Activity Overview — Broad Economy
Driven by large raises from Uber ($3.5 billion) and Snapchat ($1.5 billion), $27.4 billion was invested by the venture capital community through the first six months of 2016. A total of $15.3 billion was raised in Q2 2016, representing an increase of +26% from Q1 2016. Large investor interest has been shown within the megadeal space ($100 million+), as it comprised 39% of deal value ($6 billion) in Q2 2016.
Led by the investments mentioned above, the software industry continued to have the highest level of funding, receiving a total of $8.7 billion in Q2 2016 (a 70% increase from Q1 2016). The software industry has been the sector with the most dollars invested for 27 straight quarters. The biotechnology industry, the second largest industry by dollars invested, experienced a down quarter in Q2 2016, at $1.7 billion invested, a decrease of -16% from Q1 2016.
Venture capital investment represents an alternative asset class that is not correlated to market returns, and as such, the total number of investments made is not the best proxy to monitor changes in investor sentiment. Changes in investment dollars, however, provide a clearer picture as to directional trends. During 1H 2016, the amount of investment dollars increased and decreased across different stages of development when compared to 1H 2015. Seed Stage, Early Stage, and Later Stage investments changed by +145%, -14%, and -32%, respectively. Expansion Stage investments showed little change, declining less than 1%. Median pre-money valuations for Series D+ investments continued their downward trend in Q2 2016, finishing at $192 million. This represents a -37% decline from the annual 2015 median valuation of $306 million.
Medical Devices & Equipment Segment
Venture capital investment in medical device and equipment represented 4% of total venture investment in 1H 2016, equaling the same proportion of investment in 1H 2015. The amount invested in Q2 2016 was $539 million, +6% higher than Q1 2016. One of the largest investments of Q2 2016 was AccuraGen Inc., who received a $40 million round of funding for interest in their cancer detection device.
Outlook
Venture capital investment activity is expected to continue growth throughout the latter half of 2016. Investor sentiment is slowly shifting towards earlier stage companies, perhaps in search of the next “unicorn”. This is evidenced by the growth in dollars invested in Seed Stage companies and the declining investment trend in Later Stage companies. Series D+ median valuations are also expected to continue to decline, as we see more companies look to the public markets for funding via IPOs rather than private venture financing.
