Q2 2016 Venture Capital Research Report

23
Venture Capital Research Report Q2 2016 As of September 12, 2016

Transcript of Q2 2016 Venture Capital Research Report

Page 1: Q2 2016 Venture Capital Research Report

Venture Capital Research Report

Q2 2016

As of September 12, 2016

Page 2: Q2 2016 Venture Capital Research Report

Executive Summary

VC market in the US

Regional share of investment

VC allocation by company growth stage

VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry

VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US

Outlook for 2016

Addendum: concerning Uber megadeal

Page 3: Q2 2016 Venture Capital Research Report

Executive Summary

• VC activity continued to recover in Q2 2016.

- In the US, the number of deals reached fell from 1,011 in Q1 2016 to 961 in Q2.

- However, the average deal value increased by 20% from Q1 2016 to $15.9M, an

all-time high.

- Quarterly investment in the U.S. has exceeded the Q2 2016 total of $15.3B just

three times in the past ten years.

- In the SF Bay Area, 311 deals carried an average value of $26.2M, 48.9% higher

than the mean figure in Q1 2016.

• VC investment is heavily geared towards established companies—only 3.5% of VC

dollars were invested in seed-stage firms nationwide.

- Expansion-stage deals grew more in size than in number, comprising 66% of Bay

Area investment dollars but only 34% of deals.

- The Bay Area was once again the top region for investment at every stage of

development.

• California captured 70% of U.S. investment in Q2, dwarfing runners-up New York

(8%) and Massachusetts (6%).

Page 4: Q2 2016 Venture Capital Research Report

• The San Francisco Bay Area continues to be the biggest recipient of VC

investment in the United States

- 53% of US venture capital dollars were invested in Bay Area companies; San

Francisco alone garnered 36% of all U.S. investment.

- In Q2 2016, 144 of the 311 deals struck in the Bay Area involved San Francisco-

based firms.

- Software, biotech, and IT services are the three dominant industries that had VC

backing in the Bay Area in Q2. In San Francisco, 84.7% of VC funding was directed

at software companies.

• The SF Bay Area is home to nearly 25% of all VC firms in the US.

- San Francisco, Palo Alto, and Menlo Park together are home to nearly 80% of VC

firms in the Bay Area.

• The pattern has changed in VC investment

- Megadeals, like the one that netted Uber $3.5B, continued to grow in value in Q2,

constituting 39% of investment.

- The increase in average deal value but decrease in number of deals suggests that

investors have shifted their preferences to a quality-first basis.

Executive Summary

Page 5: Q2 2016 Venture Capital Research Report

Executive Summary

VC market in the US

Regional share of investment

VC allocation by company growth stage

VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry

VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US

Outlook for 2016

Addendum: concerning Uber megadeal

Page 6: Q2 2016 Venture Capital Research Report

VC market in the US

Source: PricewaterhouseCoopers/National Venture Capital Association

MoneyTree™ Report based on data from Thomson Reuters

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

% change Q2 2015-16

Amount invested

$17.4 B $16.7 B $12.1 B $12.7 B $15.3 B

Number of deals

1,231 1,182 1,035 1,011 961

Average deal value

$14.1 M $14.1 M $11.7 M $12.6 M $15.9 M

-12.2%

-21.9%

12.5%

After falling for two consecutive

quarters, total investment spiked by

20% from Q1 to Q2 2016. Average deal

value hit an all-time high.

Q2 2016 saw a decrease in VC activity in the US, with the number of deals falling

relative to Q1, but overall value increased.

Page 7: Q2 2016 Venture Capital Research Report

Regional share of investment in the US

The San Francisco Bay Area is the single biggest region for venture capital activity,

receiving just over half of all national investment.

The San Francisco Bay Area attracts 76% of

all California VC investment and 53% of the

national share.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

California70%

New York8%

Massachusetts6%

Illinois2%

Texas2%

New Jersey1%

Other11%

$10.7 B

invested

in CA in

Q2 2016

$1.2 B

$974 M

SF Bay Area LA/Orange County San Diego

Data for Q2 2016

Source: MoneyTree™ Report

Page 8: Q2 2016 Venture Capital Research Report

VC allocation by company growth stage

Venture capital investment in the US was distributed unequally across growth stages

in Q2. Expansion- and later-stage deals accounted for over 70% of investment.

