First-Quarter VC Activity Buoyant at $12.1 Billion, & Top 10 Deals

Venture capital firms invested $12.1 billion in 969 startup deals nationwide during the first three months of 2016, marking the ninth consecutive quarter when VCs invested at least $10 billion in new companies, according to the MoneyTree Report.

The top 10 deals accounted for 25 percent of all capital deployed during the quarter, and was led by a late-stage, $1 billion investment in Lyft, the San Francisco-based ride-sharing company. (More on the top 10 deals below.)

The MoneyTree Report is prepared by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters.

While overall venture activity remained bouyant, this year’s first-quarter numbers were roughly flat in comparison to the last quarter of 2015, when VC funding amounted to almost $12 billion in 1,021 deals, according to MoneyTree data.

In comparison with the first quarter of 2015, though, venture activity showed signs of a slow leak—declining by roughly 11 percent in both dollars and deals. In the year-earlier period, VC firms invested nearly $13.7 billion in 1,085 startups, according to MoneyTree data. Bobby Franklin, president of the NVCA, attributed the decline in year-over-year activity to a pullback by hedge funds, mutual funds, and other nontraditional investors.

“I sometimes refer to them as drive-by investments,” seconded Neeraj Agrawal, a general partner in Battery Ventures’ Boston office. Hedge funds, sovereign wealth funds, and other nontraditional investors “tend to be the last to show up, and the first to leave.”

Agrawal, who joined Battery Ventures in 2000, said the VC boom over the previous two years struck him as “somewhat anomalous,” with total U.S. venture funding rising to almost $60 billion in 2015 and close to $51 billion in 2014. In the previous decade (2003-13), annual venture funding ranged more or less between $20 billion and $30 billion.

“I believe we’re in a sort of multi-quarter journey back to the historical norm,” Agrawal said. “I really think the next quarter will be the first data point in the new norm.”

Tom Ciccolella of PricewaterhouseCoopers also noted that an increase in first-quarter expansion and later-stage financings, combined with a drop in first-time funding deals, suggested that VCs were shifting toward relatively mature startups.

Seed-stage and early stage investments accounted for 48 percent of total deal volume during the first quarter, compared with 57 percent in the prior quarter.

Expansion-stage investments increased by 25 percent over the previous quarter, to $4.1 billion, and the 288 deals marked a 9 percent increase over the prior quarter.

Investments in later-stage companies amounted to $3.5 billion (up 10 percent over the previous quarter) in 213 deals during the first quarter. Later-stage deals accounted for 22 percent of total deal volume.

In other highlights, the first-quarter MoneyTree Report shows:

—Software-related deals continue to get the biggest chunk of venture funding, with $5.1 billion going into 376 deals.  While that was a 12 percent increase from the $4.5 billion invested in the previous quarter (and a 5 percent decrease from the 395 deals), it was down from the first quarter of 2015, when VCs invested $5.6 billion invested in 456 software deals.

In a discrete classification of “Internet-specific” deals, VC firms invested $2.4 billion into 232 companies that are fundamentally dependent on the Internet.. That was down from the $3.1 billion (-24 percent) that went into 242 deals (-4 percent) in the fourth quarter of 2015.

Agrawal, who invests mostly in software-as-a-service and Internet companies for Battery Ventures, said software remains “a very strong macro driver” by enabling companies to realize cost savings through automation. “Migration to the cloud is still early, it only represents about 15 percent of the industry,” Agrawal said. “That means a whole lot of software is still being done the old-fashioned way.”

—Venture investments in life sciences startups (including both biotechnology and medical devices) amounted to $2.3 billion invested in 177 deals, and accounted for 19 percent of all venture capital deployed during the first quarter. VCs invested $1.8 billion into 118 biotech deals during the first quarter, marking an 11 percent increase from the $1.6 billion invested in the prior quarter. The deal count was 19 percent higher than the 99 deals done in the previous quarter.

—Media and Entertainment startups ranked third in terms of deployed capital, with $930 million invested in 109 deals.

First-Quarter Top 10 Deals, based on MoneyTree Report

LyftSan FranciscoSoftware$1 billion
Magic LeapDania, FLComputers & Peripherals$793.5 million
Sunnova EnergyHoustonIndustrial Energy$300 million
UberSan FranciscoSoftware$201.1 million
Flatiron HealthNew YorkSoftware$175 million
DomoAmerican Fork, UTSoftware$131 million
DoorDashSan FranciscoMedia & Entertainment$127 million
FuzeCambridge, MASoftware$111 million
BettermentNew YorkFinancial Services$100 million
Snagajob.comGlen Allen, VAMedia & Entertainment$100 million

 

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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