Venture Slowdown Squeezes Bay Area Startups

4/19/13Follow @wroush

It turns out that Bay Area startups aren’t immune to the national slowdown in venture investing.

In the first quarter of the year, total venture investments going to San Francisco Bay Area companies fell to their lowest level in the past year, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association (NVCA), using data from Thomson Reuters.

Venture investments in Bay Area companies totaled $1.04 billion in the first quarter, according to the report. That’s a 10 percent drop compared to the previous quarter, when $1.15 billion was invested, and it’s the smallest number since 1Q12, when $907 million was invested.

The total number of Bay Area companies funded during the quarter shrank 9 percent, dropping from 154 in the fourth quarter  of 2012 to 140 in the first quarter of this year. And funded companies collected slightly less money this time around than they did in the previous quarter—the average deal shrank from $7.49 million to $7.44 million.

Those changes were in line with national trends. As my colleague Bruce Bigelow reports in a separate story today, venture firms invested $5.9 billion in 863 deals across the U.S. in the first quarter. That’s a 12 percent decline in funding and 15 percent decline in deal count compared to the previous quarter.

Life sciences companies and cleantech companies were the hardest hit, while software and media companies fared somewhat better, according to the organizations behind the report. That’s because they’re seen as more capital-efficient and “have shorter time frames to a liquidity event,” in the words of Tracy Lefteroff, global managing partner of the venture capital practice at Pricewaterhouse Cooopers. “Activity in both the IPO and M&A markets for software companies is likely an encouraging factor for VCs and this dynamic could be spurring the greater focus, accordingly. The exact opposite is true for the clean technology sector.”

Of the 29 venture deals totaling $10 million or more in the San Francisco Bay Area in the first quarter, none involved cleantech companies, and only three involved biotechnology companies. All of the rest of the largest deals involved software, media and entertainment, IT services, semiconductor, or medical device companies.

A single investment—the gigantic $200 million Series D round at product-sharing site Pinterest, led by Andreessen Horowitz, Bessemer Venture Partners, and FirstMark Capital—accounted for nearly a fifth of all regional venture activity in the quarter.

Here’s a rundown of the top 10 deals of the quarter for the Bay Area.

Company Amount (millions) Industry
Pinterest $200 Media
New Relic $60 Software
AppDynamics $50 Software
MuleSoft $37 Software
Revance Therapeutics $37 Biotechnology
OptiScan Biomedical $31 Medical Devices
One Medical Group $30 Software
Nextdoor.com $22 Media
Prosper Marketplace $20 Financial Services
Chartboost $19 Software

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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