3%

Time

Co

mp

an

y m

atu

rity

ExpansionEarlyStart-

up/seed

Later

26% 56% 15%Percentage of total

investment dollars

The number of

seed- and early-

stage deals fell to

a 4-year low in

Q2, possibly due

to market

uncertainties like

Brexit. Expansion-

stage megadeals

headlined Q2

investment.

Data for Q2 2016

Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report

Page 9: Q2 2016 Venture Capital Research Report

Executive Summary

VC market in the US

Regional share of investment

VC allocation by company growth stage

VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry

VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US

Outlook for 2016

Addendum: concerning Uber megadeal

Page 10: Q2 2016 Venture Capital Research Report

Data for Q2 2016

Source: MoneyTree™ Report

VC market in the SF Bay Area

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

% change Q2 2015-16

Amount invested

$9.0 B $8.1 B $4.6 B $4.9 B $8.2 B

Number of deals

385 364 286 279 311

Average deal value

$23.0 M $22.0 M $15.9 M $17.2 M $26.2 M

-9.6%

-19.2%

13.7%

Although total investment and the number of deals fell year-over-year, Q2 saw large

spikes in both figures from Q1.

Average deal value increased by 52%

between Q1 and Q2 2016 (to an all-time

high), and the amount invested

increased by 65%.

Page 11: Q2 2016 Venture Capital Research Report

Data for Q2 2016

Source: MoneyTree™ Report

Annual VC investment in the SF Bay Area

Although the number of deals

has been relatively volatile

quarter-to-quarter over the

past 10 years, Bay Area

investment values have grown

fairly consistently.

Q2 2016 investment was the

second-highest of the period

from 2006-2016.

Bay Area VC investment has

increased over 300% since

Q2 2006.

50

100

150

200

250

300

350

400

450

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Billions

Investment Deals

Page 12: Q2 2016 Venture Capital Research Report

VC allocation by company growth stage: SF Bay Area

In Q2 2016, venture capitalists lowered both the number and the value of investments

in seed, early, and later stages, but doubled expansion-stage value.

Percentage of total

investment dollars

In San Francisco

City, 50% of

deals were made

with seed- and

early-stage

companies, but

these deals only

comprised 12%

of total SF

investment.*

3%

Time

Co

mp

an

y m

atu

rity

ExpansionEarlyStart-

up/seed

Later

20% 66% 11%

*Uber’s $3.5 B expansion-stage deal constituted 63% of SF investment in Q2. Seed/early-stage deals comprised

32% of all other SF investment dollars.

Page 13: Q2 2016 Venture Capital Research Report

Data for Q2 2016

Source: MoneyTree™ Report

Comparison of VC allocation: SF and US

The San Francisco Bay Area as a whole outperforms all other regions in the US in

average deal size across all stages of company growth.

The average expansion-stage

deal in San Francisco City

was 6.3 times the Bay Area

average and 5 times the

national average.

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

Overall Seed Early Expansion Later

Avera

ge D

eal Siz

e

SF City Rest of Bay Area Rest of US

Page 14: Q2 2016 Venture Capital Research Report

Data for Q2 2016

Source: MoneyTree™ Report

*Based on PWC records of Bay Area investee companies that received at least one qualifying investment in Q2 2016.

VC investment in the SF Bay Area: top cities

Companies based in San Francisco received $5.5 billion in VC investment, more than

half of the Bay Area total; Uber alone accounted for $3.5 billion. San Francisco firms

also accounted for 144 of the 311 deals struck in the Bay Area.

