Venture Capital Coast-To-Coast

VC Watch

We watch venture capital quarterly trends like everybody else, and are consistently surprised how much the "macro" statistics mask more telling "micro" or sector trends. While the 2014 Q3 news highlighted the drop in VC fundraising and investment from the prior quarter, this will still be the biggest year for VC activity since the Great Recession. Several stories within the big 2014 story have caught our eye.

Small and First-Time Fund Come Back

The median fund size raised was $119 million in the first three quarters of 2014. Dow Jones Venture Source U.S. – 3Q 2014. The number of new seed and early stage funds, including first-time players and seed funds formed by larger VC firms, has consistently increased through the first three quarters. Although Q3 2014 fundraising was down from Q2, the number of new or first-time funds raised in Q3 increased as compared with Q2. Thomson Reuters and NVCA, Year to Date VC Fundraising Surpasses Full Year 2013 Commitment Levels.

The big story of the last decade was the contraction in the number of VC funds. But the new story may be the "bifurcation between a small number of very large venture firms who are investing funds well in excess of a billion dollars and much larger number of smaller VC firms." The Future of Venture Capital, Tech Valuations and the Fate of Tech Incumbents – Conversation with Bill Janeway, www.forbes.com. The new class of $100 million or smaller funds should increase the number of seed stage deals going forward. The first half of 2014, as compared with 2013, saw no increase in the number of seed stage deals (and they were smaller on average), with fewer (but larger) early stage, expansion and later stage deals. McGladrey Semi-Annual 2014 Venture Capital Market Trends Report.

Strategic Exits Still Rule

IPO activity has fallen in each quarter of 2014 while M&A activity for VC-backed companies set 3-year records in Q1 and Q3. While the resurgence in IPOs is frequently cited as one factor in VC's historic comeback, acquisitions have accounted for more than 80% of VC exits since 2001, according to data from the National Venture Capital Association.

Bubble Talk

The VC media is inciting fears of a new VC "bubble." Non-traditional VC investors, including cash-rich corporates, have pushed valuations to high levels, and the public markets have helped with that push. The result has been a drop in the number of VC investment deals while total capital invested is approaching a post-2001...