Venture Capital Market Update – First Half 2013

Source: PwC MoneyTree and NVCA

Venture capitalists invested $6.7 billion in 913 deals in the second quarter of 2013, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.  Quarterly venture capital (VC) investment activity rose 12 percent in terms of dollars and 2 percent in the number of deals compared to the first quarter of 2013 when $6.0 billion was invested in 896 deals.

The Internet-Specific and Biotechnology sectors both saw increases in both dollars and number of deals in the second quarter.  Additionally, companies receiving VC funding for the first time as well as those companies in the Early stage of development experienced jumps in dollars invested in Q2 2013.

“In many ways it feels like the late 1990’s with information technology driving venture investment and significantly outpacing other sectors when it comes to level of activity and momentum,” said Mark Heesen, president of the NVCA. “The difference, however, is where we go from here.  There will be no tech bubble.  IT investing will continue to be the bedrock of the venture industry – but at sustainable levels.  Life sciences investments is poised for a slow and steady recovery, provided we can continue to see progress on the regulatory front.  And as clean energy continues to evolve from a capital intensive to a capital efficient model, it is clear that the venture industry is responding to the market forces at work.”

“The increase in early stage investing is a encouraging sign that entrepreneurs with innovative ideas can get the funding they need to succeed,” remarked Mark McCaffrey, global technology partner and software leader at PwC US.  “As the exit window continues to open, we’ll continue to see VCs shifting their focus back to companies in the earlier stages of development.  In particular, startups that are able to drive innovation by developing disruptive technologies that are easy to deploy and deliver ongoing value to the user will be of great interest to venture capitalists.”

Industry Analysis

The Software industry received the highest level of funding for all industries, despite dropping 7 percent from the prior quarter to $2.1 billion invested during the second quarter of 2013, marking the fifth consecutive quarter of more than $2 billion invested in the sector.  The Software industry also counted the most deals in Q2 at 325; however, this represented a 6 percent decrease from the 345 rounds completed in the first quarter of 2013. 

The Biotechnology industry was the second largest sector for dollars invested with $1.3 billion going into 103 deals, rising 41 percent in dollars and 4 percent in deals from the prior quarter. This increase was driven by the strength of two large funding rounds in the quarter.  Medical Device investing of $543 million into 71 deals represented a 1 percent decline in both dollars and deals.  Investments in the Life Sciences sector overall (Biotechnology and Medical Devices) rose 25 percent in dollars and 2 percent in deals, purely on the strength of investing in the Biotech sector.  The IT Services industry received the third largest investment total in Q2 with $654 million going into 88 deals, on the strength of three large deals in the quarter. 

Venture capitalists invested $1.9 billion into 270 Internet-specific companies during the second quarter of 2013.  This investment level is 39 percent higher in dollars and 12 percent higher in deals than the first quarter of 2013 when $1.3 billion went into 241 deals and is the first time in five quarters that the sector has experienced an increase in investing levels.  Five of the largest 10 rounds for the quarter were in the Internet-specific category.  ‘Internet-Specific’ is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.

The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, declined 6 percent in dollars and 31 percent in deals from the prior quarter to $364 million going into 43 deals.  The deal count in Q2 is the lowest since the fourth quarter of 2006 when only 38 Clean Technology companies received an investment.  The second quarter of 2013 marks the sixth consecutive quarter of declining investment levels in the Clean Technology sector. 

Eight of the 17 MoneyTree sectors experienced decreases in dollars invested in the second quarter, including Networking & Equipment (69 percent decrease), Computers & Peripherals (51 percent decrease), and Semiconductors (30 percent decrease).  Dollars invested in the Industrial/Energy sector increased 64 percent during the quarter, which was primarily due to a single large deal, the third largest in Q2.

Stage of Development

Seed stage investments dropped 34 percent in dollars and 29 percent in deals with $134 million invested into 37 deals in the second quarter. Early stage dollar investments rose to their highest level in six quarters, rising 63 percent in dollars and 18 percent in deals to $2.5 billion going into 480 deals.  Seed/Early stage deals accounted for 57 percent of total deal volume in Q2, compared to 51 percent in the first quarter of 2013.  The average Seed deal in the second quarter was $3.6 million, down from $3.9 million in the first quarter.  The average Early stage deal was $5.2 million in Q2, up significantly from $3.7 million in the prior quarter.  

Expansion stage dollars increased 3 percent in the second quarter, with $2.1 billion going into 214 deals.  Overall, Expansion stage deals accounted for 23 percent of venture deals in the second quarter, slightly less than the 26 percent seen in the first quarter of 2013.  The average Expansion stage deal was $9.8 million, jumping up nearly $1 million from $8.9 million in Q1 2013.

Investments in Later stage deals decreased 12 percent in both dollars and deals to $2.0 billion going into 182 rounds in the second quarter.  Later stage deals accounted for 20 percent of total deal volume in Q2, compared to 23 percent in Q1 when $2.2 billion went into 206 deals.  The average Later stage deal in the second quarter was $10.8 million, identical to what was seen in Q1 2013.

First-Time Financings

First-time financing (companies receiving venture capital for the first time) dollars increased 24 percent to $1.1 billion going into 302 companies in Q2, a 10 percent increase in the number of deals from the prior quarter.  First-time financings accounted for 17 percent of all dollars and 33 percent of all deals in the second quarter, compared to 15 percent of all dollars and 31 percent of all deals in the first quarter of 2013. The average first-time deal in the second quarter was $3.7 million, up from $3.2 million in the prior quarter. 

Companies in the Software industry captured a large portion of first-time investments in the second quarter, accounting for 40 percent of the dollars and 42 percent of the companies receiving funding in Q2.  The Life Sciences sector experienced a dramatic increase, more than doubling in dollars from the prior quarter to $328 million.  There were 33 Life Sciences companies receiving venture capital funding for the first time in Q2 2013, up from only 22 companies in the first quarter. 

Seed/Early stage companies received the bulk of first-time investments, capturing 83 percent of the dollars and 85 percent of the deals in the second quarter of 2013, the highest percentage totals for both dollars and deals since the MoneyTree began reporting VC investment levels in Q1 1995.

MoneyTree Report results are available online at and

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