Post on 13-Feb-2017
Venture Capital Research Report
Q2 2016
As of September 12, 2016
Executive Summary
VC market in the US
Regional share of investment
VC allocation by company growth stage
VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry
VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US
Outlook for 2016
Addendum: concerning Uber megadeal
Executive Summary
• VC activity continued to recover in Q2 2016.
- In the US, the number of deals reached fell from 1,011 in Q1 2016 to 961 in Q2.
- However, the average deal value increased by 20% from Q1 2016 to $15.9M, an
all-time high.
- Quarterly investment in the U.S. has exceeded the Q2 2016 total of $15.3B just
three times in the past ten years.
- In the SF Bay Area, 311 deals carried an average value of $26.2M, 48.9% higher
than the mean figure in Q1 2016.
• VC investment is heavily geared towards established companies—only 3.5% of VC
dollars were invested in seed-stage firms nationwide.
- Expansion-stage deals grew more in size than in number, comprising 66% of Bay
Area investment dollars but only 34% of deals.
- The Bay Area was once again the top region for investment at every stage of
development.
• California captured 70% of U.S. investment in Q2, dwarfing runners-up New York
(8%) and Massachusetts (6%).
• The San Francisco Bay Area continues to be the biggest recipient of VC
investment in the United States
- 53% of US venture capital dollars were invested in Bay Area companies; San
Francisco alone garnered 36% of all U.S. investment.
- In Q2 2016, 144 of the 311 deals struck in the Bay Area involved San Francisco-
based firms.
- Software, biotech, and IT services are the three dominant industries that had VC
backing in the Bay Area in Q2. In San Francisco, 84.7% of VC funding was directed
at software companies.
• The SF Bay Area is home to nearly 25% of all VC firms in the US.
- San Francisco, Palo Alto, and Menlo Park together are home to nearly 80% of VC
firms in the Bay Area.
• The pattern has changed in VC investment
- Megadeals, like the one that netted Uber $3.5B, continued to grow in value in Q2,
constituting 39% of investment.
- The increase in average deal value but decrease in number of deals suggests that
investors have shifted their preferences to a quality-first basis.
Executive Summary
Executive Summary
VC market in the US
Regional share of investment
VC allocation by company growth stage
VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry
VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US
Outlook for 2016
Addendum: concerning Uber megadeal
VC market in the US
Source: PricewaterhouseCoopers/National Venture Capital Association
MoneyTree™ Report based on data from Thomson Reuters
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
% change Q2 2015-16
Amount invested
$17.4 B $16.7 B $12.1 B $12.7 B $15.3 B
Number of deals
1,231 1,182 1,035 1,011 961
Average deal value
$14.1 M $14.1 M $11.7 M $12.6 M $15.9 M
-12.2%
-21.9%
12.5%
After falling for two consecutive
quarters, total investment spiked by
20% from Q1 to Q2 2016. Average deal
value hit an all-time high.
Q2 2016 saw a decrease in VC activity in the US, with the number of deals falling
relative to Q1, but overall value increased.
Regional share of investment in the US
The San Francisco Bay Area is the single biggest region for venture capital activity,
receiving just over half of all national investment.
The San Francisco Bay Area attracts 76% of
all California VC investment and 53% of the
national share.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
California70%
New York8%
Massachusetts6%
Illinois2%
Texas2%
New Jersey1%
Other11%
$10.7 B
invested
in CA in
Q2 2016
$1.2 B
$974 M
SF Bay Area LA/Orange County San Diego
Data for Q2 2016
Source: MoneyTree™ Report
VC allocation by company growth stage
Venture capital investment in the US was distributed unequally across growth stages
in Q2. Expansion- and later-stage deals accounted for over 70% of investment.
3%
Time
Co
mp
an
y m
atu
rity
ExpansionEarlyStart-
up/seed
Later
26% 56% 15%Percentage of total
investment dollars
The number of
seed- and early-
stage deals fell to
a 4-year low in
Q2, possibly due
to market
uncertainties like
Brexit. Expansion-
stage megadeals
headlined Q2
investment.
