Deals, Dollars to United States VC-Backed Companies Rise, the First Quarterly Uptick in a Year, According to the MoneyTree Report
Carey Bodenheimer, PwC US, (213) 392 - 9684, email@example.com
Dollar funding rises 15% and deal activity ticks up 2% from Q4 2016, with investment still lower than the peak levels seen in mid-2015.
NEW YORK, April 12, 2017 – After ending 2016 on a weak note, investment in VC-backed companies based in the United States climbed in the first quarter, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and CB Insights.
In Q1 2017, investors deployed $13.9 billion to US VC-backed startup companies across 1,104 deals, up 15% in dollars and 2% in deals from Q4 2016. These figures represent a slight recovery from Q4 2016, where startup investment figures bottomed out as part of an ongoing retreat from the peaks of 2015. A boost in mega-round activity contributed to the jump in quarterly dollars, although the total of $13.9 billion remains the second-lowest quarterly total across the past two years.
“We are starting to see a rise in VC investments after the lowest level of investing in the last two years, with later series deals supporting broad anticipation of increased exit activity,” said Tom Ciccolella, US Venture Capital Leader at PwC. “US megadeals rose to 17 during Q1, up from only 12 the previous quarter. While some of the larger financings included familiar late stage names, an unusual feature was that several hardware-focused startups received financings of more than $100M, including in areas such as the internet of things and autotech.”
"While some of the larger financings included familiar late stage names, an unusual feature was that several hardware-focused startups received financings of more than $100M, including in areas such as the internet of things and autotech."
Regional trends were mixed, with LA/Orange County being one of the few major hubs seeing an uptick in both deals and dollars from Q4 2016. Silicon Valley (South Bay Area) deal activity was essentially flat from the previous quarter, while San Francisco (North Bay Area) deals fell to an eight-quarter low.
Globally, funding trends directionally tracked US investment with total dollars rising 21% from Q4 2016 lows to $27.1 billion, while deals crept up 2% to 2,228. Like the US, Asia’s funding total was lifted by a spike in mega-rounds of $100 million or more, while Europe saw deal activity rising for the fifth consecutive quarter.
“We are seeing the US funding environment slip into its new normal. 2015 was irrationally exuberant and the 2016 pullback was a reaction to that," stated Anand Sanwal, co-founder and CEO of CB Insights. "However, 2016 was more of a soft landing than a wholesale popping of the venture bubble which pundits have been predicting since 2009. There continue to be new sources of capital and strong corporate interest, and that is evident in the Q1 numbers. A number of large acquisitions and some early IPO activity also portends good things for VC-backed companies.”
Key Q1 2017 highlights:
US mega-round activity (rounds over $100 million in size) rebounded from a five-quarter low in Q4 2016, with 17 total, compared to last quarter’s 12.
Three new VC-backed unicorns, or private companies valued at $1 billion or more, were minted in the US during Q1 2017. The quarterly unicorn creation rate has not exceeded five since Q4 2015, and remains a fraction of the 16 birthed in Q3 2015.
A few outsize financings propelled Silicon Valley (South Bay Area) funding to over $2.7 billion, the second-highest quarterly total of the past two years. However, the 113 deals in the region were essentially flat from the eight-quarter low of 109 in Q4 2016.
Meanwhile, in San Francisco (North Bay Area), quarterly deals hit a two-year low of 212, although established unicorns saw several rounds of $400 million or more, boosting funding 21% from Q4 2016.
New England deals sank to an eight-quarter low of 109, although several larger financings lifted funding 37% from Q4 2016 to $1.9 billion. By contrast, New York Metro saw deal count rising 9% from the prior quarter to 154, although quarterly funding fell 20% to an eight-quarter low in the absence of mega-round activity.
Seed activity as a proportion of all US deals continued its two-year decline, reaching a low of 25% of all US deals in Q1 2017, down from 35% in Q3 2015. Meanwhile, later-stage deal share climbed to a high of 11%.
In sector terms, Internet quarterly deal share dropped to a two-year low of 44% in the quarter, while Healthcare jumped to a two-year high of 17% as it displaced Mobile & Telecom as the second-place sector in terms of deal activity.
Artificial Intelligence financing continued rising to an eight-quarter high, with $820 million deployed across 90 deals. Quarterly funding to US AI companies has now topped $500 million in seven of the past eight quarters. Digital Health deal activity slid 23%, while Cybersecurity deals and dollars rose in Q1 2017 after crashing at the end of 2016.
In Q1 2017, international sources of capital represented a quarter of active investors in later-stage deals to US companies.
MoneyTree Report results are available online at www.pwcmoneytree.com.
CB Insights research can be found online here.
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