For Our Time-Constrained Clients: Highlights and Analysis of Venture Capital Trends 2014

By: Jenny Steelman

We at Summative know our clients are incredibly busy delivering products, building companies, and hiring executives.   We also understand that the state of the tech industry and private venture impacts not only our clients’ ability to raise their next crucial round of funding, but also to attract their next great executive leader.   So, here, for our time-constrained clients, are highlights and analysis of the 2014 NVCA (National Venture Capital Association) Yearbook.  Additional data sources were incorporated and are footnoted below.   Percentage calculations year over year and quarter over quarter add further insight into the numbers to show the industry’s movements and statistical trends.

Short and Sweet

2013 High Points:

  1. Increase in IPO activity by 65%. (a)
  2. Record high set for percentage of seed- and early-stage deals.
  3. Slight upturn in investments – overall held steady at healthy levels.
  4. Software investment continued to increase with 37.3% of the market. (b)

2013 Low Points:

  1. M&A deal activity decreased by 20%. (c)
  2. Commitments decreased by 15.3% from 2012. (d)
  3. Ventured Capital under management decreased slightly at 3.6%. (e)

2014 1Q Highlights:

  1. M&A deal activity was at 105, up 22% from 1Q13 with “the highest average deal size since 1Q 2004” of those reported. (f)
  2. “Thirty-six venture-backed IPOs raised $3.3 billion during the first quarter of 2014, a 50 percent increase, by number of new listings, compared to the previous quarter.” (f)
  3. “The level of dollar commitments during the first quarter of 2014 [of $8.9B] more than doubled the comparable period in 2013 – strongest since 4Q 2007.” (g)
  4. “Venture Capital dollars invested in Q1 2014 reaches the highest quarterly total since Q2 2001 (according to MoneyTree).” (h)
  5. “Dollars invested in software companies reaches $4B for the first time since Q4 2000.” (h)
  6. “Seed and early stage financing numbers are down from the previous quarter, but expansion stage dollars invested are up 34 percent. This was to be expected when you consider the domination by seed and early stage deals in 2012 and 2013” (Bobby Franklin, President and CEO of NVCA). (h)


