Venture Capital: “Things we have never seen before”

Despite recent market volatility, venture capital investments appear healthy. However, investments flow less into early-stage companies and more into unicorns, reveals the latest MoneyTree Report.

During the second quarter of 2016, $15.3 billion have been invested by venture capitalist in 961 deals, says the MoneyTreeTM Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Thereby, total VC investments increased by 20 percent while the number of deals decreased by five percent compared to the first quarter. Compared to the second quarter of 2015, deal value and the number of deals decreased by 12 and 22 percent respectively.

“The venture capital ecosystem has proven to be both resilient and nimble. We continue to see things we have never seen before, including megadeals, investments of $100 million or more, encompassing an unprecedented thirty-nine percent of deal value for the second quarter and the largest venture capital deal of all time,” says Tom Ciccolella, Venture Capital and Private Equity Assurance Partner. 

Looking at industries, software companies still receive the gross of investments receiving $8.7 billion across 379 deals during the quarter - a 70 percent increase in value despite 4 percent fewer deals. Doing so, six of the above mentioned eleven megadeals happened in the software industry. Thereby, large investments in more mature companies continue to be the driver of VC investments. The software industry is followed by biotechnology companies and IT service companies.

During the second quarter, seed stage investments decreased by 5 percent to $535 million in 45 deals. They represent only three percent of all VC investments during the quarter and five percent of all deals. Similarly, early stage and later stage investments decreased by 14 percent and 35 percent respectively. Expansions stage investments however increased by 112 percent in dollars with a flat deal count. Thereby, the average deal size more than doubled from $13.7 million to $29.1 million mostly driven by Uber Technologies funding with $3.5 billion. Thereby, large investments in unicorns that are planing to scale their business model drive VC investments while the deal flow for early and the most mature companies is becoming weaker.