MoneyTree finds steadying U.S. investment environment in Q1

Venture capitalists maintained a steady investment pace in the first quarter, with $12.1 billion going to U.S.-based startups, according to the MoneyTree Report.

The study suggests a strengthening of investment sentiment after financial market turbulence led to a slower, cautious investment environment late last year. Both expansion and late-stage activity rose from a big drop in the fourth quarter, according to MoneyTree.

The MoneyTree numbers, put together by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters, found that first-quarter investments rose just slightly from the fourth quarter, when dollars distributed added up to just under $12 billion. Deal count was down 5 percent to 969.

Capital going to expansion-stage deals was up 25 percent from the fourth quarter and late-stage activity rose 10 percent. A pair of large deals played a big role in the quarter. Lyft raised $1 billion with General Motors becoming an investor, while Magic Leap gathered $793.5 million.

During Q1, Internet investing was soft, but software and biotech startups attracted more money. Early-stage investing was down 18 percent in dollars and 22 percent in deals.

Overall, non-traditional investors scaled back their investment activity, said NVCA President Bobby Franklin in a statement.

The survey was the second in consecutive days in April to examine venture investing in the United States. Dow Jones VentureSource found that Q1 investments in the United States dropped 25 percent to $13.9 billion, down from $18.6 billion in the fourth quarter.

Jeff Grabow Ernst & Young
Jeff Grabow, U.S. venture capital leader, Ernst & Young

The decline was a significant retreat from the pace of the five previous quarters, when deal-making rose to a quarterly peak of $19.6 billion and averaged well above $18 billion.

“We’re at the end of the era of big fundraisings,” said Jeff Grabow, U.S. venture capital leader at Ernst & Young. “I think we’re in the era of execution.”

The first quarter decrease was most apparent in late-stage deals, where money going to startups fell by nearly 35 percent to $8.3 billion, according to VentureSource. Money earmarked for expansion-stage deals fell by a more modest 27 percent. The declines pushed median deal size down to $5.2 million.

Grabow said he has recently observed VCs telling their companies to cut burn rates and proceed on a path to profitability, or at least a positive cash flow.

“Capital is not as available as it once was,” he said.

Downloadable Data: Top early-stage targets, Q1 2016

Downloadable Data: Top late-stage deals, Q1 2016

Photo courtesy © Hudson