Details: The VC Outcome for 2013 and 1Q 2014

  • Fundraising continued to be challenging in 2013, but 1Q 2014 results paint a brighter picture.
    • In 2013, capital commitments of $16.9B showed a decrease of 15.3% from the previous year. This was due from the following:
      • “Lack of recent distributions caused by the tight exit markets
      • Lackluster returns by many venture funds over the past decade compared with the prior decade
      • A challenge for the largest alternative asset investors to place money in many of the smaller funds in this asset class because of scale”. (i)
    • “The amount of new commitments each year by venture capital funds continued to be less than the amount they invested in companies.” (i)
    • Massachusetts had the largest amount committed at $5,474.8MM in 24 funds with California trailing close behind at $5,315.9MM in 58 funds. (j)
    • “The level of dollar commitments during the first quarter of 2014 [of $8.9B] more than doubled the comparable period in 2013 and marks the strongest quarter for venture capital fundraising, by dollars, since the fourth quarter of 2007 when $10.4 billion was raised for venture capital investments.” (g)
  • Investments held steady with a slight upturn.
    • “In 2013, $29.5 billion was invested in 3,382 companies through 4,041 deals.
    • The number of deals is 4% higher than 2012 counts, but is essentially the same as 2011.”(b)
    • The software sector held the lead in 2013
      • Taking 37.3% of the market in total dollars (b)
      • A 28.5% increase from the 2012 investments in software. (k)
    • “2013 had the highest percentage of seed- and early- stage deals ever at 55.7% of all deals. This surpasses the prior record of 52.6% in 2012.
      • This certainly would challenge the suggestion that the industry’s attention is single-focused on later-stage companies.
      • With the rule of thumb that a healthy venture capital industry invests in 1,000-1,300 new companies each year, the 1,334 first fundings in 2013 is very much in that range. Not surprisingly, 83% of those first round invest­ments were made at the seed and early stage”. (b)
      • In 1Q 2014 – although there was a decrease in early stage funding (down 64% in dollars from the previous quarter), there was an increase in expansion stage funding (34% in dollars) and Later-stage funding (15% in dollars) indicating the movement of these companies to the next stage of funding. (h)
    • California led the way in dollars invested at $14.8B with Massachusetts as a far second with $3.1B invested. (l)
    • “The number and reach of corporate venture capital groups increased in 2013, along with the visibility of this group. These groups provided an estimated 10.5% of the venture capital invested by all venture groups. They were involved in 16.9% of the deals – the highest level in five years.” (b)
    • Growth equity is a growing, relatively new (since 2000) asset class that requires further analysis.
      • “In 2013, NVCA identified 342 growth equity deals in the United States. This compares with 406 in 2012, but is very much in line with the past several years.
      • A disclosed $12.3 billion in equity investment was reported for 2013. This does not count the approximately 105 deals for which no dollar equity amounts were disclosed.” (m)
    • “Quarterly venture capital (VC) investment activity in Q1 2014 rose 12 percent in terms of dollars but fell 14 percent in the number of deals, compared to the fourth quarter of 2013.” (h)
    • “Dollars invested in the Software industry experienced another significant increase in Q1 2014, capturing $4.0 billion and further distancing it by more than three times from the second largest industry, Biotechnology.” (h)
  • The number of IPOs increased significantly (65%) year over year.
    • In 2012 if you take out Facebook alone at $16B, it leaves you $5.5B raised by 48 IPOs.  In contrast, in 2013, there was $11.1B raised by 81 IPOs. (i)
    • Part of this increase is from 2012 legislative success with the passing of the JOBS Act and the start of FDA reform. (n)
  • M&A deals decreased (20%), but the average price of exits are holding with a slight increase (3%).
    • In light of the decrease of deals – “total proceeds fell 27%”.  In 2013 – only 25% of the companies reported the price of M&A deals.  In the future, it is expected that only the transaction value of the largest M&A deals will most likely be publicized.  (n)
    • “Observers have wondered why, given the huge amounts of cash on the balance sheets of technology and Biotechnology giants, more acquisitions are not occur­ring. We did see a flurry of acquisitions in early 2014, perhaps signaling an increase in that kind of activity.”  (n)
    • In the first quarter of 2014, there were 105 M&A deals (f), compared to the first quarter of 2013 with just 8 deals. (p)
  • In 2013, Venture capital under management decreased to $192.9B (i) which was a decrease of 3.65% from 2012.
    • This is a continued decrease from the high of 2006 at $288.9B, signifying a 33% decrease from the height. (e)
    • “The peak capital under management that year was a statistical anomaly caused when funds raised at the height of the 2000 tech bubble were joined by new capital raised post bubble.” (i)
  • The industry is consolidating shown in part by the downward trend in firms and capital managed. In 2013, the number of principals per firm was down to 6.7 principals in 874 firms. (i) Although this decrease is slight year over year, it is a significant change from the high of 2007 (8.7 principals) (r) with over 1000 firms (q).
    • In general, principals should see an increase in capital managed. (i)
    • “This is because the bulk of the capital being commit­ted today is being raised by larger, specialty, and boutique firms.  Contrary to some popular misconceptions, only 43 firms managed more than $1 billion. By comparison, 277 firms managed less than $25 million.” (I)


(a)  2014 NVCA Yearbook, page 72 – figure 4.02.

(b)  2014 NVCA Yearbook, page 31.

(c)  2014 NVCA Yearbook, page 77 – figure 4.07.

(d)  2014 NVCA Yearbook, page 28 – figure 2.02.

(e)  2014 NVCA Yearbook, page 19 – figure 1.02.

(f)  1Q14 Exits Release NVCA, page 1-2.

(g)  Q114 Fundraising Release NVCA, page 1.

(h)  14Q1M Press Release NVCA, page 1.

(i)  2014 NVCA Yearbook, page 9.

(j)  2014 NVCA Yearbook, page 30.

(k)  2014 NVCA Yearbook, page 45.

(l)  2014 NVCA Yearbook, page 32.

(m)  2014 NVAC Yearbook, page 85.

(n)  2014 NVCA Yearbook, page 10.

(o)  Q113 Fundraising Release NVCA, page 1.

(p)  Venture Backed Exits 1Q2013, page 1.

(q)  2014 NVCA Yearbook, page 20 – figure 1.04.

(r)  2014 NVCA Yearbook, page 21 – figure 1.06.



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