Venture investing softens but maintains strong pace in Q3

Venture investing retreated in the third quarter but kept up a strong pace as investors continued to pour money into big-ticket unicorn rounds.

VCs in the United States put $21.48 billion into 1,706 rounds during the summer months, according to a report from the National Venture Capital Association and PitchBook. Dollars invested declined a modest 6.4 percent from a strong second quarter, but deals tumbled a substantial 21 percent.

Despite the slower period, dollars chasing unicorn financings rose 5.6 percent from the second quarter to $5.5 billion. The quarter included a $3 billion round for WeWork, as part of a broader SoftBank-backed $4.4 billion deal that included funds for WeWork’s Asian expansion.

The quarter’s activity lifted capital invested this year to $61.4 billion, suggesting 2017 should easily top last year in terms of dollars deployed and come close matching or beating the stand out year of 2015, when $79.2 billion was invested.

Fueling this year’s funding has been a solid level of late-stage investing, which has accounted for 59 percent of dollars and enabling portfolio companies to remain private longer instead of turn public.

“The VC market has taken over the IPO market,” noted Paul Hsiao, a partner at Canvas Ventures.

Paul Hsiao, partner, Canvas Ventures. Photo courtesy of the firm.

Reflecting this trend, dollars allocated to portfolio companies have risen 63 percent in the past five years while deal volume climbed just 28 percent.

Along with WeWork, big deals in the quarter brought $615 million to Intarcia Therapeutics, $351 million to SpaceX and $280.21 million to Auris Surgical Robotics.

Despite the attention paid to later-stage deals, early-stage activity was solid, the report shows. The third quarter saw $7 billion set aside for 559 deals, with dollars down 7.2 percent and deals off 22 percent from the second quarter.

The micro VC market meanwhile was steady. Dollars deployed were essentially unchanged from second quarter, but deals were down 20 percent. For the first time since 2012, seed and angel deals fell below 50 percent of total financings.

What’s more, so far this year, 94 sub-$100 million funds have been raised in the United States compared with 159 last year.

The third quarter saw soft exit markets. Just eight venture-backed IPOs took place, compared with 19 in the second quarter, and the number of acquisitions dropped to 112 from 166. So far this year, private-equity-led buyout transactions have been strong.

Photo of money pouring out of a tap courtesy of alexsl/iStock/Getty Images