VC “Self-Correction” Continues in Second Quarter, and Top 10 Deals

[Updated 7/12/17, 8:38 am, to add MoneyTree data. See below.] U.S. venture capital investments are showing more signs of returning to steady levels.

Investors pumped $21.78 billion into 1,958 companies in the second quarter, according to data from the quarterly Venture Monitor report from Seattle-based PitchBook and the National Venture Capital Association (NVCA).

The number of deals was roughly the same as in the first quarter of the year, but the total dollar amount grew 36 percent from the nearly $16 billion invested in the previous quarter. The report attributed that to the number of large deals. There were 34 funding rounds of at least $100 million in the second quarter, compared with 12 in the previous quarter. The quarter’s top-10 deals (see below) were valued at $4.3 billion, representing nearly 20 percent of the total capital invested in the period. Notably, there were no deals that exceeded $1 billion.

Meanwhile, the PwC/CB Insights MoneyTree Report, a similar quarterly deal tracker, found that VCs invested $18.4 billion across 1,152 U.S. deals in the second quarter. That marked a 27 percent increase in dollars invested from the previous quarter, but a 4 percent drop in the number of deals, according to the data tracked by the MoneyTree Report. (Click here for more of the findings from that report.) [This paragraph added.]

Software companies accounted for 42 percent of the venture dollars invested in the most recent quarter, according to the Venture Monitor report. Pharmaceutical and biotech companies received 12 percent of venture dollars.

In the second quarter of last year, nearly $23 billion was invested across 2,162 deals, according to Venture Monitor data.

After peaking between 2014 and early 2016, VC funding has slowed in recent months. The latest numbers suggest the industry is “in the middle of a self-correction as valuations come down and the marketplace cools off,” said Bobby Franklin, president and CEO of the NVCA, in a prepared statement. “That’s not to say investors are retrenching, but rather returning to a steadier pace of investing,” he added.

This “leveling off,” particularly in early-stage investments, might worry some observers, but the report’s take is that it signals a “healthy return to steadier investment after several years of froth.”

VCs continued stockpiling dry powder in the second quarter, as 58 funds raised $11.4 billion. So far this year, 119 venture funds have raised $19.1 billion. That’s slightly off pace from 2016 levels, but the $40.4 billion raised last year by 277 venture funds was the highest total since at least 2006, according to Venture Monitor data. The report notes that 15 first-time funds have raised a combined $1.5 billion this year, on track to be the highest amount raised in 10 years.

Exits, of course, are the ultimate goal. There were 156 of them in the second quarter, valued at $10.5 billion in total. That was down from 211 exits valued at $17.2 billion in the same period last year, and down from 192 exits worth $14.6 billion in the first quarter of 2017.

The report argues there are reasons to be optimistic, despite declining exit activity. There have been 27 initial public offerings by venture-backed companies this year, including 19 in the second quarter. Five of the 27 IPOs were by so-called “unicorn” tech companies valued by private investors at more than $1 billion: MuleSoft, Snap, Okta, Cloudera, and Blue Apron. The IPO performances have been mixed, though, which could make companies waiting in the wings think twice about going public. There is still a “strong pipeline” of companies eyeing an IPO, the report says, such as Redfin.

Here are the second quarter’s top-10 venture deals, according to the report:

Outcome Health $600 million Chicago Media
Lyft $600 million San Francisco Software
Wish $500 million San Francisco Software
Intarcia Therapeutics $475.68 million Boston Pharma/Biotech
Unity $400 million San Francisco Software
Houzz $400 million Palo Alto, CA Commercial Services
Guardant Health $360 million Redwood City, CA Healthcare Devices
Peloton $325 million New York Consumer Durables
Essential Products $300 million Palo Alto Consumer Durables
AvidXchange $300 million Charlotte, NC Software

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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