The first half of 2014 was good for companies in the late stages of their venture capital financing cycles. Data published by financial research firm Preqin shows that the average deal value for late stage financing almost doubled in the first six months compared to last year. Home rental site Airbnb, and on-demand ride hailing service Uber Technologies were among those that attracted massive venture capital money in later stage venture rounds this year.
Late Stage VC Deal Size Jumps
Typically upcoming startup companies raise funds in multiple rounds. The first round is usually labeled Series A, and second round Series B and so on. According to the Preqin data, the value of Series D and later deals in the first half of 2014 was $64.1 million which is 86 percent larger compared to the average of $34.4 million for late stage financing in 2013.
While late stage VC rounds saw far larger investments on average over the first half of this year compared to recent years, the study disclosed that except for growth stage investment cycles, all venture capital financing stages saw higher average investments in the first half. The angel financing round, also known as seed round, was $1.3 million on average in the second quarter, the highest for a quarter since 2007.
Internet Sector Attracts Most Money
Internet sector accounted for 30 percent of VC investments during the second quarter. Among the Internet firms that raised significant capital are Airbnb, and Chinese digital media firm Xunlei. During the quarter, Airbnb raised $450M in Series D while Xunlei received $310M in a Series E round. The largest venture capital round during the second quarter was the $1.2 billion Series D round by Uber Technologies.
The Internet sector was followed by the healthcare and software sectors accounting for 19 percent and 16 percent respectively of VC investments in the second quarter. In terms of the number of deals, Internet sector accounted for 23 percent, software 21 percent and healthcare 16 percent of the total deals.
Among the states, California was at the top, accounting for 39 percent of all VC deals. New York was second with 11 percent, followed by Massachusetts at 9 percent and Texas 4 percent.
Deal Flow Remains Static
Despite the increased venture capital investments in recent quarters, the deal flow remains sluggish. Globally, the number of deals in the second quarter totaled 1,563 fewer than the 1,577 deals in Q1 and well below the 1,896 deals in the second quarter of 2013. Christopher Elvin, who led the Preqin study, says that despite notable uptick in deal size, the general trend in deal flow remains static in recent quarters.
Relevance to Job Market
The Preqin report is a net positive report for the venture capital job market. The willingness of the VC firms to commit to larger investments is a sign of increasing confidence in the stability of the economy. The sluggish growth in deal activity is not that much of a concern as there is a notable increase in dollar commitment. One area of concern from the report is fewer firms are attracting larger funding rounds which make it difficult for many young, as well as established, firms to get the required funding.
