PitchBook Data, Inc. releases 2Q 2015 U.S. Venture Industry Report
SEATTLE — Venture capital financing rounds in the U.S. dropped 24 percent between 3Q 2014 and 1Q 2015, falling from 1,651 investments to 1,262 last quarter—the largest consecutive decline since the financial crisis and the fewest number of rounds since 4Q 2010. While this represents the first significant decline in VC activity in the last four years, the amount of capital invested remains stable. This supports the notion that VCs are becoming increasingly selective and are investing more capital across fewer rounds. The increased time and money being poured into late-stage companies and the dwindling number of first financings of startups is driving this trend. In 1Q 2015, first financings were the lowest since 3Q 2009, totaling 278 first financings in 1Q 2015—a 62 percent decrease from 1Q 2012.
“It appears rising valuations are starting to take their toll on the market, at least at the earliest stages,” says Alex Lykken, Senior Editor at PitchBook Data, Inc. “Raising early stage funding has always been a challenge, but the market is noticeably starting to thin in some areas, which could have a large impact on the industry in the near term and beyond.”
Overview of VC Financings
Most of the first quarter’s decline in activity was in the earliest stages (Seed through Series B), as investors have become more selective in what they finance and at what valuation. This trend is reflected by the continuous drop in first financings from a peak of 736 in 1Q 2012 to just 278 starter rounds in 1Q 2015—the fewest number since before the financial crisis. Early-stage, follow-on rounds fell for the third quarter in a row, dropping 26 percent from 2Q 2014. On the other hand, Late stage financings got off to a strong start, accounting for nearly 60 percent of total capital invested in 1Q 2015, with $8.34B invested across 352 deals.
Overview of VC Exits
After 2014’s momentous year of 926 exits for venture-backed companies, it appears 2015 is off to a slow start. During the first quarter, capital exited reached a combined $6.12B through 186 exits, the lowest number since 4Q 2011. Exits through IPO, a hot exit channel in 2014, dropped to 13 IPOS, a 68 percent decrease from the same quarter last year. This may indicate that mature late-stage companies may continue to stay private as long as capital remains available—particularly after valuations of companies like New Relic, Box and Hortonworks took a blow once they hit the public market.
All data and analysis included in PitchBook’s industry reports is powered by the PitchBook Platform, which tracks the flow of capital across the M&A, PE and VC landscapes, along with the companies, funds, firms, investors and executives involved. PitchBook also offers daily newsletters and consistent analysis on the private financial markets through the PitchBook Blog. To download the full 2Q 2015 Venture Industry Report, visit //pitchbook.com/2Q2015_US_Venture_Industry_Report.html. To subscribe to the PitchBook newsletter, visit //pitchbook.com/PEVC_News.html.