National Venture Capital Association – PitchBook Venture Monitor (Q3 2016)

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Venture Investors – $15 Billion to More Than 1,800 Companies in Third Quarter

The National Venture Capital Association (NVCA) and PitchBook recently launched the inaugural PitchBook Venture Monitor, a brand new quarterly report to serve as the definitive source of information on U.S. venture capital activity in the entrepreneurial ecosystem. According to the Venture Monitor, nearly 2,000 investors deployed close to $15 billion in venture financing to more than 1,800 companies in the entrepreneurial ecosystem during the third quarter. The third quarter marked the fifth straight quarterly decline in the number of companies receiving venture investment and a 32% quarter-over-quarter decline. Despite a relative slowdown in venture investment activity, a continued rise in fundraising activity and optimism from leaders in the investment community signal continued confidence in venture’s role to drive innovation, create new job opportunities and advance the economy.

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“Despite the decline in overall VC deal flow, promising companies like Moderna Therapeutics, Zoox and OfferUp have demonstrated that quality targets are having no trouble closing sizable financing rounds,” said PitchBook founder and CEO John Gabbert. “As investors set higher benchmarks for the companies they choose to fund, those that are able to build a defensible business and prove their value in the market are still able to secure the funding needed to grow their operations.”

“While venture investment activity is moderating a bit, venture investors remain very active supporting the growth of great companies that will define the future of our economy,” said Bobby Franklin, President and CEO of NVCA. “This track record of success is fueling the recent surge in fundraising as limited partners seek out new entry points to get in on the ground floor of innovation and serves as an important validation of the critical role venture plays in driving new company formation. With the recent tech IPOs of Twilio and Nutanix showing positive signs, we are hopeful the IPO market is beginning to thaw so that limited partners can redeploy that capital and sustain this positive fundraising momentum.”

Fundraising Activity

So far, 2016 has seen $32.4 billion raised across 201 vehicles, putting 2016 on pace to be a record-breaking year in terms of total capital raised. Of the 201 venture funds raised year to date, six represent vehicles of $1 billion or more, accounting for 26% of total capital raised. Such funds include Technology Crossover Ventures’ $2.5 billion fund focused on making investments into internet, software and technology services, and Andreessen Horowitz’s $1.6 billion fund raised to invest in seed, early-stage and mid-stage-growth tech companies. The ability for VCs to raise large sums of capital comes as no surprise as investors increasingly seek high returns–especially in a low interest rate environment–and exposure to new and innovative companies.

Investment Activity

The near $15 billion invested into more than 1,800 companies in the third quarter brings annual investment to about $56 billion across 6,000 companies through the third quarter of the year. This puts 2016 on pace to record the second-highest amount of capital invested (second only to last year’s massive tally of $78.9 billion). At the same time, the third quarter marked the fifth straight quarterly decline in completed financings and the lowest number recorded by PitchBook since 4Q 2010, signaling that investors are writing bigger checks for fewer deals.

Software companies continue to attract the most attention from venture investors: $27 billion was invested into 2,122 companies thus far in 2016, representing 49% of total invested capital. Angel/ seed deals accounted for 51% of all VC financings, while deals at the early and late stage accounted for 30% and 19%, respectively. Though late-stage deals made up a smaller proportion of total financings in 2016 so far, investors funneled the majority of capital into deals at the Series D stage and beyond.

Exit Activity

Despite a thawing IPO market, venture-backed companies have found lucrative exits through strategic acquisitions and buyouts, which accounted for 91% of total venture exit activity last quarter. The disclosed median venture-backed exit size for acquisitions and buyouts was $100 million thus far in 2016, the highest figure on record and double the amount recorded for 2015. Driving this trend are acquisitions of companies like Jet, Afferent Pharmaceuticals and Dollar Shave Club, all of which exited above $1 billion.

Additional findings in this report include:

  • VC investment activity by round size
  • VC investment activity by stage (Angel & Seed, Early and Late)
  • VC investment activity by first financings, sector and median size
  • Exits by type, size & sector
  • Fundraising by size & first time funds
  • League tables

>>READ PDF Report

About 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 (NVCA) 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 member firms through a full range of professional services.

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About PitchBook
PitchBook is the industry’s leading resource for meaningful information about global VC, PE and M&A activity. PitchBook empowers more than 1,800 clients to make the most informed business decisions by providing them with the highest quality information on the entire investment lifecycle through its flagship product, the PitchBook Platform. This award-winning, web-based platform features a powerful suite of integrated technology that meets the diverse, data-driven needs of the private markets.