Venture Firms Turn Down Funding Volume, but Still Rockin’ in Q3

cash, folding money,

into Internet startups, which also accounted for about 70 percent of the deals.

The amount VCs invested in New York during the third quarter was roughly twice the $683 million that venture firms invested in 65 deals in Massachusetts.

Venture dollars and deals in the Bay State both fell by roughly a third from the previous quarter, when VCs invested just over $1 billion in 100 startups.

The biggest surprise, however, may be the $400 million that venture firms deployed in 14 startups in Utah—a number driven chiefly by sizable investments in Pluralsight and Qualtrics. It was nearly three times the $136 million that VCs invested in Utah startups during the previous quarter, according to CB Insights.

VCs invested $26.5 million in 7 deals in Wisconsin, and $24.2 million in 5 deals in Michigan
(VCs invested $26.5 million in 7 deals in Wisconsin, and $24.2 million in 5 deals in Michigan)

California, as usual, was far and away the biggest recipient of venture capital activity, with nearly $5.2 billion invested in 406 startups. The amount invested was down 42 percent from the previous quarter, when VCs deployed over $8.9 billion in 442 companies. On the other hand, the three mega investments in Uber, Airbnb, and Pinterest that blew out the previous quarter were all California deals.

 

In other noteworthy trends, CB Insights reports:

—So far this year, 21 companies have raised their first-financing with a valuation of at least $1 billion. Qualtrics and Credit Karma were among the new entrants in the third quarter.

—The number of late-stage deals (Series D rounds and later) remained strong, accounting for 16 percent of all venture deals during the third quarter. Early stage deals remained normal, and accounted for about 55 percent of all deals. But in terms of dollars invested, the share of Series B funding rose to take a fourth of all VC funding during the quarter, with late-stage funding falling to about 39 percent, after taking nearly half of all venture funding in the first and second quarters.

—The IPO market for venture-backed companies fell significantly. Just 18 U.S. companies went public during the third quarter, compared to 24 in the second quarter and 35 in the first quarter.

Silicon Valley got 84 percent of all Q3 financing deals in California.
Silicon Valley got 84 percent of all Q3 financing deals in California.

CB Insights speculates that the tech sector was intimidated by Hangzhou, China-based Alibaba’s IPO, with only one U.S.-based company, TubeMogul, going public during the quarter. Meanwhile, healthcare IPOs accounted for 83 percent of all VC-backed IPOs in the quarter, with Cambridge, MA-based Sage Therapeutics scoring the highest valuation at more than $400 million in mid-June.

—Venture funding for startups in the mobile and telecom sector fell by over 50 percent, from $2.6 billion in 146 deals in the second quarter to $1.2 billion in 145 deals during the third quarter. Investments in Internet deals also dropped, from $5.6 billion in 437 deals during the second quarter to $4.5 billion in 410 deals during the third quarter. Healthcare funding likewise declined, from $2.6 billion in 146 deals to $1.7 billion in the latest quarter.

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Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.