INSIGHTS

U.S. Venture Capital Investment Dollars Down 11% Year-to-Date, Late Stage Rounds Hit Hardest Followed by Series B

tl;dr: We have enough time series data to call a slowdown in VC funding.

It’s been 3 months since the February 5th stock market swoon that solidified the fears of many startup founders and investors that private market valuations, and their public market comps, might be too good to be true. As industry insiders know, there is generally a lag between raising and announcing a round that can take anywhere from 6 to 12 weeks, and so the rounds announced in Q1 were often inked in Q4 and not influenced by the more immediately apparent sentiment found on VC blogs, Twitter, and in bars and boardrooms throughout Silicon Valley.

In this analysis, we review trends in this year’s venture capital funding for U.S. startups in terms of numbers of deals, capital deployed, and average round sizes.

The Overall Picture

Aggregate deal volume in the first 3 months of 2016 dramatically exceeded that of Q1 2015 with a total of 979 deals announced for U.S. companies raising a total of $15 billion versus 742 deals totalling $4.9 billion for the same period last year. April 2016 saw a 29% year-over-year decrease in the number of rounds, with 215 deals totalling $2.8 billion announced versus 302 deals totalling $4.5 billion in April last year.

Stage-by-Stage Change in Deal Volume

Q1 Year-over-Year April ‘16 vs. ‘15 YTD* Comparison
Seed/Angel +76% -33% +44%
Series A +27% -17% +14%
Series B -2% -37% -12%
Series C +15% -12% +8%
Series D -13% -47% -22%
Late Stage -28% -46% -33%
Overall +32% -29% +14%

*YTD comparison includes data from rounds announced January 1, 2015 to April 30, 2015 vs. January 1, 2016 to April 30, 2016.

Stage-by-Stage Change in Capital Deployed

Q1 Year-over-Year April ‘16 vs. ‘15 YTD* Comparison
Seed/Angel +21% -8% +14%
Series A +19% -7% +12%
Series B -12% -38% -20%
Series C +95% -24% +65%
Series D -32% -63% -41%
Late Stage -31% -53% -34%
Overall -4% -37% -11%

*YTD comparison includes data from rounds announced January 1, 2015 to April 30, 2015 vs. January 1, 2016 to April 30, 2016.

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Seed & Angel

Deal volume during the first 3 months of the year dramatically outpaced January, February, and March of 2015 with 441 deals announced in the U.S. in Q1 2016 versus 251 in the same period of 2015. While these deals were announced in Q1, it’s possible they were inked earlier (or at least before Feb 5th) and there was a normal 6-12 week lag from investors shaking hands with founders to the actual blog/press coverage.

April saw a 33% year-over-year decrease in the number of angel and seed rounds, announcing just 69 deals totalling $129 million versus 103 rounds totalling $140 million in April of last year. Notably, both the average and median round sizes for these deals have increased compared to April of last year, average round size is up to $1.9 million from $1.6 million last year and median is up to $1.7 million from $1 million.This may indicate that even early-stage investors are searching for “safer” investments, consolidating the industry’s focus on a smaller set of companies to increase their odds of making it through to an eventual venture-backed Series A.

May is off to a slow start, with 12 new deals announced in the first 5 days and the average deal size holding steady at $1.9 million.

Series A

Despite a lot of talk about it being hard to raise Series A rounds, with a sharp decline in valuations if you can get a term sheet, the numbers don’t tell as clear a story yet.

Series A deal volume in the first 3 months of the year outpaced Q1 2015 with 255 deals announced in U.S. totalling $2.3 billion versus 201 deals totalling $1.9 billion in the same period of 2015. April saw a 17% year-over-year decrease in the number of rounds, announcing 72 new Series A rounds totalling $626 million in April 2016 versus 87 Series A rounds totalling $673 million in April 2015.

Monthly average deal sizes for Series A peaked in May 2015 at $14.8 million, and was down to $8.7 million in April 2016 versus $7.7 million in April of last year.

May is off to a healthy start, with 15 new deals announced in the first 5 days and an average deal size of $11.8 million.

Series B

Series B deal volume in the first 3 months of the year lagged Q1 2015 slightly, with 137 deals announced totalling $2.7 billion this year versus 140 deals totalling $3 billion in Q1 2015. April saw a 37% year-over-year decrease in the number of rounds, announcing 36 rounds totalling $854 million in 2016 versus 57 rounds totalling $1.4 billion in April 2015.

Monthly average deal sizes for Series B peaked in November 2015 at $28 million, and was down to $23.7 million in April 2016 versus $24.3 million in April of last year.

May is off to an interesting start, with 8 new deals announced in the first 5 days and a much lower average deal size of $10.6 million.

Series C

Series C deal volume in the first 3 months of the year outpaced Q1 2015, with 83 deals announced totalling $3.9 billion versus 72 deals totalling $2 billion in the same period last year. April saw a 12% year-over-year decrease in the number of rounds, with 22 rounds announced totalling $521 million versus 25 rounds totalling $684 million in April last year.

Monthly average deal sizes for Series C peaked in February 2016 at $79.4 million, driven by mega rounds for Magic Leap and Oscar. However, April 2016 deal sizes averaged $23.7 million versus $27.4 million in April last year.

May is off to a strong start, with 11 new deals announced in the first 5 days and an average deal size of $50.1 million driven higher by investments in Pivotal and Via Transportation.

Series D

Series D deal volume in the first 3 months of the year lagged Q1 2015, with 40 deals announced totalling $1.4 billion versus 46 deals totalling $2 billion in the same period last year. April saw a 47% year-over-year decrease in the number of rounds, with 9 Series D rounds announced totalling $289 million versus 17 rounds totalling $781 million in April 2015.

Monthly average deal sizes for Series D peaked in June 2014 at $132.3 million, which was skewed by a $1.2 billion mega round for Uber. April 2016 deal sizes averaged $32.1 million versus $46 million in April last year.

May is off to a slow start, with just 1 new deal for $40M announced in the first 5 days.

Late Stage (Series E, F, G, etc.)

Late stage deal volume in the first 3 months of the year lagged Q1 2015, with 23 deals announced totalling $4.2 billion versus 32 deals totalling $6.1 billion in the same period last year. April 2016 saw a 46% year-over-year decrease in the number of rounds, with 7 late stage deals totalling $372 million announced versus 13 deals totalling $793 million in April last year.

Monthly average deal sizes for late stage rounds peaked in February 2015 at $334.5 million, driven higher by a $2.8 billion mega round for Uber and 16 other rounds of $50 million or more. April 2016 late stage deal sizes averaged $53.1 million versus $61 million in April last year.

May is on pace with April, with just 2 new deals averaging $80M announced in the first 5 days.

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© Mattermark 2017. Sources: Mattermark Research, Crunchbase, AngelList.
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