‘Series A Crunch’ Continued: Early Stage Deals See Slowdown in 3Q

James Gelfer October 01, 2013

Venture capital investing in 3Q 2013 was quite similar to the levels seen in recent quarters, both in terms of the number of financings and the amount of capital invested, new data released today by PitchBook show.

Deal flow was slightly down from the previous quarter and from 3Q 2012, with the slowdown being most pronounced in early stage financings, showing that the “Series A crunch” continues to be a topic of concern. Interestingly, the median size of early stage deals climbed to $4.37 million in 3Q 2013—the first time it has eclipsed $4.00 million in more than a year and a half—while the valuation of early stage companies actually declined. This indicates that VC investors are placing fewer, larger bets on early stage companies but are not having to pay higher prices. One area where we have seen valuations grow is in late stage financings. Since 1Q 2012, the median valuations in Series C and Series D or later rounds have risen by 78% and 48%, respectively.

The number of early stage financings dropped in 3Q 2013.

On an industry level, reports over the last several quarters that say investors are beginning to sour on the social and consumer-focused investing trends of recent years appear to be manifesting themselves in the data. VC investment in the consumer products & services (B2C) industry fell to its lowest level in nearly three years in 3Q 2013, with retail deals cut in half from 2Q 2013. On the flip side, investment in business products & services (B2B) and IT were relatively stable, but the media sector has been hit particularly hard, falling from a peak of 127 financings in 1Q 2012 to 53 deals in 3Q 2013.

Changing investor preferences are also evident in the software sector, where deal flow has been steady but investors are diverting more capital to subsectors like network management, software development, business productivity and financial software, as opposed to multimedia, social and entertainment. Within the broader IT space, there has also been an uptick in deals for computer hardware and communications & networking companies.

Investment in the healthcare industry has been fairly consistent, but investors have been shifting their focus within the space. For example, quarterly investment in healthcare devices & supplies was cut by nearly half from 1Q to 3Q 2013, but VC rounds in healthcare services and technology systems have been on the upswing.

For PitchBook’s take on 3Q 2013 private equity deals data, click here.

Featured image courtesy Wikimedia Commons user Evan Amos.

Q3 2013 VC Deals Snapshot