VC funding falls 30%, tech IPOs cut in half in Q3

Steven Loeb · October 15, 2014 · Short URL:

Does this mean we aren't actually in a bubble?

The common wisdom right now is that tech stocks are currently in a bubble, and it is ready to burst. And that seemed to be true earlier this year, when venture capital investments hit their highest totals since 2001. Combine that with the fact that someone gave $1 million to an app that just said "Yo" over and over... and suddenly it became hard to argue against the idea.

Now some some new data is suggesting that perhaps things are not quite as inflated as they might have seemed. 

In the third quarter of this year, venture capital funding fell 30%, while deal levels fell 10%, according to a report out from CB Insights.

When it came to stage, early stage dominated the number of deal with a total of 55%, while late stage deals, meaning D or higher, came in at round 16%, down slightly from 17% in Q2.

However, the data showed that for share of capital, late stage funding fell for the second straight quarter, going from 45% to 39%, while Series B rounds rose from 21% to 25%.

Series B funding share rose to take 1/4th of all VC funding in Q3’14. Late-stage funding share fell for the second consecutive quarter in Q3 to 39%, after taking nearly half of all VC funding in Q1 and Q2, respectively.

The data shows that IPOs of U.S.-based tech companies took an even bigger hit, tumbling over 50% from 36 companies going public in the second quarter to only 15 in the last three months.

The above graph shows how far tech stocks fell in the last quarter percentage-wise, going from at least 37% the previous four quarters to only 6% in the last three months. Healthcare stocks, meanwhile, increased by nearly 30% quarter to quarter. 

According to CB Insights this potentially could have been a result of the record-breaking Alibaba IPO, which "may have inhibited some IPO activity" from other companies who may have wanted to steer clear.

Despite these numbers, the first nine months of 2014 still saw healthy growth: overall venture capital funding rose 59% to $33.75 billion.

The report also showed one very interesting statistic: that is now easier for companies to raise money at a valuation of $1 billion than to go public at that level. 

There are 27 other companies that have a valuation of at least $1 billion, according previous data from CB Insights, including Snapchat, Airbnb, Uber, Square, Dropbox, LendingClub, JawBone, JustFab, Qualtrics, Credit Karma and Pinterest. The number of companies to reach that milestone is increasing, as bigger financing and secondary market rounds have become more common.

21 of those companies got to that valution level this year through funding, compared to only seven that have gone public.

Read more from our "Trends and news" series

More episodes