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Venture funding falls in Q3 as late-stage financing pulls back

Venture investing slumped in the third quarter as money going to U.S.-based startups fell 32 percent, which was led by a big drop in late-stage financings.

The quarter saw $15 billion go to 1,810 deals, the smallest sum since the start of 2014, according to PitchBook and the National Venture Capital Association. It is a significant decline from the $22.1 billion that went into 2,034 deals in the second quarter.

The third quarter is the first the NVCA has relied on PitchBook data for its venture activity report, dubbed the Venture Monitor.

However, the quarter saw a noticeable uptick in fundraising. Venture firms nationwide raised $9 billion for 56 funds, the PitchBook and NVCA report shows. This brings the annual total to $32.4 billion and puts the year on track to be the largest since 2001.

Late-stage fundings in the quarter came to $7.6 billion, a 46 percent drop from the $14 billion of the second quarter, when Uber Technologies raised a round of $3.5 billion. Average deal size dropped to $21.4 million.

The quarterly decline suggests a continued reset for richly valued unicorns as they come back to the market for new money.

The industry is 12 months into what is likely a 24-month re-adjustment cycle, said New Atlantic Ventures Managing Partner John Backus.

After a couple years of strong funding, “we’re moving right down to the 10-year average,” he said. “I think what we’re seeing is an efficient market.”

This adjustment is taking place as quarterly exit markets remained weak. The quarter saw 14 venture-backed companies go public, raising $1.04 billion, and the pace of acquisitions slowed for the fourth consecutive quarter.

Still, with innovation advancing at a rapid pace, the investing ecosystem showed resilience.

“The industry is healthy,” Backus said.

Photo of garden of dollar signs courtesy of ©iStock/Michal Krakowski