$16 Billion in Venture Capital Deployed to Startup Ecosystem in Third Quarter, According to the MoneyTree Report

Print 20 October 2015
U.S. National Venture Capital Assocoation

WASHINGTON, DC – Venture capitalists invested $16.3 billion in 1,070 deals in the third quarter of 2015, 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 decreased 5 percent and total deal count was down 11 percent compared to the second quarter when $17.3 billion was invested in 1,202 deals. The third quarter marks the seventh consecutive quarter of more than $10 billion of venture capital invested in a single quarter. The $47.2 billion invested in the first three quarters of 2015 is higher than each of the full year totals for 17 of the last 20 years.

“With seven consecutive quarters of more than $10 billion deployed to the startup ecosystem and more than half of all investment deals now going to seed or early stage companies, it’s a great time to be an entrepreneur in America,” said Bobby Franklin, President and CEO of NVCA. “If there’s anything we learned this quarter, it’s that despite the recent turbulence in the financial markets, venture capitalists remain undeterred and are confident investing in truly innovative companies across all sectors of our economy. At $16.3 billion invested for the quarter and over $47 billion invested for the year, total venture capital dollars deployed to the startup ecosystem in 2015 is on target to be the second highest since the inception of the MoneyTree Report in 1995.”

“Despite a modest downtick in dollars and deals in the third quarter, we are still in a midst of a robust market and this quarter marks the second highest quarter in aggregate investment dollars since the fourth quarter of 2000,” said Tom Ciccolella, US Venture Capital Market Leader at PwC. “Though software remains dominant, the top ten deals included rounds of funding across seven industries, illustrating continued investment appetite in new areas of innovation across industries.”

Top Deals

The top 10 deals accounted for 19 percent of dollars invested in the third quarter, down from 24 percent of total venture capital deployed during the second quarter. Compared to the second quarter, the third quarter’s top 10 deals come from a more diverse range of industries. Whereas in the second quarter Software and Biotechnology companies dominated the top deals list, in the third quarter we also saw deals across more industries, including Media & Entertainment, Medical Devices & Equipment, IT Services and Industrial/Energy sectors.

Industry Analysis

As has been the recent trend, the Software industry continues to receive the highest level of funding of all industries, receiving $5.8 billion going into 412 deals for the quarter, despite being down 21 percent in dollars and 17 percent in deals compared to the second quarter.

Although the Biotechnology industry received the second largest amount of venture capital for the quarter, with $2 billion going into 121 deals, dollars invested and number of deals remained relatively flat over the previous quarter. Investments in the Life Sciences sector (Biotechnology and Medical Devices combined) during the third quarter accounted for $2.9 billion going into 194 deals, staying flat in dollars and slightly declining 3 percent in deals. Life Sciences company investments accounted for 18 percent of all venture capital deployed to the startup ecosystem in the third quarter.

Media & Entertainment companies received the third largest amount of venture capital for the quarter with $1.4 billion deployed across 90 deals, an 18 percent increase in dollars compared to the second quarter despite a 24 percent decline in number of deals. Two of the top 10 megadeals (investments of $100m or more) were within the Media & Entertainment space.

Ten of the 17 MoneyTree industries experienced increases in dollars invested in the third quarter, including Retailing/Distribution (314 percent increase), Computers and Peripherals (182 percent increase), Healthcare Services (178 percent increase), and Semiconductors (124 percent increase).

Venture capitalists invested $5 billion into 242 Internet-specific companies during the third quarter of 2015, remaining flat in dollars and dropping 18 percent in deal count compared to the second quarter of 2015 when $5.0 billion went into 294 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 rose by 23 percent during the third quarter, totaling $214 million in 55 deals and representing only 1 percent of all venture investment dollars for the quarter and 5 percent of all deals. Early stage investment declined 7 percent in dollars and 8 percent in deals with $5.4 billion going into 558 deals. Seed/Early stage deals accounted for 57 percent of total deal volume in the third quarter, compared to 54 percent in the prior quarter. The average Seed stage deal in the third quarter was $3.9 million, up from $3.6 million in the second quarter. The average Early stage deal in the second quarter was $9.7 million, up from $9.5 million in the prior quarter

Expansion stage investment was down 14 percent in dollars and 22 percent in deals for the quarter, at $6.3 billion and 257, respectively, from the previous quarter. Expansion stage deals accounted for 24 percent of all venture deals in the third quarter. The average Expansion stage deal was $24.7 million, up from $22.4 million in the second quarter.

Investments in Later stage companies increased 10 percent to $4.4 billion going into 200 deals in the third quarter. Later stage deals accounted for 19 percent of total deal volume for the quarter and remained relatively flat from the second quarter. The average Later stage deal in the third quarter was $22 million, up from $18.1 million in the prior quarter.

First-Time Financings

First-time financing (companies receiving venture capital for the first time) dollars increased 7 percent to $2.5 billion in the third quarter as the number of deals declined by 3 percent to 372. First-time financings accounted for 15 percent of all dollars and 35 percent of all deals in the third quarter.

Of the companies receiving venture capital funding for the first time in the third quarter, Software companies captured the largest share, accounting for 35 percent of the dollars and 37 percent of the deals with $878 million going into 139 deals. First-time funding in the Life Sciences sector during the third quarter was down 32 percent in dollars but up 4 percent in deals, dropping to $455 million going into 47 deals.

The average first-time deal in the third quarter was $6.7 million, up from $6.1 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments, capturing 66 percent of the dollars and 79 percent of the deals in the third 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.

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