Venture Capital Research Report Q2 2016
As of September 12, 2016
Executive Summary VC market in the US Regional share of investment VC allocation by company growth stage VC market in the SF Bay Area Annual VC investment in the SF Bay Area VC allocation by company growth stage Comparison of VC allocation: SF and the US Investment in the SF Bay Area: top cities Investment in the SF Bay Area: by industry VC firm breakdown VC firms investing in US companies VC firms with HQs in the SF Bay Area Most active VC firms in the US Outlook for 2016 Addendum: concerning Uber megadeal
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%).
Executive Summary •
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 Franciscobased 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 VC market in the US Regional share of investment VC allocation by company growth stage VC market in the SF Bay Area Annual VC investment in the SF Bay Area VC allocation by company growth stage Comparison of VC allocation: SF and the US Investment in the SF Bay Area: top cities Investment in the SF Bay Area: by industry VC firm breakdown VC firms investing in US companies VC firms with HQs in the SF Bay Area Most active VC firms in the US Outlook for 2016 Addendum: concerning Uber megadeal
VC market in the US Q2 2016 saw a decrease in VC activity in the US, with the number of deals falling relative to Q1, but overall value increased. % change Q2 2015 Amount invested Number of deals Average deal value
Q2 2016
Q2 2015-16
Q3 2015
Q4 2015
Q1 2016
$17.4 B
$16.7 B
$12.1 B
$12.7 B
$15.3 B
-12.2%
1,231
1,182
1,035
1,011
961
-21.9%
$14.1 M
$14.1 M
$11.7 M
$12.6 M
$15.9 M
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.
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
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. New Jersey Texas 1% 2% Illinois 2%
Other 11%
The San Francisco Bay Area attracts 76% of all California VC investment and 53% of the national share.
California 70%
90% Massachusetts 6%
80% $974 M 70%
New York 8%
$1.2 B
$10.7 B invested in CA in Q2 2016
60% 50% 40% 30% 20% 10%
0% SF Bay Area
LA/Orange County
San Diego
Data for Q2 2016 Source: MoneyTree™ 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.
The number of seed- and earlystage deals fell to a 4-year low in Q2, possibly due to market uncertainties like Brexit. Expansionstage megadeals headlined Q2 investment.
Company maturity
Percentage of total investment dollars
3%
26%
56%
15%
Startup/seed
Early
Expansion
Later
Time Data for Q2 2016 Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report
Executive Summary VC market in the US Regional share of investment VC allocation by company growth stage VC market in the SF Bay Area Annual VC investment in the SF Bay Area VC allocation by company growth stage Comparison of VC allocation: SF and the US Investment in the SF Bay Area: top cities Investment in the SF Bay Area: by industry VC firm breakdown VC firms investing in US companies VC firms with HQs in the SF Bay Area Most active VC firms in the US Outlook for 2016 Addendum: concerning Uber megadeal
VC market in the SF Bay Area Although total investment and the number of deals fell year-over-year, Q2 saw large spikes in both figures from Q1. % change Q2 2015 Amount invested Number of deals Average deal value
Q2 2016
Q2 2015-16
Q3 2015
Q4 2015
Q1 2016
$9.0 B
$8.1 B
$4.6 B
$4.9 B
$8.2 B
-9.6%
385
364
286
279
311
-19.2%
$23.0 M
$22.0 M
$15.9 M
$17.2 M
$26.2 M
13.7%
Average deal value increased by 52% between Q1 and Q2 2016 (to an all-time high), and the amount invested increased by 65%.
Data for Q2 2016 Source: MoneyTree™ Report
Billions
Annual VC investment in the SF Bay Area $10
450
$9
400
$8
350
$7
300
$6
250
$5
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.
200
$4
150
$3
100
$2
50
$1 $0
Investment
Q2 2016 investment was the second-highest of the period from 2006-2016. Bay Area VC investment has increased over 300% since Q2 2006.
Deals
Data for Q2 2016 Source: MoneyTree™ 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.
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.*
Company maturity
Percentage of total investment dollars
3%
20%
66%
11%
Startup/seed
Early
Expansion
Later
Time *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.
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. $90,000,000 $80,000,000
Average Deal Size
$70,000,000 $60,000,000
The average expansion-stage deal in San Francisco City was 6.3 times the Bay Area average and 5 times the national average.
