed deal valuations to get out hand—particularly among startups providing software-as-a-service (SaaS). “Almost all the growth [SaaS] companies with annual revenue of $10 million or more are getting high valuations,” Krupka says. “If the market is over-extended, it’s with those [types of] companies that have some revenue traction.”

Mark McCafferty, a technology partner at PricewaterhouseCoopers, attributes some of that to the continuing participation of non-traditional investors in venture deals, resulting in “mega deals”—with companies raising $100 million or more. There have been more than 30 such deals so far in 2014, compared to 16 in all of 2013, he says in the MoneyTree release.

Mike Krupka of Bain Capital Ventures

Mike Krupka (image courtesy of Bain Capital Ventures)

Krupka attributes the high valuation for SaaS startups in venture deals to the IPO valuations that SaaS-based companies like LinkedIn, Workday, Palo Alto Networks, and ServiceNow have commanded over the past three years. The gyrations of the U.S. public markets in recent weeks have pulled those valuations down, and Krupka said that should also bring more disciplined pricing to venture deals for SaaS startups, even though interest in SaaS venture deals continues to be strong. Krupka also remains bullish on venture investments in healthcare IT and software used in network infrastructure.

Another hot segment for venture activity was media and entertainment startups. Venture firms invested $1.8 billion into 118 deals during the third quarter. That was 23 percent more capital than the $1.5 billion that VCs invested into 124 startups in the previous quarter.

But the amount of capital invested by venture firms declined in 10 of the 17 market segments in the MoneyTree Report.

Overall funding in the life sciences (biotech and medical devices combined) declined by almost 35 percent, from more than $2.5 billion in the previous quarter to about $1.64 billion in the three months that ended September 30.

Life sciences funding is also down by about 11 percent from the same quarter last year when venture firms poured $1.85 billion into the sector. But venture funding for biotech startups increased slightly in the third quarter, to just over $1 billion from nearly $984 million in the year-ago quarter.

“In general, the numbers for biotech have been very consistent over the past few quarters,” says Deepa Pakianathan, a general partner at Menlo Park, CA-based Delphi Ventures who specializes in biotech deals. With a robust market for healthcare IPOs and life sciences firms like Canaan Partners successfully raising new funds, Pakianathan says, “The entire ecosystem in biotech is in very good shape.”

The MoneyTree Report also notes that seed stage funding was down slightly from the previous quarter, with $197 million invested in 48 deals. Early stage funding was down 22 percent in dollars and 3 percent in deals, with $3 billion going into 511 deals. Together seed and early stage deals accounted for 55 percent of the total deal volume during the third quarter, compared to 52 percent in the prior quarter.

Investments in later stage companies increased 3 percent, with $3.3 billion going into 200 deals. That was the biggest funding total for later stage deals since the third quarter of 2007.

The Top 10 list of deals, according to MoneyTree, are:

Vice MediaMedia & EntertainmentBrooklyn, NY$500M
Palantir TechnologiesSoftwarePalo Alto, CA$165.1M
HouzzMedia & EntertainmentPalo Alto, CA$165M
BoxSoftwareLos Altos, CA$158.2M
LookoutSoftwareSan Francisco$150M
QualtricsSoftwareProvo, UT$150M
NutanixSoftwareSan Jose, CA$145M
PluralsightMedia & EntertainmentFarmington, UT$135M
KabamSoftwareSan Francisco$120M
DataStaxSoftwareSanta Clara, CA$120M

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