Data for Q2 2016
Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report
Executive Summary
VC market in the US
Regional share of investment
VC allocation by company growth stage
VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry
VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US
Outlook for 2016
Addendum: concerning Uber megadeal
Data for Q2 2016
Source: MoneyTree™ Report
VC market in the SF Bay Area
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
% change Q2 2015-16
Amount invested
$9.0 B $8.1 B $4.6 B $4.9 B $8.2 B
Number of deals
385 364 286 279 311
Average deal value
$23.0 M $22.0 M $15.9 M $17.2 M $26.2 M
-9.6%
-19.2%
13.7%
Although total investment and the number of deals fell year-over-year, Q2 saw large
spikes in both figures from Q1.
Average deal value increased by 52%
between Q1 and Q2 2016 (to an all-time
high), and the amount invested
increased by 65%.
Data for Q2 2016
Source: MoneyTree™ Report
Annual VC investment in the SF Bay Area
Although the number of deals
has been relatively volatile
quarter-to-quarter over the
past 10 years, Bay Area
investment values have grown
fairly consistently.
Q2 2016 investment was the
second-highest of the period
from 2006-2016.
Bay Area VC investment has
increased over 300% since
Q2 2006.
50
100
150
200
250
300
350
400
450
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Billions
Investment Deals
VC allocation by company growth stage: SF Bay Area
In Q2 2016, venture capitalists lowered both the number and the value of investments
in seed, early, and later stages, but doubled expansion-stage value.
Percentage of total
investment dollars
In San Francisco
City, 50% of
deals were made
with seed- and
early-stage
companies, but
these deals only
comprised 12%
of total SF
investment.*
3%
Time
Co
mp
an
y m
atu
rity
ExpansionEarlyStart-
up/seed
Later
20% 66% 11%
*Uber’s $3.5 B expansion-stage deal constituted 63% of SF investment in Q2. Seed/early-stage deals comprised
32% of all other SF investment dollars.
Data for Q2 2016
Source: MoneyTree™ Report
Comparison of VC allocation: SF and US
The San Francisco Bay Area as a whole outperforms all other regions in the US in
average deal size across all stages of company growth.
The average expansion-stage
deal in San Francisco City
was 6.3 times the Bay Area
average and 5 times the
national average.
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
$90,000,000
Overall Seed Early Expansion Later
Avera
ge D
eal Siz
e
SF City Rest of Bay Area Rest of US
Data for Q2 2016
Source: MoneyTree™ Report
*Based on PWC records of Bay Area investee companies that received at least one qualifying investment in Q2 2016.
VC investment in the SF Bay Area: top cities
Companies based in San Francisco received $5.5 billion in VC investment, more than
half of the Bay Area total; Uber alone accounted for $3.5 billion. San Francisco firms
also accounted for 144 of the 311 deals struck in the Bay Area.
San Francisco144 deals
$5.5b
Redwood City16 deals$312m
Palo Alto19 deals$296m
South SF9 deals$238m
Menlo Park9 deals$201m
Mtn. View12 deals$198m
Newark4 deals$143m
San Jose10 deals$143m
San Mateo11 deals$139m
Hayward4 deals$96m
Data for Q2 2016
Source: MoneyTree™ Report
Industry Amount
Invested in
Bay Area
Deals in
Bay Area
Amounted
Invested
in SF
Deals
in SF
Industry as
% of BA
Investment
Software $5,577 M 149 $4,686 M 80 68.4%
Biotechnology $564 M 23 $41 M 3 6.9%
IT Services $446 M 28 $324 M 19 5.5%
Media and
Entertainment$366 M 27 $203 M 17 4.5%
Industrial/Energy $292 M 19 $18 M 2 3.6%
Medical Devices and
Equipment$227 M 14 $13 M 1 2.8%
Semiconductors $128 M 7 $9 M 1 1.6%
Consumer Products
and Services$114 M 11 $36 M 6 1.4%
Electronics and
Instrumentation$100 M 4 - - 1.2%
Financial Services $79 M 5 $78 M 3 1.0%
Networking and
Equipment$76 M 3 $76 M 3 0.9%
Other $188 M 21 $61 M 9 2.3%
Total $8,158 M 311 $5,535 144 100%
VC investment in the SF Bay Area: by industry
More than 75% of
investment in the Bay
Area’s top three
industries went to San
Francisco-based
companies
Over 80% of San
Francisco investment
went towards software
companies
Software, biotech, and IT services were the three biggest industries for Bay Area VC
investment in Q2 2016.
