‘Megadeals’ Dominate Q2 as VCs Invest $15.3B, and Top 10 Deals

Showing little concern for stock-market volatility or worries over the Brexit, venture capital firms pumped $15.3 billion into 961 deals across the United States during the three months that ended June 30, according to the MoneyTree Report on venture capital activity.

It was the 10th consecutive quarter that venture firms put at least $10 billion into startups and other high-tech companies, including a $3.5 billion deal for Uber that represents the biggest venture capital deal of all time.

Still, the amount invested marked a 12 percent drop from the $17.4 billion that venture firms invested during the same quarter last year, and there was a 22 percent decline in deals, according to MoneyTree data released today.

Last year was the anomaly, according to Tom Ciccolella, U.S. venture capital market leader at PricewaterhouseCoopers. He said MoneyTree data shows the second quarter of 2015 as one of the biggest ever in terms of venture dollars invested. The MoneyTree Report is prepared by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.

“The ecosystem is pretty healthy still, with almost 1,000 deals in the quarter and over $10 billion invested” during the most-recent quarter, Ciccolella said Thursday. “A lot of money went into software, mostly because of some big, expansion-stage deals.”

Ciccolella described the venture industry as “both resilient and nimble.”

There were 11 “megadeals” during the quarter, in which companies raised at least $100 million from investors, including four late-stage “expansion” deals. Altogether, the 11 deals accounted for an unprecedented 39 percent of deal value in the quarter. Included is the $3.5 billion that a non-traditional investor (the Saudi Arabia Public Investment Fund) invested in San Francisco-based Uber, and the nearly $1.3 billion invested in Venice, CA-based Snapchat. (The MoneyTree top 10 deals list is below.)

A rival survey released Thursday by Dow Jones VentureSource shows that U.S.-based companies raised almost $15.8 billion in 845 venture deals during the second quarter—a nearly 20 percent increase over the $13.1 billion raised in the previous quarter. The number of deals was about 8 percent lower than the 922 deals VentureSource counted in the first quarter of this year.

However, the first half of 2016 has been substantially lower, with a six-month total of just over $28.9 billion, than the same period last year, when venture firms invested over $36.7 billion, according to VentureSource data.

“Over the last few quarters, we’ve definitely seen the funding levels come down” from 2015, said Tim Holl, an EY audit partner in San Diego who heads the firm’s technology practice. “We’ve seen a pullback, certainly, both nationally and locally. Going forward, though, there is still a lot of capital out there.”

The industry surveys use different methodologies for collecting and sorting their data.

Still, the MoneyTree Report showed a similar change between consecutive quarters this year, with second-quarter funding of $15.3 billion marking a 20 percent increase over the first quarter, when MoneyTree data show that VCs invested $12.7 billion. The second-quarter deal count of 961 was down about 5 percent from the 1,011 deals of the first quarter.

Some other highlights pulled from the second-quarter MoneyTree Report:

—As usual, the software sector raised the most venture capital of any industry during the quarter, getting $8.7 billion in 379 deals. It is the 27th straight quarter in which software raked in the most funding. Internet-specific deals accounted for almost $2.6 billion investments in 251 companies.

—The life sciences sector (which includes biotechnology and medical devices) accounted for 15 percent of all venture capital dollars during the quarter, raising $2.2 billion in 161 deals. Compared with the previous quarter, that was a 10 percent decline in dollars and a 12 percent decrease in deals.

—IT services accounted for $946 million in 80 deals.

—Dollars invested in seed and early stage deals accounted for 51 percent of the 961 deals counted in the second quarter, which is up slightly from 49 percent of the 1,011 deals in the prior quarter.

—Venture firms invested $8.5 billion in 292 expansion-stage deals. That accounted for 56 percent of all venture dollars in the second quarter and 30 percent of the deals.

Here are the top 10 U.S. deals in the second quarter, based on the MoneyTree Report:

Uber Technologies San Francisco Software Expansion/13  $3.5 billion
Snapchat Venice, CA Software Expansion/8 $1.27 billion
Human Longevity San Diego Biotech Early Stage/2 $220 million
Slack Technologies San Francisco Software Expansion/6 $199.9 million
Clover Health Jersey City, NJ Financial Services Early Stage/3 $159.9 million
SMS Assist Chicago Software Later Stage/4 $150 million
Thrive Market Marina del Rey, CA Consumer Early Stage/3 $111 million
Zoox Menlo Park, CA Industrial Energy Seed/2 $103 million
Cylance Irvine, CA Software Expansion/4 $100 million
Gingko BioWorks Boston Biotech Later Stage/3 $100 million
Musical.ly Palo Alto, CA Software Early Stage/2 $100 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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