VC Funding Still Robust as Year-to-Date Total Exceeds 2013

roughly the same pace. The MoneyTree report counted a total of 4,134 venture investments in 2013, and 2014 is on track to come in at more than 4,100. Some 3,154 deals have been done through the first three quarters of the year.

“We’re not undisciplined in the number of deals we’re doing,” says Mike Krupka, a managing director in the Boston office of Bain Capital Ventures. But in Krupka’s view, VCs have allowed deal valuations to get out hand—particularly among startups providing software-as-a-service (SaaS). “Almost all the growth [SaaS] companies with annual revenue of $10 million or more are getting high valuations,” Krupka says. “If the market is over-extended, it’s with those [types of] companies that have some revenue traction.”

Mark McCafferty, a technology partner at PricewaterhouseCoopers, attributes some of that to the continuing participation of non-traditional investors in venture deals, resulting in “mega deals”—with companies raising $100 million or more. There have been more than 30 such deals so far in 2014, compared to 16 in all of 2013, he says in the MoneyTree release.

Mike Krupka of Bain Capital Ventures
Mike Krupka (image courtesy of Bain Capital Ventures)

Krupka attributes the high valuation for SaaS startups in venture deals to the IPO valuations that SaaS-based companies like LinkedIn, Workday, Palo Alto Networks, and ServiceNow have commanded over the past three years. The gyrations of the U.S. public markets in recent weeks have pulled those valuations down, and Krupka said that should also bring more disciplined pricing to venture deals for SaaS startups, even though interest in SaaS venture deals continues to be strong. Krupka also remains bullish on venture investments in healthcare IT and software used in network infrastructure.

Another hot segment for venture activity was media and entertainment startups. Venture firms invested $1.8 billion into 118 deals during the third quarter. That was 23 percent more capital than the $1.5 billion that VCs invested into 124 startups in the previous quarter.

But the amount of capital invested by venture firms declined in 10 of the 17 market segments in the MoneyTree Report.

Overall funding in the life sciences (biotech and medical devices combined) declined by almost 35 percent, from more than $2.5 billion in the previous quarter to about $1.64 billion in the three months that ended September 30.

Life sciences funding is also down by about 11 percent from the same quarter last year when venture firms poured $1.85 billion into the sector. But venture funding for biotech startups increased slightly in the third quarter, to just over $1 billion from nearly $984 million in the year-ago quarter.

“In general, the numbers for biotech have been very consistent over the past few quarters,” says Deepa Pakianathan, a general partner at Menlo Park, CA-based Delphi Ventures who specializes in biotech deals. With a robust market for healthcare IPOs and life sciences firms like Canaan Partners successfully raising new funds, Pakianathan says, “The entire ecosystem in biotech is in very good shape.”

The MoneyTree Report also notes that seed stage funding was down slightly from the previous quarter, with $197 million invested in 48 deals. Early stage funding was down 22 percent in dollars and 3 percent in deals, with $3 billion going into 511 deals. Together seed and early stage deals accounted for 55 percent of the total deal volume during the third quarter, compared to 52 percent in the prior quarter.

Investments in later stage companies increased 3 percent, with $3.3 billion going into 200 deals. That was the biggest funding total for later stage deals since the third quarter of 2007.

The Top 10 list of deals, according to MoneyTree, are:

Vice Media Media & Entertainment Brooklyn, NY $500M
Palantir Technologies Software Palo Alto, CA $165.1M
Houzz Media & Entertainment Palo Alto, CA $165M
Box Software Los Altos, CA $158.2M
Lookout Software San Francisco $150M
Qualtrics Software Provo, UT $150M
Nutanix Software San Jose, CA $145M
Pluralsight Media & Entertainment Farmington, UT $135M
Kabam Software San Francisco $120M
DataStax Software Santa Clara, CA $120M
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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.