VC Funding for Software Jumps in MoneyTree Report, and Top 10 Deals

10/18/13Follow @bvbigelow

Venture capital firms invested $7.8 billion in 1,005 deals throughout the United States during the three months that ended September 30, according to the MoneyTree Report being released today.

It was a 12 percent increase in dollars and a 5 percent rise in deals compared to the second quarter of 2013, when VCs invested close to $7 billion in 956 deals, according to MoneyTree data. Compared with the same quarter of 2012, it was a 17 percent jump over the $6.6 billion that VCs invested, and a 7 percent gain over the 937 deals counted by MoneyTree.

The MoneyTree Report, which provides a detailed assessment of VC activity nationwide, generally correlates with a surge in third-quarter venture deals that was highlighted last week by CB Insights, a New York financial firm with its own sources and methodologies for tracking VC activity. But where CB Insights saw a surge in venture funding for mobile startups, the MoneyTree Report said software venture funding was at a 12-year high.

The MoneyTree Report is prepared by the National Venture Capital Association (NVCA) and Pricewaterhouse Coopers from data provided by Thomson Reuters.

A third VC survey released yesterday by Dow Jones VentureSource reported that 806 U.S. companies raised $8.1 billion in venture capital funding during the third quarter—marking the busiest quarter of VC activity in more than a year. The $8.1 billion invested was up 2 percent over the previous quarter and 4 percent over the third quarter of 2012, while the deal count was up 2 percent over the previous quarter and down 10 percent over the year-ago quarter.

Each survey uses its own sources and methodologies to count VC activity, so the numbers from the surveys don’t match up. For example, Dow Jones VentureSource said the sector that received the most capital during the quarter was Information Technologies (28 percent, or nearly $2.3 billion). In the MoneyTree Report there is no Information Technology category per se; those deals are instead counted under software or IT services.

Nevertheless, the overall trends are roughly comparable, and each survey is showing a slight upward trend in overall venture activity.

“I think deals are picking up because of the opening of the IPO window,” said Jay Lichter, a partner at San Diego’s Avalon Ventures who specializes in the life sciences. “This really changes the dynamic of fundraising and more importantly exits [for venture-backed startups].”

According to the MoneyTree Report, the software industry grabbed the most funding during the quarter, at $3.6 billion, and nine of the 11 biggest rounds involved software deals. It was the first time in twelve years that venture funding for software startups exceeded $3 billion in a single quarter. Software also accounted for the most deals—420—up 23 percent from the 342 deals counted in the second quarter of 2013.

“Software is a natural increased area of focus given that many tech deals are less capital intensive to get to proof of concept,” said John Taylor, the NVCA’s head of research, in a statement today. Taylor said he also was encouraged by the fact that seed and early stage deals accounted for more than half of the investment activity.

“We are balancing this optimism, however, against the recognition that VCs are still trying to gain exits for the previous generation of companies,” Taylor added. “There is some improvement on that front but we would like to see it strengthen even further.”

Some other findings from the MoneyTree Report:

—The second largest sector for VC dollars was biotechnology, with $852 million going into 123 deals. That was down 39 percent in dollars but up 10 percent in deals from the prior quarter.

—Medical device companies represented the third-largest investment category, with $566 million going into 65 deals—a 12 percent increase in dollars but an 8 percent decline in deals over the previous quarter.

—Venture capitalists invested $1.5 billion into 252 Internet-specific companies during the third quarter. That represents a 19 percent decline in dollars invested, and a 9 percent decrease in deals, compared with the second quarter, when $1.9 billion went into 277 deals.

The top 10 deals nationally, according to the MoneyTree Report:

Uber Technologies, San Francisco, $257.8 million

Palantir Technologies, Palo Alto, CA, $196.5 million

Pure Storage, Mountain View, CA, $150 million

Evolent Health, Arlington, VA, $99.9 million

CommonBond, Brooklyn, NY, $99.9 million

Clarabridge, Reston, VA, $80 million

Telogis, Aliso Viejo, $76.7 million

Practice Fusion, San Francisco, $70 million

Deem, San Francisco, $69.9 million

Toa Technologies, Beachwood, OH, $65 million

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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