Q3 Venture Funding Surges Near Record Levels, and Top 10 Deals

Buoyed by some giant deals, venture capital continues to flow at near-record levels in 2015, according to just-released data from two nationwide surveys that track quarterly VC activity.

While the $16.3 billion that venture firms put into 1,070 deals in the third quarter was down a notch from the previous quarter, according to the MoneyTree Report, the cumulative $47.2 billion invested through the first three quarters is higher than the year-end totals in 17 of the last 20 years.

If venture funding continues at its current pace, VC dollars deployed in 2015 will come in at the second-highest level since the first MoneyTree Report in 1995. The new MoneyTree Report is being released today by the National Venture Capital Association and PricewaterhouseCoopers, based on data from Thomson Reuters.

On Thursday, data released by DowJones VentureSource showed that venture firms invested just over $19 billion in 931 deals—about 3 percent more than the $18.4 billion that VCs deployed in the previous quarter, and an 11 percent decline from 1,051 deals in the second quarter.

“A lot of the venture capitalists are betting bigger,” said Tim Holl, an EY partner in San Diego who works with both tech and life sciences companies. “I think we’re getting toward the top in terms of how these things get funded.”

While the particulars vary in each survey, the Dow Jones and MoneyTree data reinforce the results that CB Insights posted earlier this week, with all three supporting a “More funding! Fewer deals!” theme befitting an advertising campaign, or at least an Internet meme.

The numbers vary because each survey uses different sources and counts deals differently—one survey may count only the first tranche of a particular funding deal, while another includes the total amount raised, for example. The surveys also put deals into different categories. For example, the MoneyTree Report separates life sciences deals into three different categories: biotechnology, healthcare services, and medical devices and equipment.

Yet the major venture funding trends aligned in all three VC surveys—with all three showing the venture industry on pace for a near-record in dollars deployed in 2015, and a dozen or so “mega deals” boosting the numbers.

According to the MoneyTree Report, for example, the top 10 deals accounted for almost a fifth of the $16.3 billion that VCs invested during the three months that ended Sept. 30. (Our list of top national deals is below.)

“These very substantial financings, like SoFi [Social Finance] raising $1 billion, are unprecedented,” said Wende Hutton, a general partner and healthcare investor at Canaan Partners of Menlo Park, CA. Even in the case of StemCellsRx, a life sciences startup that raised close to $250 million, Hutton said, “It’s a very different business today.”

The software sector continued to receive the highest level of venture funding, according to the MoneyTree Report, with $5.8 billion going into 412 deals during the quarter. Still, that was down 21 percent from the $7.3 billion that VCs invested in software during the previous quarter. The number of software deals also declined from the 497 investments made during the previous quarter.

In the biotechnology sector, the MoneyTree Report showed venture firms invested $2 billion in 121 deals during the third quarter. It was comparable to the $2 billion that VCs invested in 124 deals in the previous quarter, but quite a bit more than the $1.16 billion that venture firms invested in 124 biotechs during the third quarter of 2014.

Because of those higher funding levels, the MoneyTree Report shows that total biotech funding hit over $5.8 billion after nine months this year—while total biotech funding for the entire year in 2014 was just $6.3 billion. The number of biotech deals, however, is almost exactly the same, with 374 deals through the first nine months of 2015 and 372 deals over the same period in 2014.

“The quarter-on-quarter biotech funding has been quite consistent with what we’ve been seeing in the last couple of years,” Hutton said. Despite a fair amount of “jitters” and “choppiness” in the public markets, she added, “What I think we’re continuing to see is a robust market.

“With the liquidity we’ve seen in biotech in recent years, many new funds have been raised,” Hutton added. “This choppiness in the market, though, will result in some of the crossover [funds] becoming more cautious, and they’re the first to leave the party.”

The third-biggest sector of venture activity, according to the MoneyTree Report, was media and entertainment—with VCs investing $1.4 billion in 90 deals. That was 18 percent more money than the $1.2 billion that went into media and entertainment in the previous quarter, but was a 24 percent decline in volume from the 119 deals done in the second quarter.

In today’s statement, Bobby Franklin of the National Venture Capital Association says, “With seven consecutive quarters of more than $10 billion deployed to the startup ecosystem, and more than half of all investment deals now going to seed, or early stage companies, it’s a great time to be an entrepreneur in America.”

 

Social Finance San Francisco $1 billion Peer-to-peer Lending
Palantir Technologies Palo Alto, CA $450 million Data Analysis Software
DraftKings Boston $300 million Daily Fantasy Sports
GitHub San Francisco $251 million Software Services
StemCentrx South San Francisco $250 million Cancer Therapies
AvidXchange Charlotte, NC $224.9 million Automated accounts payable solutions
BuzzFeed New York $200 million Social news and entertainment
Mevion Medical Systems Littleton, MA $199.9 million Provides proton therapy systems
Medallia Palo Alto, CA $150.3 million Customer experience management software
Auris Surgical Robots San Carlos, CA $149.5 million Medical surgical robots

 

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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