Startup slump: VC funding sinks to 2014 levels

Ronny Kerr · April 13, 2016 · Short URL:

Healthcare dominated Q1 2016, accounting for nearly a third of all venture capital investments

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We’ve been talking about the rise of down rounds and the decline in fundraising deals for the past few months. But just how bad is it?

Bad enough that venture capital funding hasn’t been this hard to come by since 2014.

Startups last quarter raised $13.9 billion across 883 VC deals in the U.S., according to Dow Jones VentureSource, a 25 percent decrease in funding and six percent decrease in deals compared to Q4 2016. Compared to Q1 2015, funding dropped 21 percent and deals dropped 12 percent.

The data for U.S. startups largely jibes with the worldwide trend.

Notably, while overall investments are down, there’s one unexpected sector that has risen to the top: healthcare. Dow Jones found that healthcare ventures received nearly a third of all investments, generating $4.1 billion across 191 deals last quarter.

Still, even the most active sector suffered from the bearish market, with amount raised by healthcare companies dropping seven percent and number of deals dropping 16 percent, compared to the previous quarter.

Reflective of healthcare’s dominance, two healthcare companies made the top five deals for VC-backed companies. Full list here:

1. Mersana Therapeutics, one of a rising tide of ventures developing therapies for cancer patients, secured $800 million in a partnership deal with Takeda Pharmaceutical Company. Takeda is the largest pharmaceutical company in Japan and Asia and one of the largest in the world.

2. Augmented reality company Magic Leap raised a $793.5 million Series C funding round led by Alibaba Group with additional participation from previous backers Google and Qualcomm Ventures and a whole host of major investment firms. Amazingly, never mind an actual launch, Magic Leap has only teased its offering publicly. And yet the latest round values the company at $4.5 billion.

3. WeWork, a platform for booking shared workspaces (and now living spaces), raised a $430 million funding round led by Legend Holdings and Hony Capital with participation from existing shareholders and new partners. The new round reportedly values the company at $16 billion.

4. Relativity Media raised $400 million in equity financing from Michael Wexler and Tove Christensen’s Maple Leaf Films. The company’s film studio division has produced and distributed more than 200 motion pictures, resulting in $17 billion in global box office revenues.

5. Health insurance provider Oscar Insurance raised $400 million from Fidelity.

While it’s important (but unsurprising) that last quarter saw a major slump in VC investments, the high ratio of healthcare investments may point to another trend: the rise of the non-IT startup.

With healthcare ventures dominating the quarter (according to the date on U.S. startups) and AI still seeing a record number of deals (according to data shared by CB Insights last week), we might be witnessing the beginning in a shift in venture capital from startups focused specifically on pure IT and business to broader markets: healthcare, entertainment, and beyond.

Either way, we’ll be closely monitoring the market to see if VC deals continue to drop in the second quarter, or whether they’re ready to rebound.

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