venture capital

In the lead-up to the Biotechnology Innovation Organization’s (BIO) International Convention held this week, the organization released a series of reports on the health of the industry. Collectively, the reports indicate that the bioscience industry is seeing greater employment with better wages, increasing venture investment, but university and federal funding, patent filings and clinical trial success are leveling off or decreasing.

Coming off a record setting year, industry analysts contended that there would be a more cautious U.S. venture capital industry (VC) in 2016 with discussion of a VC bubble. However, in Q1 of 2016, venture capitalists invested more than $10 billion for the ninth consecutive quarter with little concern over a bubble. In total, VCs invested $12.1 billion in 969 deals in the Q1 of 2016, according to the MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA). At the same time, U.S. venture capital firms raised $12.0 billion for 57 funds during Q1 of 2016, making it the strongest quarter for funds raised since Q2 of 2006, according to the Fundraising Report by Thomson Reuters and NVCA. A review of the data indicates continuation of trends in where venture capital is being invested, the decline of investment in seed stage companies, and increasing corporate venture capital activity with 20.6 percent of funds invested in Q1 of 2016 coming from corporate venture capital.

Only 8 percent of partners with the authority to invest at 2,300 micro- and venture capital (VC) firms are women (and only 7 percent of the top 100 firms), according to CrunchBase Women in Venture, a new report providing a detailed snapshot of the state of female investors and founders. The report finds of 54 corporate VC divisions and 101 accelerators, 12 percent of partners were female. The report did find some possible signs of improvement; among 826 VC firms with “deep teams,” 22 percent of lower-titled employees are women, suggesting that opportunities for promotion to partner may yield better balance, and among new micro- and VC firms in the last three years, 16 percent, or 20 of 125, had at least one female partner—double the rate among existing firms. Women in Venture also examined the amount of funding going to companies with at least one female founder and reports that from 2010-2015, 10 percent, or $31.5 billion, of VC funding went to companies with at least one female founder, compared to 17 percent, or $2.4 billion, of seed funding. The report examined whether firms with female investors were more likely to invest in startups with female founders and found no real evidence of this connection.

The U.S. venture capital (VC) industry continued a gradual deflation in activity in Q1 2016, even as capital invested remained at a historically robust level according to Pitchbook’s 1Q 2016 U.S. Venture Industry Report. In Q1 2016, the VC industry also continued the trend of massive late-stage VC rounds with $9.4 billion of $17.7 billion invested in late-stage financing. While VC activities declined in Q1, angel and seed capital deals continued to plateau for another quarter. In its recently released 2015 Annual VC Valuations & Trends Report, Pitchbook researchers projected that the VC industry has peaked and VC activity will slowly return to 2013 levels and its 2016 Q1 report may confirm that assertion over the next couple years. Pitchbook researchers contend that the decline in VC valuations/deals and the plateau in angel/seed financing activity is clear evidence that investors at all levels are exercising a bit more caution in their investments. However, they highlight that both VC and angel investors are still willing to make investments in startups, which are viewed as low-risk, due to the significant size of many late-stage investments. 

More than three-quarters of U.S. venture capital dollars went to companies in California, New York and Massachusetts in 2015, according to data from the PricewaterhouseCoopers (PwC)/National Venture Capital Association (NVCA) Moneytree Report. California companies received over 57 percent of all U.S. investment, about 0.5 percent down from the state’s peak in 2014. Both New York and Massachusetts received about 10 percent of U.S. dollars. Washington, the state with the fourth highest share, trailed far behind at 2.1 percent. California and Massachusetts also both led in venture capital dollars per capita, taking in about $860 and $841 per resident, respectively. Massachusetts continues to lead the nation in deals per capita, with about 6.5 per 100,000 residents.

Despite a small decrease in venture capital deals last year, the San Francisco-Oakland-Fremont metropolitan area remains the most active investment regions on a per capita basis, according to data from the PricewaterhouseCoopers (PwC)/National Venture Capital Association (NVCA) MoneyTree Report. San Francisco led all other MSAs in both total dollars and per capita activity, with its $21 billion in 2015 investment averaging about $4,500 per metro resident. NVCA notes that 133 metros were home to deals in 2015, an encouraging sign that opportunities are opening up in areas outside of the known hotspots.

Last year, the venture capital investment hit a 15-year high, with total dollars topping every year since 2000. A slow fourth quarter brought the remarkable trajectory of the year back down to earth, but with a total of $11.3 billion invested, 2015 became the second highest year on record since PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA) began the Moneytree Report in 1995. Much of this growth was due to larger deals, and, in fact, the total number of deals was down from the previous year. California continues to dominate the market, with California firms receiving 57 percent of all investment. Washington surpassed Texas to join the top five states in terms of venture dollars, and Boston surpassed San Jose to join the top three metropolitan regions.

This week, leaders in Illinois and New Mexico announced new investments to help seed and early stage technology startups access equity capital. The Illinois Treasurer will launch the Illinois Growth and Innovation Fund, which would invest $220 million over the next three years in 15-20 funds across the state. No more than 15 percent of the money will be placed with any particular fund. The state’s investment will target emerging tech companies, beginning later this quarter. New Mexico plans to launch a $40 million fund-of-funds, dubbed the Catalyst Fund. The state will target micro-funds in New Mexico, which must be able to match the state’s investment. The State Investment Council hopes the effort will double the amount of seed and early stage funding available in the state, according to the Albuquerque Journal.

Even though the total amount invested by venture capitalists (VCs) grew for the fourth straight year to nearly $77.3 invested, Pitchbook analysts contend that 2014/2015 was the peak of the VC industry for the foreseeable future. While high valuations drove up the total amount invested, the number of deals plummeted during the second half of 2015 according to new data from Pitchbook.  In addition to insights from Pitchbook, other analysts contend that the declining trends of 2015 should remain through 2016.

Bank or venture capital (VC) financing? This is one of the toughest questions that aspiring entrepreneurs and small firms must answer. A recent academic study contends that VC financing may be the superior financing structure for early stage capital. However, several other studies contend that both bank and VC financing can help create and grow successful startups. For potential entrepreneurs, each provides strengths and weaknesses that are highlighted in the studies.