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Dip, But No Slowdown in First-Quarter VC Funding, & Top 10 Deals

Xconomy National — 

A new MoneyTree Report being released today shows that U.S. venture capital activity eased off during the first three months of 2015. Yet it still marked the fifth consecutive quarter in which U.S. venture funding remained above $10 billion.

VCs invested $13.4 billion in 1,020 deals throughout the U.S. during the first quarter of 2015, according to the MoneyTree Report. Funding was down 10 percent from the $14.9 billion that VCs invested during the previous quarter, according to MoneyTree. The deal count likewise declined by almost 8 percent from the fourth quarter of 2014, when MoneyTree counted 1,103 deals.

Yet the investment level in the recent quarter still was about 26 percent higher than the first quarter of 2014, when VCs invested more than $10.6 billion in 1,030 deals, according to MoneyTree.

While venture investing is typically lower in the first quarter than the rest of the year, “This was still a robust, big quarter,” said Tom Ciccolella, who works with venture firms in San Jose, CA, as the U.S. Venture Capital Leader for the PwC accounting firm. “You’d have to go back to 2000 to find a first quarter that was bigger.”

One explanation for the continuing surge is that investments in late-stage deals increased by 50 percent, with $4.2 billion going into 207 companies, marking the biggest quarter for dollars invested in later stage companies since the fourth quarter of 2000. Four of the biggest 10 deals in the quarter were late-stage investments. (Our list of the top 10 deals is below.)

“We saw 12 [venture] deals over $100 million, including two $1 billion investments in Q1, continuing the megadeal trend,” Ciccolella said.

Another reason is that hedge funds and other types of private equity investors have been joining later-stage, venture-backed deals. “The money that VCs have been putting into these companies has not changed appreciably since 2007,” according to John Taylor, who heads research at the NVCA. Traditional venture capital firms have been investing at a rate that ranges from $7 billion to $8 billion a quarter, Taylor said.

Investment levels above that are coming from Wall Street and other places. “What we have here is a pattern where this incremental money is all coming from outside venture capital,” Taylor said.

The investing trends charted in the MoneyTree Report generally correlate with the returns reported earlier this week by the New York venture database CB Insights, even though the numbers don’t exactly match up. The MoneyTree Report, prepared by Pricewaterhouse Coopers and the National Venture Capital Association (NVCA) with data from Thomson Reuters, uses different criteria than CB Insights in the way it counts venture deals, investment tranches, and types of deals.

Dow Jones’ VentureSource, which uses altogether different criteria in its survey of quarterly venture activity, reported Thursday that venture firms invested $15.7 billion in 875 deals during the first quarter. Dow Jones said funding levels increased slightly from the $15.6 billion that VentureSource counted in the prior quarter, although the deal count declined slightly from 890 in the previous quarter.

VentureSource said funding levels were substantially lower in the year-ago quarter, when VCs investing $12.4 billion, but the deal count was higher, at 960 deals.

According to the MoneyTree Report, first-quarter funding for software companies declined from the fourth quarter, when $6 billion went into the sector. Yet software continued to be the biggest recipient of venture funding, as VCs invested $5.6 billion in 434 companies during the first quarter, according to the MoneyTree Report.

More than $3.1 billion in venture funding went into 231 Internet-specific deals, which was roughly comparable to the $3 billion that went into 236 Internet deals in the prior quarter. (The MoneyTree Report classifies Internet-specific as companies with a business model that is fundamentally dependent on the Internet.)

First-quarter venture activity in the life sciences (biotechnology and medical devices combined) amounted to $2.2 billion and 193 deals. That was down almost 18 percent from the $2.7 billion that VCs invested in 198 deals in the previous quarter. But it was 34 percent higher than the almost $1.7 billion that VCs invested in 186 deals in the first quarter of 2014.

Investments in companies that MoneyTree classifies as “industrial/energy” ranked as the third-largest sector for venture dollars in the quarter, with $1.4 billion going into 63 deals. Five of MoneyTree’s 17 industry categories experienced increases in venture dollars invested during the first quarter, including telecommunications, healthcare services, and financial services.

According to the MoneyTree Report, the 10 biggest deals of the first quarter are:

Uber TechnologiesSoftwareExpansion$1 billion
SpaceXIndustrial/EnergyLate Stage$999.9 million
LyftSoftwareLate Stage$530 million
PinterestMedia/EntertainmentExpansion$367.1 million
Social FinanceFinancial ServicesExpansion$213 million
LyndaMedia/EntertainmentLate Stage$186 million
SimpliVityTelecommunicationsExpansion$175 million
DataminrSoftwareExpansion$129.9 million
Taboola.comIT ServicesLate Stage$117 million
21 IncIT ServicesEarly Stage$116 million