venture capital

Once again, more than three-quarters of U.S. venture capital (VC) dollars went to companies in California, New York and Massachusetts in 2016, according to data from the PricewaterhouseCoopers (PwC)/CB Insights’ Moneytree Report Explorer. Approximately 53.3 percent of all VC capital went to California companies, down nearly 4.4 percent from the states peak in 2014 (57.7) and down 3.9 percent from 2015. While California’s share declined, both Massachusetts and New York saw increases in their share of VC dollars invested:

After a down year for both the number of venture capital (VC) deals and the total dollars invested in U.S.-based startups, analysts remain split on whether 2017 will be a continuation of the downward trend or a rebound year. Those bullish on the market point toward strong fundraising totals in 2015-2016 and a likely uptick in the number of initial public offering (IPO) market. Whereas, those bearish on the VC market are concerned about a congested industry.

This week, we take a look at the top SSTI Weekly Digest stories from 2016 and give you an idea of what to look for in the coming months.

In last week’s Digest article – Alternatives to VC: Reconsidering the Startup Financing Paradigm – SSTI examined the conventional venture capital (VC) model as well as its advantages and limitations. In this installment, we will highlight alternatives such as revenue-based financing, venture debt, crowdfunding and a new financing model for cleantech proposed by Massachusetts Institute of Technology (MIT) researchers. We also take a look at the potential that these alternatives have for the field of tech-based economic development.

Venture capital (VC) financing is a highly competitive process that backs only 1 percent to 2 percent of all startups that apply for funding, leaving many searching for financing alternatives.  In this two-part feature, SSTI examines the typical VC model, its advantages and limitations, and next week will highlight alternatives such as revenue-based financing, venture debt, crowdfunding and a new financing model for cleantech proposed by Massachusetts Institute of Technology researchers.

Despite Brexit and political uncertainty in the U.S., stability is returning to the global VC market as investors shift from new unicorn chasing and a renewed interest in global initial private offerings (IPOs) by late-stage startups, according to a new report from CB Insights – Venture Pulse Q3 2016. CB Insights’ analysts contend that investor caution is the dominant VC market global trend driven by more realistic valuations of early stage companies, deals with a significant degree of scrutiny or investor protections, and some investors deciding to shelve their investments.

While the number of companies receiving venture capital (VC) backing continues to decline, the amount of money invested remains near record levels. As of Q3, the annual investment total for 2016 is approximately $56 billion invested across 6,000 companies. However, with only 1,800 deals made in Q3, this marks the fifth straight quarterly decline in the number of companies receiving venture investment – a 32 percent quarter-over-quarter decline.  Yet, nearly 2,000 investors deployed close to $15 billion in VC financing during Q3 2016, according to the inaugural PitchBook-NVCA Venture Monitor – a quarterly report on U.S. venture capital activity.

After an extremely strong venture capital market in 2015, the industry seems to show the signs of a decline driven by both cautious and fatigued investors. Three recent studies from Pitchbook and CB Insights indicate that there are several reasons why venture capital firms and other investors have been more cautious so far in 2016 including: mixed economic growth numbers; a volatile political climate; and, more security in private markets.

A spate of recent news challenges many common perceptions of venture capital. Academic researchers have identified critical shortcomings with widely used industry data. Major investors have revealed smaller than anticipated returns. An analysis of thousands of investments indicates fund success requires superstar deals of well more than 10x. These articles should drive new evaluations of public policy and programs to support early stage capital.

Startup failure is the rule, not the exception. However, much startup ”failure” includes businesses that made a workable product and grew — just not fast enough to attract venture capital. A hybrid venture capital-private equity approach is trying to identify these slower-growing businesses as part of an investment model that may provide an exit strategy for spurned startups throughout the country.