San Francisco144 deals

$5.5b

Redwood City16 deals$312m

Palo Alto19 deals$296m

South SF9 deals$238m

Menlo Park9 deals$201m

Mtn. View12 deals$198m

Newark4 deals$143m

San Jose10 deals$143m

San Mateo11 deals$139m

Hayward4 deals$96m

Page 15: Q2 2016 Venture Capital Research Report

Data for Q2 2016

Source: MoneyTree™ Report

Industry Amount

Invested in

Bay Area

Deals in

Bay Area

Amounted

Invested

in SF

Deals

in SF

Industry as

% of BA

Investment

Software $5,577 M 149 $4,686 M 80 68.4%

Biotechnology $564 M 23 $41 M 3 6.9%

IT Services $446 M 28 $324 M 19 5.5%

Media and

Entertainment$366 M 27 $203 M 17 4.5%

Industrial/Energy $292 M 19 $18 M 2 3.6%

Medical Devices and

Equipment$227 M 14 $13 M 1 2.8%

Semiconductors $128 M 7 $9 M 1 1.6%

Consumer Products

and Services$114 M 11 $36 M 6 1.4%

Electronics and

Instrumentation$100 M 4 - - 1.2%

Financial Services $79 M 5 $78 M 3 1.0%

Networking and

Equipment$76 M 3 $76 M 3 0.9%

Other $188 M 21 $61 M 9 2.3%

Total $8,158 M 311 $5,535 144 100%

VC investment in the SF Bay Area: by industry

More than 75% of

investment in the Bay

Area’s top three

industries went to San

Francisco-based

companies

Over 80% of San

Francisco investment

went towards software

companies

Software, biotech, and IT services were the three biggest industries for Bay Area VC

investment in Q2 2016.

Nearly half of all Bay

Area deals were made

with San Francisco-

based companies

Page 16: Q2 2016 Venture Capital Research Report

Executive Summary

VC market in the US

Regional share of investment

VC allocation by company growth stage

VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry

VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US

Outlook for 2016

Addendum: concerning Uber megadeal

Page 17: Q2 2016 Venture Capital Research Report

Data for Q2 2016

Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report

VC firms investing in US companies

Nearly 30% of VC firms seek opportunities

in CA

The SF Bay Area is home to over three-quarters of all VC firms in California and

nearly a quarter of the US total.

California34%

New York12%

Massachusetts7%

Other US28%

International4%

0

10

20

30

40

50

60

70

80

Page 18: Q2 2016 Venture Capital Research Report

Data for Q2 2016

Source: MoneyTree™ Report

*Based on the number of venture capital firms that made at least one qualifying investment in Q2 2016.

VC firms with HQs in the SF Bay Area

San Francisco, Palo Alto, and Menlo Park together are home to nearly 80% of all VC

firms headquartered in the Bay Area.

Menlo Park39%

Palo Alto22%

San Francisco15%

Los Altos6%

Foster City3%

San Mateo3%

Other12%

Page 19: Q2 2016 Venture Capital Research Report

Most active VC firms in the US

Bay Area firms, particularly those based in Menlo Park, again dominated VC investment.

Data for Q2 2016

Source: MoneyTree™ Report

60% of the top 20

VC firms in the US

are based in the SF

Bay Area

Page 20: Q2 2016 Venture Capital Research Report

Executive Summary

VC market in the US

Regional share of investment

VC allocation by company growth stage

VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry

VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US

Outlook for 2016

Addendum: concerning Uber megadeal

Page 21: Q2 2016 Venture Capital Research Report

Source: CB Insights/KPMG Venture Pulse Report

• VC activity in the SF Bay Area boomed in Q2 for the third straight year. In the past

15 years, only Q2 2015 has logged more overall investment than Q2 2016.

• The pattern has changed in VC investment. The increase in average deal value but

decrease in number of deals suggests that investors have shifted their preferences,

prioritizing strong business models and paths to profitability over promise.

• VC investors retain their focus on software. Software companies accounted for over

50% of deals and nearly 60% of investment nationwide. San Francisco and its environs

recorded even higher proportions.

• The future appears bright for high tech sectors, despite uncertainties. The US

presidential election and the fallout from Brexit, among other factors, may caution

investors. Still, any potential downward pressures should be countered by investor

interest in burgeoning advancements such as artificial intelligence and virtual reality.

Outlook for 2016

Page 22: Q2 2016 Venture Capital Research Report

Executive Summary

VC market in the US

Regional share of investment

VC allocation by company growth stage

VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry

VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US

Outlook for 2016

Addendum: concerning Uber megadeal

Page 23: Q2 2016 Venture Capital Research Report

Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report

• San Francisco-based Uber attracted $3.5 B in Q2 venture capital, accounting for 63% of

San Francisco VC dollars and nearly a quarter of US investment.

• The number of deals valued at $100 M or above has fallen quarter-by-quarter in the US

over the past year, which raises the concern that Uber’s massive net is an outlier that

skewed overall and expansion-stage averages.

• Even with the Uber deal omitted, investment in San Francisco still outpaced that of

the next-highest Bay Area city by $1.7 B and exceeded national averages.

Addendum: concerning Uber megadeal

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

San Francisco Rest of Bay Area Rest of US

Avera

ge D

eal

Overall Expansion Stage