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Second quarter data is out on venture deals from the National Venture Capital Association and PriceWaterhouseCoopers. Despite the IPO market drying up completely, the What-Me-Worry crowd on Sand Hill Road keep pumping money into venture deals at a steady pace. Venture capitalists invested $7.4 billion last quarter in 990 deals, compared to $7.5 billion in 997 deals during the first quarter (a number that looks like it was revised upwards from the $7.1 billion the same group originally reported last April). The average deal size last quarter was $7.5 million. (Click on the charts for bigger images).
The amount of money going into first-time financings is declining, with only 22 percent of VC money going to early stage deals. Late-stage and expansion deals are attracting more capital, a trend we saw last quarter as well. These deals are generally deemed more safe than first-time deals since these companies are further along and some of the early risks have been taken off the table.
Software is still the biggest sector attracting VC funds ($1.3 billion), followed by biotech ($1.1 billion), but both those sectors are seeing a slowdown in investments (down 19 percent and 14 percent year-over-year, respectively). The only sectors that saw increases was energy (up 102 percent year-over-year to $1.2 billion) and media (up 23 percent to $586 million).
There were a couple of bright spots in the report. Drilling down into Internet-specific and clean tech deals, VC optimism seems to be holding for now. They invested $1.5 billion in Internet deals, up 14 percent from last quarter. Clean tech financings were pretty much flat at $884 million.
If the IPO and M&A drought continue, it should have a deeper impact on current funding levels. But there is usually a lag period between the former going down and VCs waking up to the fact that the environment has changed (the two have been linked historically, despite current investments having a five-to-seven year horizon).
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Internet is rising.
What’s the usual timeline between VC investment and any IPO exit? The article mentions a five-to-seven year horizon. If that’s the case, it doesn’t matter whether VCs to wake up to the current IPO drought since really only impacts the investments they made in the past. It’s those past investments that would have been ripe for an IPO today that need to find another path or wait. Unless we believe the current IPO drought will last for many years, it shouldn’t impact today’s investments.
Or am I missing something?
I agree, we are just in a soft IPO period. Although that will continue if the US is hit with a recession.
Still, if the drought continues, the VCs may have less free cash to invest. Isn’t that what we’re starting to see?
Jon - I read elsewhere that the immediate impact is likely more VC funding of later stage investments that the VCs would have already expected an exit from. Such later stage investments may require additional funding which they would have otherwise received from an IPO. So its the early stage investments that will likely feel the immediate funding impact.
Very useful information. Thanks
This is completely true. Technology job websites like leapways.com are playing a major role in bringing the online IT jobs to job seekers.
SPAM!
Some interesting numbers here - thanks guys!
Jim Connolly
The amount of money going into first-time financings is declining, with only 22 percent of VC money going to early stage deals.
we will see the effect of that in a year.
So now we ask for $40 mil.
the cost of a start up has gone down, so this is actually impressive
No exits is concerning. Are these VCs really watching their $ after they’ve invested? Are they ensuring that the Start-Ups are making good on their revenue slides??? (Ad Supported, Micro-Pay, Subscription, etc.)
I’d like to see a section in Crunch Base on predicted revenue for these start-ups
Having been a money manager in technology public equities, the “dried up IPO market” will come back. That is the beauty of the greed/fear paradigm. Although painful, it is best to invest when fear is the highest.
I appreciate the clarity of your report!
Great information. Gotta love some well presented bar charts!
Its interesting to compare these numbers to a more macro view. Specifically, today’s front page of the NYT.
Here: http://tinyurl.com/6yktl5
Two points:
1. The valley is doing better than the overall economy
2. The stock market has gotten smacked around (4 yr. growth has been cut in half, 20% to 10%, in the last 6 months)…not surprising the IPO market isn’t gangbusters right now.
Companies that have been in existence for over 10 years and still cant make a profit need to either sell or close shop.
VC are the ones being taken to cleaners by overpaid “life style” executives and engineers . These $$$ should be given to startups who are scrambling to get funded. If VCs are going to re capitalize these companies, the CEOs should first be forced to layoff overpaid executives, engineers and support staff. The jobs should be outsourced.
Presenting data in charts is much more interesting and easy to understand. Go VC! This should be the way.
I’ve worked in the brokerage industry for years. Many traders I talk to say companies would be crazy to IPO given the enormous compliance requirements the regulators need. Think SOX. But excluding that idea (knowing the report covers a time when SOX was already established), did they adjust the report for inflation and dollar fluctuations? It might not be a major factor but if you consider it in the report, the numbers could be different, still (and if so, probably skew the numbers even more downward).
Still, I don’t look at these types of reports as anything to worry over. Money, while ebbs and flows with the health of the economy, is more likely to shift from industry to industry or investment vehicle to vehicle.
You just have to look for where it ends up.
The IPO market is certainly down, so more companies are taking the reverse merger into shells route. I would be curious to know if any research has been done on how many tech companies have done this instead of IPO?
RM is much cheaper and faster than IPO.
http://www.techcrunch.com/2008.....kin-exits/
thought you would like this article. You know were to fish
M