Discipline Returns To Venture Capital

Concentration, consistency and convergence corral cash. JL

Sonya Mann reports in Inc.:

1,800 companies raised $16.5 billion. However, while the amount of capital invested in 2017's first quarter was slightly higher than 2016's fourth quarter, the number of companies swung to its lowest since Q4 2011. Parties are having to exercise more caution and conduct the necessary due diligence to pencil out fair deals on both sides. Remote work may be on the rise among startups, but capital deployment is still concentrated in Silicon Valley.
On Wednesday, the National Venture Capital Association and industry database PitchBook jointly released their Q1 2017 issue of Venture Monitor, which reports and analyzes the data on American venture capital activity. All in all, the absolute numbers sound big: 1,800 companies raised $16.5 billion. However, NVCA and PitchBook found that while the amount of capital invested in 2017's first quarter was slightly higher than 2016's fourth quarter, the number of companies swung to its lowest since Q4 2011.
The industry is continuing its gradual descent back down from the frothy heights of 2015. "After several consecutive years of elevated U.S. venture activity, it seems the industry is finally coming back down to earth," Pitchbook CEO John Gabbert said in a statement. "We see this as investors and entrepreneurs returning to a more disciplined approach to investing. Both parties are having to exercise more caution in the market and conduct the necessary due diligence to pencil out fair deals on both sides."
Nevertheless, the $9.05 billion value of venture-backed software company exits in Q1 2017 already exceeds the total value of software exits in 2006, 2008, and 2009, and is at near parity with 2007. If the pace and magnitude of acquisitions and IPOs both continue, 2017 will be set to reach or exceed 2014's $39.74 billion figure.
Software companies continue to dominate the other types of businesses funded by VCs. Venture Monitor noted that Snap's IPO and Cisco's acquisition of AppDynamics both "rank in the top 10 largest exits of their respective types during the past decade."
As usual, California dwarfed all other states as a location of VC activity, both in terms of the number of investments -- 560 in 556 companies -- and in the total dollar value of those investments, which came to almost $8.3 billion. New York placed second for number of investments, with 218, and Massachusetts placed second for dollar value, with a little more than $2 billion. Remote work may be on the rise among startups, but capital deployment is still concentrated in Silicon Valley.