Editor’s Note: Alan Wink currently serves as EisnerAmper’s Director of Capital Markets where he assists clients with capital budgeting, capital structuring, and capital sourcing. Before EisnerAmper, Alan spent several years as Director of Financial Analysis for AmBase Corporation (NYSE), where he led approximately $2 billion of corporate acquisition activity. He is also a past Vice President of Capricorn Management, a $100 million private equity fund specializing in restructuring and turnaround opportunities.
US Venture Capital Market Shows Modest Growth in Q2 2017
Q2 2017 showed an increase from Q1, in terms of venture capital dollars invested, however the number of companies receiving funding remained relatively stable. Q2 saw $21.8B deployed in 1,958 companies, compared to total capital deployed of $16.5B in Q1. The top 10 deals in Q2 accounted for almost 20% of total dollars invested. In fact, 34 financings of at least $100M were completed in the quarter, compared to only 12 in Q1. The number of first-time funding rounds has continued to decline, with the number of angel and seed stage deals declining for the last eight quarters.
IPO Markets Comes back to Life
The number of venture-backed IPO’s completed in the first half of 2017 totals 27. This is an impressive number considering the slow start that the IPO market had in 2017. There have been five unicorn IPO’s already this year and a very strong pipeline of companies in the registration process. Everyone is closely following if the IPO values are above or below the last private funding round.
Later Stage Deals Continue to Increase
With the number of angel, seed and early-stage deals on the decline, later stage deals are certainly on the rise. The number of late-stage deals has increased for the last three quarters. It seems like companies now prefer to continue to use private capital, rather than cashing out through an IPO or sale to a strategic buyer. Continuing to use private capital is certainly becoming an issue for both investors and LP’s since they are looking for return of capital for their investments.
As a result of the large amount of capital raised by venture funds in the last three years, there is a strong probability that deploying capital will remain a priority for venture funds. Not even uncertainty around the Trump Administration’s efforts in healthcare, tax reform and the Russia situation will put a damper on venture capital activity for the remainder of 2017.