Nearly half of all Bay
Area deals were made
with San Francisco-
based companies
Executive Summary
VC market in the US
Regional share of investment
VC allocation by company growth stage
VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry
VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US
Outlook for 2016
Addendum: concerning Uber megadeal
Data for Q2 2016
Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report
VC firms investing in US companies
Nearly 30% of VC firms seek opportunities
in CA
The SF Bay Area is home to over three-quarters of all VC firms in California and
nearly a quarter of the US total.
California34%
New York12%
Massachusetts7%
Other US28%
International4%
0
10
20
30
40
50
60
70
80
Data for Q2 2016
Source: MoneyTree™ Report
*Based on the number of venture capital firms that made at least one qualifying investment in Q2 2016.
VC firms with HQs in the SF Bay Area
San Francisco, Palo Alto, and Menlo Park together are home to nearly 80% of all VC
firms headquartered in the Bay Area.
Menlo Park39%
Palo Alto22%
San Francisco15%
Los Altos6%
Foster City3%
San Mateo3%
Other12%
Most active VC firms in the US
Bay Area firms, particularly those based in Menlo Park, again dominated VC investment.
Data for Q2 2016
Source: MoneyTree™ Report
60% of the top 20
VC firms in the US
are based in the SF
Bay Area
Executive Summary
VC market in the US
Regional share of investment
VC allocation by company growth stage
VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry
VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US
Outlook for 2016
Addendum: concerning Uber megadeal
Source: CB Insights/KPMG Venture Pulse Report
• VC activity in the SF Bay Area boomed in Q2 for the third straight year. In the past
15 years, only Q2 2015 has logged more overall investment than Q2 2016.
• The pattern has changed in VC investment. The increase in average deal value but
decrease in number of deals suggests that investors have shifted their preferences,
prioritizing strong business models and paths to profitability over promise.
• VC investors retain their focus on software. Software companies accounted for over
50% of deals and nearly 60% of investment nationwide. San Francisco and its environs
recorded even higher proportions.
• The future appears bright for high tech sectors, despite uncertainties. The US
presidential election and the fallout from Brexit, among other factors, may caution
investors. Still, any potential downward pressures should be countered by investor
interest in burgeoning advancements such as artificial intelligence and virtual reality.
Outlook for 2016
Executive Summary
VC market in the US
Regional share of investment
VC allocation by company growth stage
VC market in the SF Bay AreaAnnual VC investment in the SF Bay AreaVC allocation by company growth stageComparison of VC allocation: SF and the USInvestment in the SF Bay Area: top citiesInvestment in the SF Bay Area: by industry
VC firm breakdownVC firms investing in US companiesVC firms with HQs in the SF Bay AreaMost active VC firms in the US
Outlook for 2016
Addendum: concerning Uber megadeal
Source: CB Insights/KPMG Venture Pulse Report, MoneyTree™ Report
• San Francisco-based Uber attracted $3.5 B in Q2 venture capital, accounting for 63% of
San Francisco VC dollars and nearly a quarter of US investment.
• The number of deals valued at $100 M or above has fallen quarter-by-quarter in the US
over the past year, which raises the concern that Uber’s massive net is an outlier that
skewed overall and expansion-stage averages.
• Even with the Uber deal omitted, investment in San Francisco still outpaced that of
the next-highest Bay Area city by $1.7 B and exceeded national averages.
Addendum: concerning Uber megadeal
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
San Francisco Rest of Bay Area Rest of US
Avera
ge D
eal
Overall Expansion Stage