WASHINGTON, DC – Venture capitalists invested $12.1 billion in 969 deals in the first quarter of 2016, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.
Total venture dollars deployed to startup companies for the quarter remained flat and total deal count was down 5 percent, compared with the fourth quarter when $12.0 billion was invested in 1,021 deals. Compared with Q1 2015, dollars and deals are both down 11 percent. This is the ninth consecutive quarter of more than $10 billion in venture capital invested in a single quarter.
“Forecasting the year based on the first quarter is always difficult, but a few interesting trends stand out. While total venture investment activity didn’t jump out of the gate as quickly as last year, it was still a strong first quarter for venture activity compared to recent years,” said Bobby Franklin, President and CEO of NVCA. “Of the decline that we did experience, most of that can be attributed to nontraditional investors scaling back their investment activity and refocusing on their core businesses. After a string of strong quarters for fundraising, venture investors will continue to be busy putting risk capital to work by finding and funding innovative ideas and growing them into the next generation of great American companies.”
“The first quarter appears to tell us that investors still have faith in the venture ecosystem,” said Tom Ciccolella, US Venture Capital Market Leader at PwC. “However, the increase in expansion and later stage financing, combined with the drop in first-time financing, suggests a shift towards relatively mature startups.”
The top 10 deals accounted for 25 percent of total dollars invested in the first quarter, up from 18 percent of total venture capital deployed during the fourth quarter. Compared to the fourth quarter, the first quarter’s top 10 deals came from a diverse range of industries, though it also saw investments in categories not featured last quarter—Computers and Peripherals and Industrial/Energy.
The Software industry continues to receive the highest level of funding of all industries, receiving $5.1 billion going into 376 deals for the quarter, a 12 percent increase in dollars and a 5 percent decrease in deals versus the fourth quarter of 2015. Half of the top 10 megadeals (investments of $100m or more) were in the Software industry.
The Biotechnology industry received the second largest amount of venture capital for the quarter, with $1.8 billion going into 118 deals, representing an 11 percent increase in dollars and a 19 percent increase in deals, compared with the previous quarter. Investments in the Life Sciences sector (Biotechnology and Medical Devices combined) during the first quarter accounted for $2.3 billion going into 177 deals, staying flat in dollars and declining 3 percent in deals. Investments in Life Sciences companies accounted for 19 percent of all venture capital deployed to the startup ecosystem in the first quarter.
Media & Entertainment companies received the third largest amount of venture capital for the quarter with $930 million deployed across 109 deals. Notably, Computers and Peripherals companies received the fourth largest amount of venture capital for the quarter with $871 million deployed across 14 deals, a 477 percent increase in dollars compared to the fourth quarter. The second largest deal of the top 10 megadeals was within the Computers and Peripherals space.
Ten of the 17 MoneyTree industries remained flat or saw increases in dollars invested in the first quarter, including Telecommunications (157 percent increase), Electronics/Instrumentation (118 percent increase), and Business Products and Services (107 percent increase).
Venture capitalists invested $2.4 billion into 232 Internet-Specific companies during the first quarter of 2016, dropping 24 percent in dollars and 4 percent in deal count, compared with the fourth quarter of 2015 when $3.1 billion went into 242 deals. “Internet-Specific” is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.
Stage of Development
Dollars invested in Seed stage companies declined 10 percent during the first quarter, totaling $418 million in 62 deals and representing only 3 percent of all venture investment dollars for the quarter and 6 percent of all deals. Early stage investment declined 18 percent in dollars and 22 percent in deals with $4.2 billion going into 406 deals. Seed/Early stage deals accounted for 48 percent of total deal volume in the first quarter, compared with 57 percent in the prior quarter. The average Seed stage deal in the first quarter was $6.7 million, down from $8.2 million in the fourth quarter. The average Early stage deal in the first quarter was $10.3 million, up from $9.8 million in the prior quarter.
Expansion stage investment was up 25 percent in dollars and 9 percent in deals for the quarter, at $4.1 billion and 288, respectively, from the previous quarter. Expansion stage deals accounted for 30 percent of all venture deals in the first quarter. The average Expansion stage deal was $14.1 million, up from $12.3 million in the fourth quarter.
Investments in Later stage companies increased 10 percent to $3.5 billion going into 213 deals in the first quarter. Later stage deals accounted for 22 percent of total deal volume for the quarter and increased 20 percent in deals. The average Later stage deal in the first quarter was $16.3 million, down from $17.7 million in the prior quarter.
First-time financing (companies receiving venture capital for the first time) dollars decreased 31 percent to $1.7 billion in the first quarter as the number of deals declined by 16 percent to 297. First-time financings accounted for 14 percent of all dollars and 31 percent of all deals in the first quarter.
Of the companies receiving venture capital funding for the first time in the first quarter, Software companies captured the largest share, accounting for 39 percent of the dollars and 41 percent of the deals with $666 million going into 121 deals. First-time funding in the Life Sciences sector during the first quarter was down 29 percent in dollars and 37 percent in deals, dropping to $404 million going into 33 deals.
The average first-time deal in the first quarter was $5.7 million, down from $6.9 million in the prior quarter.