$50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Overall SF City
Seed
Early
Rest of Bay Area
Expansion
Later
Rest of US
Data for Q2 2016 Source: MoneyTree™ Report
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 Francisco 144 deals $5.5b
Hayward 4 deals $96m
South SF 9 deals $238m Redwood City San Mateo 16 deals Menlo Park $312m 11 deals 9 deals $139m $201m Palo Alto 19 deals $296m
Newark 4 deals $143m
Mtn. View 12 deals $198m
San Jose 10 deals $143m
*Based on PWC records of Bay Area investee companies that received at least one qualifying investment in Q2 2016.
Data for Q2 2016 Source: MoneyTree™ Report
VC investment in the SF Bay Area: by industry Software, biotech, and IT services were the three biggest industries for Bay Area VC investment in Q2 2016. Industry
Amount Invested in Bay Area
Deals in Bay Area
Amounted Invested in SF
Deals in SF
Industry as % of BA Investment
$5,577 M
149
$4,686 M
80
68.4%
$564 M $446 M
23 28
$41 M $324 M
3 19
6.9% 5.5%
$366 M
27
$203 M
17
4.5%
$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%
$114 M
11
$36 M
6
1.4%
$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%
$188 M
21
$61 M
9
2.3%
$8,158 M
311
$5,535
144
100%
Software
Biotechnology IT Services Media and Entertainment Industrial/Energy
Consumer Products and Services Electronics and Instrumentation
Other
Total
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
Nearly half of all Bay Area deals were made with San Franciscobased companies
Data for Q2 2016 Source: MoneyTree™ Report
Executive Summary VC market in the US Regional share of investment VC allocation by company growth stage VC market in the SF Bay Area Annual VC investment in the SF Bay Area VC allocation by company growth stage Comparison of VC allocation: SF and the US Investment in the SF Bay Area: top cities Investment in the SF Bay Area: by industry VC firm breakdown VC firms investing in US companies VC firms with HQs in the SF Bay Area Most active VC firms in the US Outlook for 2016 Addendum: concerning Uber megadeal
VC firms investing in US companies The SF Bay Area is home to over three-quarters of all VC firms in California and nearly a quarter of the US total. International 4%
80 70 60
Other US 28%
Nearly 30% of VC firms seek opportunities California 34% in CA
50 40 30 20
10 0
Massachusetts 7%
New York 12%
Data for Q2 2016 Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report
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. Other 12% San Mateo 3% Foster City 3% Menlo Park 39%
Los Altos 6%
San Francisco 15%
Palo Alto 22%
*Based on the number of venture capital firms that made at least one qualifying investment in Q2 2016.
Data for Q2 2016 Source: MoneyTree™ Report
Most active VC firms in the US Bay Area firms, particularly those based in Menlo Park, again dominated VC investment.
60% of the top 20 VC firms in the US are based in the SF Bay Area
Data for Q2 2016 Source: MoneyTree™ Report
Executive Summary VC market in the US Regional share of investment VC allocation by company growth stage VC market in the SF Bay Area Annual VC investment in the SF Bay Area VC allocation by company growth stage Comparison of VC allocation: SF and the US Investment in the SF Bay Area: top cities Investment in the SF Bay Area: by industry VC firm breakdown VC firms investing in US companies VC firms with HQs in the SF Bay Area Most active VC firms in the US Outlook for 2016 Addendum: concerning Uber megadeal
Outlook for 2016 •
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.
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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.
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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.
Source: CB Insights/KPMG Venture Pulse Report
Executive Summary VC market in the US Regional share of investment VC allocation by company growth stage VC market in the SF Bay Area Annual VC investment in the SF Bay Area VC allocation by company growth stage Comparison of VC allocation: SF and the US Investment in the SF Bay Area: top cities Investment in the SF Bay Area: by industry VC firm breakdown VC firms investing in US companies VC firms with HQs in the SF Bay Area Most active VC firms in the US Outlook for 2016 Addendum: concerning Uber megadeal
Addendum: concerning Uber megadeal • •
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. $25,000,000
$20,000,000
Average Deal
•
$15,000,000
$10,000,000
$5,000,000
$0 San Francisco Overall
Rest of Bay Area
Rest of US
Expansion Stage
Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report
