SOURCE: National Venture Capital Association

National Venture Capital Association

SOURCE: PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

April 15, 2016 06:00 ET

$12.1 Billion in Venture Capital Deployed to Startup Ecosystem in First Quarter, According to the MoneyTree Report

Ninth Consecutive Quarter of More than $10 Billion in Venture Capital Investments

WASHINGTON, DC--(Marketwired - April 15, 2016) - 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."

Top Deals

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.

Industry Analysis

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 Financings

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.

MoneyTree Report results are available online at www.pwcmoneytree.com and www.nvca.org.

Note to the Editor
Information included in this release or related venture capital investment data should be cited in the following way: "The MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters" or "PwC/NVCA MoneyTree™ Report based on data from Thomson Reuters." After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA or MoneyTree Report. Charts and tables displaying the data are sourced to "PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters." After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA, MoneyTree Report or MoneyTree.

About the PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
The MoneyTree™ Report measures cash-for-equity investments by the professional venture capital community in private emerging companies in the U.S. It is based on data provided by Thomson Reuters. The survey includes the investment activity of professional venture capital firms with or without a U.S. office, SBICs, venture arms of corporations, institutions, investment banks and similar entities whose primary activity is financial investing. Where there are other participants such as angels, corporations, and governments, in a qualified and verified financing round the entire amount of the round is included. Qualifying transactions include cash investments by these entities either directly or by participation in various forms of private placement. All recipient companies are private, and may have been newly-created or spun-out of existing companies.

The survey excludes debt, buyouts, recapitalizations, secondary purchases, IPOs, investments in public companies such as PIPES (private investments in public entities), investments for which the proceeds are primarily intended for acquisition such as roll-ups, change of ownership, and other forms of private equity that do not involve cash such as services-in-kind and venture leasing.

Investee companies must be domiciled in one of the 50 U.S. states or DC even if substantial portions of their activities are outside the United States.

Data is primarily obtained from a quarterly survey of venture capital practitioners conducted by Thomson Reuters. Information is augmented by other research techniques including other public and private sources. All data is subject to verification with the venture capital firms and/or the investee companies. Only professional independent venture capital firms, institutional venture capital groups, and recognized corporate venture capital groups are included in venture capital industry rankings.

About the National Venture Capital Association
Venture capitalists are committed to funding America's most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. As the voice of the U.S. venture capital community, the National Venture Capital Association empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community's preeminent trade association, the NVCA serves as the definitive resource for venture capital data and unites its nearly 400 members through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.

The PwC Private Equity & Venture Capital Practice is part of the Global Technology Industry Group, www.pwcglobaltech.com. The group is comprised of industry professionals who deliver a broad spectrum of services to meet the needs of fast-growth technology start-ups and agile, global giants in key industry segments: networking & computers, software & Internet, semiconductors, life sciences and private equity & venture capital. PwC is a recognized leader in each industry segment with services for technology clients in all stages of growth.

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