With the PreMoney investor conference quickly approaching, we asked our friends at Silicon Valley Bank (SVB) to outline VC data and trends they’re tracking closely. Given their unique position in the market—as a lender, an investor in startups and funds, and some of the most connected folks we know in tech—we knew they’d have deep insight into what’s really happening, separating the real data from the market hype.
Post by Claire Lee, Managing Director, Silicon Valley Bank
THE BIG 10 TRENDS: FROM VALUATIONS TO LOCATIONS
1. VC’s Have Become More Discerning
More than half of the early stage companies SVB’s California-based team has been tracking were founded within the last two years. A higher % of these startups are surviving and thriving. While deal count overall in venture capital has been declining since Q4 2014, early stage dollars invested are way up, indicating that investors are more discerning about their bets.
2. Valuations Continue To Trend Up
Mattermark reported in the Q1 2015 U.S. Venture Capital Funding Report that the value of seed rounds increased a whopping 145% on the same period in 2014 – and Series A and B were up 22% and 20% respectively.
3. Early Stage Is Still Hot
CB Insights gave us more reasons to be cheerful (and not gloomy): While Seed and Series A deal shares have decreased, early stage deals overall still represent almost 55% of all deals in Q1 2015.
4. Corporate Venture Trending Up
Our friend, the Corporate VC, has shown us they are serious about funding innovation early: Series A CVC deals rose to a five-quarter high of 28% in Q4 2014 (from 21% in Q3 2014) and continues to rise into 2015.
Corporates are more active investors and acquirers of startups, but they also make great customers and routes-to-market. In April, SVB and 500 Startups co-hosted a custom demo day for 25 corporate innovation execs to meet 1:1 some of the best 500 Startups companies in the eCommerce, FinTech, Video, Mobile and SaaS sectors. To learn more about the insights and strategy shared at that event, check out Dave McClure’s presentation on corporate innovation investing.
There are now 1,100 CVCs globally (double the number there were in 2009), and they are in 30% of all VC deals. Participation is way up – in Q4 2014, 96 CVCs were in deals – a 32% increase from Q4 2013 and a 60% increase from Q4 2012. According to Global Corporate Venture, we saw $17.7B invested in 783 deals by corporates in 2014.
Capital invested by the big guys was up 39%, while deal sizes average $23.9M—and 51% had deal sizes of $16.7M.
5. Everyone Wants a Piece of Tech…Yet Exits Are Down
Mega rounds are also on the rise – later stage investors, such as hedge funds, private equity, corporate VC, mutual funds and sovereign wealth funds, are fueling growth in dollars invested pre-IPO. Mind you, exits are down too — 138 exits in Q1 2015, representing a 19% decrease from the previous quarter.
6. California Rules, While Massachusetts Beats Out NYC
California companies still comprise the majority of top companies getting Seed and Series A rounds, according to our research. The state of California leads in total fundings and share of most active investors.
While California deal share decreased for the third straight quarter, Massachusetts has been gaining on New York since Q3 2014, and surpassed the Empire State in Q1 2015.
7. The Bay Area Remains the Undisputed Center of Disruption
Urbanization is definitely a thing: A large majority of top companies have their HQ in major cities, including California and other top states (New York, Massachusetts, Texas, and Illinois). Pitchbook illustrated the spread of capital invested across the different US states:
To capitalize on this collision of startups & geography, SVB hosts startup partners at Galvanize, an urban community workspace with some prime real estate in what happens to be the No.1 zip code for venture capital investment in the world — San Francisco, Calif.
While the abundance of capital is still concentrated, we are hearing more about the ‘rise of the rest’ and a slightly larger spread of VC dollars across the US. (Shout-out to Ian Hathaway, whose research pointed out that more cities in 2014 provided ‘first fundings’ than in 2009.) Marginal, but still heading in the right direction.
8. Sector Analysis: Internet Is Down While Energy & Healthcare Are Trending Up
The share of Internet deals decreased for the fifth straight quarter, while Healthcare and Energy deal shares increased in Q1 2015.
9. Power To The Founder
The founder has the power these days – giving up less equity at the early stages. SVB’s analytics research on equity comp in February confirms this. What’s more, we are seeing greater awareness and appetite for debt financing, alongside the equity financing, with savvy founding teams these days.
Source: SVB Analytics
10. The Top Performers
Not surprisingly, NEA and Andreessen Horowitz top the list of most active investors in Q1 2015, with activity across all stages. Interestingly enough, our friends at 500 Startups seem to know a little about picking winners, too.
To hear more insights from SVB Capital & others, join us at the PreMoney conference on Jun. 12, 2015. Visit PreMoney.co and enter promo code ‘SVBCAPITAL’ to score an additional $150 off the registration price.
For more information about any of the data above or to get connected with SVB, contact Claire Lee at CLee at svb dot com or send her a tweet at @Claire0h.