Tag: Silicon Valley

Venture Capital Deals in 2017

2017 turned out to be quite a success for startups as they managed to receive over 67 billion dollars in venture capital funding, broking the previous record of 2015 by 5 percent.

Although, there has been substantial funding in Silicon Valley during the past few years, the overall investment has reduced since 2015. There has been a decline of 12 percent and it’s partially because of Uber Technologies Inc. and Lyft Inc. as these companies secured the maximum funding in 2017. Snap Inc. got a funding of 1.8 billion dollars, whereas Uber secured 3.5 billion dollars in 2016, and the value of capital received in 2017 decreased. Another reason was the fact that some of the major deals happened elsewhere last year.

 

The Value of Deal Based on Metropolitan Statistical Area

If you look at the trend based on metropolitan areas, San Francisco was in the lead, but as discussed, the overall value has declined since 2015. Similarly, the investment in Boston and Los Angeles has also decreased; it was 6.2 billion dollars and 4.9 billion dollars for Boston and Los Angeles in 2015, but in 2017, the amount reduced to 5.9 billion and 3.9 billion respectively.

On the other hand, the funding in New York, San Jose, Washington D.C., and Chicago increased. In 2015, Chicago secured 0.9 billion dollar investment, which eventually increased to about 1.5 billion dollars in 2017. Washington experienced a mild increased from $1.4 billion to $1.6 billion and San Jose increased from 6.5 billion dollars to 6.9 billion dollars. The investment in New York however, almost doubled since 2015. It was 7.8 billion dollars in 2015, but in 2017, the overall value increased to 13.3 billion dollars.

On the other hand, the funding value also increased in Miami, Philadelphia, Provo, Indianapolis, Charlotte, and Minneapolis. The biggest reason for the sharp increase in the funding value in New York was the massive infusion of money in WeWork Companies Inc. The company got a capital of about 6 billion dollars in 2017, which eventually led to the sudden increase in the overall funding.

 

2017 Top 10 Deals

After WeWork, the second biggest deal in 2017 was Lyft in San Francisco, the company secured 2 billion dollars in funding. Other deals in San Francisco that made their way to the Top 10 included Uber with $1.25 billion, GRAIL with $0.9 billion, and SoFi with $0.5 billion.

Beside that, Admiral Permian Resources in Midland secured 0.6 billion dollars, Magic Leap in Miami got a capital of 502 million dollars, Outcome Health got 500 million, and SpaceX got 450 million dollars. Another company in New York that made its way to the Top 10 was Compass that secured a capital of 0.55 billion dollars.

All in all, startups in many regions of the U.S. managed to get funding as compared to 2015. In 2017, around 141 metropolitan areas got capital in a total of 48 states, whereas, it was 119 areas of 43 states back in 2015.

 

Size of Deals

The value of investment received by companies also increased over the years. Although, the total number of deals has declined since 2015, the overall deal value increased by 3 billion dollars. If you look at the average size of a deal, it was 25.5 million dollars in 2017. This has been the highest so far in history. The average size in 2015 was 21.5 million dollars.

The average size of a seed stage investment was also high, i.e., 13.8 million dollars in 2017. It was $11.9 million in 2015. The early stage deals represented almost 33 percent of the total venture capital volume. The value of late-stage deals, however, has declined since 2013.

 

Number of Initial Public Offerings (IPOs)

The number of IPOs deals around the world was the highest since 2007, but there were only a few IPOs in the United States that were backed by the VCs. There were only 28 companies that went public in 2017, which was quite low as compared to 2015.

Moreover, some of the biggest companies couldn’t perform well in 2017; the 3 largest IPOs showed negative returns. Snap Inc. , the second biggest IPO, showed very poor returns.

To summarize, the VC environment has experienced ups and downs over the years, but the overall trends have been declining with the passage of time.

Startups Worthy of Investment … or not

It seems like those days are long gone when venture capitalists used SPRAY and PRAY strategy in the hope that one of the startups in the entire portfolio would make it big.

In other words, it is about time that startup companies show their ability that they are worthy of the venture capital (VC) funds.

 

Decline in the Number of VC Funded Companies

The PitchBook released the first quarter of the 2017 issue in collaboration with the National Venture Capital Association (NVCA). The statistics presented in that report were based on the thorough analysis of VC activity in the United States. According to that report, $16.5 billion was raised by 1800 companies alone. PitchBook and NVCA also observed that even though the amount of investment in the Q1 of 2017 was a bit higher than the capital invested in the fourth quarter of 2016, the number of startups has dramatically decreased to its lowest level since the fourth quarter of 2011.

 

VC Investors and Entrepreneurs Exercising Caution

It looks like the VC sector is facing a gradual decline after experiencing effervescent days of glory back in 2015.

John Gabbert, the CEO of PitchBook, said that during the past few years, the VC activity managed to attain intensified growth in the United States and now it seems to be coming back to earth. He further added that it feels like startup founders and investors have started following a more disciplined approach to investing the funds and taking reasonable caution by adopting measures, such as due diligence. These activities are carried out to secure fair deals on both sides so that each party gets something good out of it.

Ernst & Young, a London based auditing firm, reported that companies in the United States raised about 41.3 billion dollars in 2,802 VC deals in the third quarter of 2016. The San Franciso Bay area represented a total of 916 deals having a value of 16.9 billion dollars.

Jeffrey Grabow, the leader of VC in the U.S. based Ernst & Young, said that VC funding has slowed down and there are various reasons for the declining trend. The prominent reason, however, is the fact that investors want the market to absorb the already distributed capital in the market. Momentum capital has reached a later stage of VC funding and injected capital in almost every that was available in the market. Therefore, it is about time to see how it all turns out.

 

Comparison of the Number of Exits

In spite of the huge funding to a limited number of IT companies, a lot of companies fueled by $9.05 billion worth of venture capital took an exit in the first quarter of 2017. This exceeds the combined value of the IT companies’ exits in 2006, 2008 and 2009. The situation is relatively close to how it was back in 2007. If the same trend and immensity of initial public offerings and acquisitions follow, 2017 will either reach the same figure of 2014, i.e., 39.74 billion dollars, or might exceed it. Only time can tell what is to come next, but it continues to happen at the same pace, it would probably exceed the value of 2014.

IT firms around the world continue to leave behind all other kinds of businesses that are funded by venture capital. According to the NVCA and PitchBook report, Initial Public Offering of Snap and acquisition of AppDynamics by Cisco has been ranked among the top 10 biggest exits of their types during the past 10 years.

 

Investments in VC Activity

California has left behind all other states in the United States in terms of the number and value of VC investments. A total of 560 investments was made in 556 companies, which were worth 8.3 billion dollars. As far as the number of investments was concerned, New York was ranked second with a total of 218 investments. Whereas, Massachusetts was in the second position in terms of investment value as it was slightly higher than 2 billion dollars. Although, there may be a rising trend in the remote work among startup companies, yet, the concentration of venture capital is still high in the Silicon Valley.