VC Funding Surges in Fewer Deals in Third Quarter, and Top 10 Deals

[Updated 10/11/17, 12:25 am. See below.] “More dollars, fewer deals” has been a prevailing trend in venture funding over the past couple of years, and it was evident again in the three months that ended September 30, according to the latest Venture Monitor report.

Venture firms invested $21.5 billion in 1,699 startups nationwide during the quarter, maintaining a pace that could reach a decade high by the end of 2017 in terms of overall funding. The quarterly Venture Monitor report is set for release today by Seattle-based PitchBook and the National Venture Capital Association (NVCA).

While there was a 6 percent downtick from funding in the previous quarter, when VCs deployed $22.9 billion, the total invested was 29 percent higher than the $15.3 billion in the third quarter of 2016. But there was a substantial decline in the number of companies funded. It was down 21 percent from the 2,154 companies funded in the prior quarter, and down 17 percent from the 2,056 startups funded in the same quarter last year.

PitchBook NVCA Q3 Venture Activity (Venture Monitor chart used with permission)

Quarter-by-Quarter Venture Activity (Venture Monitor chart used with permission)

Venture firms have invested a cumulative total of $61.4 billion so far this year; the 5,921 companies to get funding represents an 11 percent year-over-year decline from the 6,677 companies funded over the same period last year. (The deal count, which includes multiple rounds for some companies, also was off by about 11 percent.)

A handful of supersized rounds help to account for the widening gap between dollars and deals.

PitchBook NVCA Q3 Venture Activity Data (chart used with permission)

Year to Date Venture Activity (Venture Monitor chart used with permission)

The co-working space goliath WeWork raised a total of $4.4 billion last quarter, with $3 billion of that invested in its U.S. operations. According to Venture Monitor data, Airbnb raised $1 billion in the second quarter, and five other U.S. companies have raised rounds of at least $500 million in 2017. As the report notes, “Deals that carry a valuation of $1 billion or more represent less than 1 percent of 2017 deal count, but account for nearly 22 percent of the aggregate deal value year-to-date.

According to the Venture Monitor, though, a more fundamental shift is underway. In the latest quarter, angel and seed funding accounted for less than half of all completed deals, and they are occurring later in the venture lifecycle. The median age
of companies raising an angel or seed round has moved to 2.4 years, almost a full year older than just five years ago. Subsequent venture rounds are likewise being delayed, with larger deals being made as companies remain private longer.

[Updates with third-quarter MoneyTree data] Another venture capital survey showed a similar trend in results released early Wednesday.

The MoneyTree Report found that investors deployed slightly more than $19 billion in 1,207 deals nationwide during the third quarter—nearly the same as the $18.9 billion sunk in 1,208 deals in the prior quarter. The MoneyTree Report, released by PricewaterhouseCoopers and CB Insights, uses different methodologies for counting and categorizing venture deals. But the MoneyTree Report showed a similar trend in venture activity that was driven by 26 “mega-rounds” of $100 million or more.

In other highlights, the MoneyTree Report found:

—Five new venture-backed U.S. companies reached unicorn valuations of $1 billion or more in the third quarter. That was down from 10 in the previous quarter.

—Corporate investments and venture activity fell during the third quarter to 23 percent of all investments in venture-backed companies.

—Venture funding for U.S. Artificial Intelligence deals exceeded $1 billion for the third quarter in a row.

Meanwhile, the Venture Monitor has counted just 530 exits by venture-backed companies so far this year, with a cumulative value of $36.4 billion. At this rate, the number of venture-backed exits for the year will total perhaps 707—compared to 839 in 2016—and would be the lowest number of exits in years. There were just eight venture-backed IPOs in the third quarter, including Redfin, Kala Pharmaceuticals, and Sienna Biopharmaceuticals.

At the same time, the report notes that private equity firms are increasingly stepping in to make buyout offers—with the total valuation of all PE deals amounting to $5.2 billion so far in 2017.

While the software sector accounts for most of the dollars and deals VCs have invested so far this year, venture funding in 804 U.S. life sciences deals through September 30 has surged to $12.1 billion—or close to 20 percent of all capital deployed.

The Venture Monitor noted that early-stage investors have been especially active in funding artificial intelligence (AI) startups this year, with 201 early-stage deals accounting for $2.1 billion in deal value. That accounts for more than half of the total capital invested year-to-date in AI across all stages. Many VCs have focused their AI investments in healthcare, including the two biggest AI deals so far this year: WuXi NextCODE (based in Shanghai and Cambridge, MA), which specializes in genomic sequence analytics, raised $240 million; and the personalized medicine diagnostic company Human Longevity (based in San Diego) took in $200 million, according to Venture Monitor.

Here are the third quarter’s top-10 venture deals, according to Venture Monitor:

WeWork$3 billionNew YorkCo-Working / Real Estate
Intarcia Therapeutics $615 millionBostonLife Sciences
SpaceX$351 millionHawthorne, CAAerospace
Auris Surgical Robotics $280.2 millionSan Carlos, CAHealthcare Devices
23andMe $250 millionMountain View, CAGenomics / IT
Slack$250 millionSan FranciscoSoftware
Via (Carpooling) $250 millionNew YorkSoftware
WuXi NextCODE $240 millionCambridge, MAGenomics / IT
Vets First Choice $223.6 millionPortland, MEHealthcare
Plenty $200 millionSouth San FranciscoAgriculture
Reddit$200 millionSan FranciscoMedia / Social Media


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

Trending on Xconomy