Venture capital continues to "reset," according to Pitchbook, with deal flow down again
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How low can it go?
Venture capital activity in the United States continues to drop, as new data from Pitchbook shows that $15.0 billion was invested across 1,810 deals in the third quarter of 2016.
In terms of deal value, that’s the lowest quarter since Q1 2014, when $13.5 billion was invested. Similarly, the number of deals closed has been on a downward trend since it hit a high of 2,717 in Q2 2015. The figure from last quarter is the lowest number of deals since Q4 2012—the last time the number of deals dipped below 2,000.
Compared to previous years, investing has been in a slump since the end of 2015, when valuations started getting a bit more realistic and companies increasingly faced the prospect of a down round. The second quarter of 2016 looked like something of an anomaly, with VC deal value rocketing up to $22.1 billion—a record high—but it turns out that 40 percent of that capital went into a select few unicorn companies.
Additionally, data from Dow Jones VentureSource showed that Uber and Snapchat alone made up a third of Q2 2016 VC funding.
That fact may be indicative of a trend toward larger rounds in general. In fact, Pitchbook’s data found that round sizes have been growing across the board. In 2015, the median late-stage VC round was $10.6 million, early-stage was $4.7 million, and angel/seed was $0.75 million. This year, those figures are now $10.0 million, $5.4 million, and $1.0 million. (The late-stage round is the only one looking like it may dip down, but that could be a major course correction after the huge rise over the past few years.)
The most active angel or seed investors in Q3 2016, according to Pitchbook, were 500 Startups and Liquid 2 Ventures, who tied for six investments each. And New Enterprise Associates (NEA) topped the list for most active early-stage and most active late-stage investors, with 12 and 7 investments in the respective categories. That’s the continuation of a trend: NEA was also the most active investor for the first half of 2016.
And here were the top five biggest venture financings for the quarter:
- Moderna Therapeutics, a biotechnology company based in Cambridge, MA, raised $474 million in private equity from existing institutional investors, strategic pharmaceutical partners, and new international investors.
- Solar Mosaic, a solar lending platform for homeowners, raised $220 million in a private equity round led by Warburg Pincus with participation from Core Innovation Capital and Obvious Ventures.
- Zoox, a Menlo Park-based developer of self-driving cars, raised $200 million in its first round of funding from AID Partners Capital, Blackbird Ventures, Draper Fisher Jurvetson, Lux Capital, and others. (It’s worth noting that Dow Jones VentureSource included this round, which closed at the end of June, in their Q2 data.)
- FreshDirect, an online food retailer in the Northeast U.S., closed a $189 million late-stage round led by J.P. Morgan Asset Management.
- Carbon and Unity Technologies each closed $181 million Series C rounds. Unity’s round was led by DFJ Growth with participation from China Investment Corporation, FreeS Fund, Thrive Capital, Max Levchin, Sequoia Capital, and WestSummit Capital. Carbon raised an $81 million round last quarter as a follow-on to a previous $100 million round, I've confirmed with Pitchbook.
Ed. note: Our 6th Annual Vator Splash LA conference is coming up on October 13 at the Loews Hotel in Santa Monica. Speakers include Mark Cuban (one of the hosts of Shark Tank and owner of the Dallas Mavericks); Brian Lee (Founder & CEO, Honest Company); Leura Fine (Founder & CEO, Laurel & Wolf ); Nick Green (Co-Founder and Co-CEO, Thrive Market); Tri Tran (CEO & Co-founder, Munchery); Adam Goldenberg (Founder & CEO, JustFab); Andre Haddad (CEO, Turo); Mike Jones (Founder, Science) and many more. Join us! REGISTER HERE.