What Series A Crunch? Early Stage Venture Deal Making Hits 12 Year High In 2012

What Series A crunch?

Despite all the talk of a narrowing of the investment funnel as a flood of angel and seed deals compete for a limited number of Series A fundings, the funnel seems to be widening.

Venture capitalists in the United States did more Series A financings in 2012 than they have in 12 years. And they picked up the pace in the fourth quarter to a 12-year high as well. This observation is perhaps the more interesting to come from the year-end MoneyTree Report released last week. The report is prepared by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters, publisher of this blog.

Whether the increase in early stage deals defeats the thesis of a coming Series A crunch is not clear. But it boosts the argument that thoughtful venture investors are already on the prowl for attractive, young companies.

Overall, venture investing was down 10% in 2012 to $26.5 billion and the deal count was off 6% to 3,698, the MoneyTree Report found. Late stage deals were down 9%, expansion stage deals declined 6%, but the early stage deal count rose 5% to 1,638. The increase came even as total dollars going to early stage transactions fell 11% to $7.8 billion.

Also of note, the fourth quarter totals show a 9% increase in early stage deals from the third quarter as well as a 5% increase in dollars put to work.

The last time annual early stage deal count passed 1,638 was in 2000, when at the height of the Internet bubble GPs did 2,856 financings. The 2011 total came close to the mark at 1,555, but no other year rivals the activity.

Of course with a rising deals total and decreasing dollars, that average deal size fell last year to $4.8 million compared with $5.6 million in 2011.

The last time the quarterly early stage deal flow exceeded 2012’s 448 was the fourth quarter of 2000.

Not all researchers agree with the MoneyTree observations. In a separate study released last week, PitchBook Data found a 5% decline in the number of early stage deals in 2012 and a much deeper 21% decline in the amount of capital invested. The study also said the fourth quarter deal count plunged 26%.

Time will tell which is closer to the mark. In either case, it will be interesting to watch activity in the quarters to come.

Photo courtesy of Shutterstock.

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