VC investing in SF, late-stage hits record in Q2 2014

Big rounds in SF-startups Uber, Airbnb, Pinterest, Automattic push venture investing to 14-yr highs

I'm not saying the venture industry is in a bubble, even though there is more giddiness than fear, which reflects more bubble-era sentiment than not. Apparently, some analysts believe we're in the third biggest stock-market bubble in US history, which means the private sector may be too.

Indeed, we're charting territory unseen since the Dot-Com era. In the second quarter 2014, $13.8 billion was invested in 917 venture deals, up 21% from last quarter, and the highest level in nearly 14 years, or since Q4 2000, according to Dow Jones VentureSource. 

It might sound alarming, but we're far from that level, when $19.7 billion dollars went into 1305 deals in the final quarter of 2000. We're also certainly not close to the entire 2000, when $94 billion poured into 6363 deals.  

Later-stage rounds hit highest level ever

A couple things are happening here. Firstly, it's clear that more and more companies choose not to go public, as more ambient private-investment dollars are readily available.  

The reason the quarterly figure is so high is that the majority of the investments went into later-stage companies, whereas typical quarters would see the number of investments in First Rounds (also called Series A rounds) being higher. There were 340 deals done in the late-stage, the highest number ever recorded since Dow Jones VentureSource started tracking stages in 1992. In other words, it's a record.

The recipient of those rounds were Airbnb, which raised $450 million, Uber raised $1.2 billion, Pinterest raised $200 million, Automatic raised $160 million and PURE Storage raised $225 million.

Notably, the investors in these rounds are basically mutual funds, like T.Rowe Price, which got into both Airbnb and PURE Storage, and BlackRock Private Equity, Fidelity Investments, and Tiger Global Management. These are hardly venture rounds, but IPO rounds with the benefits of staying private, as David Saks suggested in the past when he raised raised $85 million for Yammer in 2012.  

San Francisco see record VC investments

Secondly, venture investing continues to move to urban-dense areas, such as San Francisco and away from the suburbs of Silicon Valley. 

Four out of the top five recipients of those late-stage dollars, except PURE, which is based in Mountain View, Calif., are north of Silicon Valley, which is why, as many have noticed, San Francisco has become the hotbed for startups, not Silicon Valley. 

In fact, for the quarter (thanks to those late-stage investments), San Francisco saw $4.2 billion invested, nearly the same as the $4.5 billion invested in all of 2013, a record year for San Francisco. In fact, besides the $4.5 billion in 2013, and $4.3 billion in 2011, the second quarter of 2014 surpassed all annual investments in San Francisco.

San Francisco now accounts for 30% of all US investments and 56% of all Bay Area investments in the last three months, when $7.4 billion was invested in the entire Bay Area. As we've pointed out before, the money is moving furiously north. San Francisco was basically 5% of the Bay Area just 10 years ago. And today it's where the action is.

So does this mean we're in a bubble? Who knows. As someone who's lived through one before, it never is easy to call or tell until after the fact. But one thing is certain, when public investors look for risk, as they are today, it does suggest there may be more greed than fear. And that's never a good sign. 

Even so, and even if the market may be overvalued, the more salient question is: when is the crash? And, how long will San Francisco reign supreme? 

(Image source: Physicsworld)