First financings at lowest level since 3Q 2009
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IPOs drop considerably
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P I TC H B O O K 2Q 2015
U. S . V E N T U R E I N D U S T RY R E P O R T
Are valuations starting to take a toll on U.S. venture? Looking at first quarter data, that’s one possible conclusion. The number of financings continues to fall, down another 10% from the prior quarter and a full 24% since 3Q 2014. The 1,262 rounds completed in 1Q were the fewest recorded in four years. At the same time, capital invested remained upright in the first quarter at $13.8 billion. That total is also down from 4Q levels (-21%) but, even so, it represents the fourth highest quarterly sum since the dot-com days. While counts are sloping downward, combined value continues going up.
Most of 1Q’s decline was centered in the earliest stages, especially in seed and angel financing. That’s been the case for a few quarters now—early stage activity is on a three-quarter losing streak, off 2Q 2014 levels by 26%. It’s probably not a coincidence that
2Q 2014 was a high tide for capital invested. In fact, a quick glance at the seed, early and late stage graphs on pages 6 through 8 all show the same thing—a onequarter peak for capital invested levels followed by big dips in subsequent round counts. It seems that
VCs are becoming much more selective in what they
finance; the capital continues to flow, but to far fewer recipients. It’s worth pointing out that this sudden drop in activity is coinciding with a surge of interest in startups from outside Silicon Valley. The number of players in the market has only grown in recent years, but that hasn’t translated into more rounds. The market has thinned.
Valuations at the late stage have been widely blamed for the bubble scare.
There’s some debate among VCs that the frothiest valuations aren’t reflecting true market prices, since many financing opportunities are essentially being auctioned off to the highest bidders, especially firms less sensitive to entry prices than traditional VCs. Those valuations have trickled down to the earlier stages, where eyepopping price tags are (supposed to be) harder to justify. For perspective, Twitter’s Series B in 2007 valued the company at $22.75 million, almost half the median for Series Bs in 2014 ($37 million).