Venture capitalists began 2013 by pouring money into startups at the slowest pace in two years, suggesting a reset for an industry where dollars coming into new funds have trailed portfolio company investments for six years.
Investments in the first quarter came to $5.87 billion, down 6% from a year ago and down 12% from the fourth quarter, according to the MoneyTree Report. In all, 863 deals were funded, off 15% from the fourth quarter, according to the survey from the National Venture Capital Association, PricewaterhouseCoopers and peHUB publisher Thomson Reuters.
The slowing investment trend was evident in quarterly numbers from several other organizations this week, notably Dow Jones VentureSource and PitchBook. Together they show an industry pulling back as soft exits markets lead to a reduction in active investors and consolidation among firms.
Venture capitalists tried to put a brave face on the retreat. “Less money has been going into venture in the past couple years,” said Stacey Bishop, a partner at Scale Venture Partners. “There does come a point when it has to equal out a bit.”
This can be viewed as a positive, added Bishop. “There are not as many me-too companies.”
Several investment categories saw sharp declines in activity. Life sciences investing tumbled 28% from the fourth quarter and cleantech fundings were off 35% in dollars. Life sciences deal flow was the lowest since early 2009.
On the other hand, dollars going to software startups rose 8%, even as deals slipped 18% from the fourth quarter.
Across sectors, early stage deal making fell 28% in dollars as the average deal size dwindled to $3.7 million, compared with $4.2 million in the fourth quarter, the report found. Growth stage investing was down a less dramatic 13% and late stage dollars were actually up 2%.
Of note, the Dow Jones VentureSource study found median pre-money valuations in the quarter tumbled 79% to $6.05 million.
The companies with the largest first quarter deals are:
- GENBAND of Frisco, Texas, which raised $343 million;
- Air Watch of Atlanta, which raised $200 millioin;
- Pinterest of San Francisco, which raised $200 million;
- LivingSocial of Washington D.C., which raised $110 million,; and
- Nest Labs of Palo Alto, which raised $80 million.
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