April 06, 2017
Jason Rowley is a venture capital and technology reporter based in Chicago.
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The first quarter of 2017 was a period of transition for the global venture capital ecosystem.

There are signs that the slight downturn in venture capital financing activity, brought by the fourth quarter of 2016, is reversing course. However, certain stages of venture financing have continued to contract in the first quarter of 2017.

Using reported data and projections from Crunchbase, this report from Crunchbase News takes the pulse of the global venture capital ecosystem. It focuses on the numbers behind investment and liquidity—of Money In versus Money Out.

In the Money In section, we will cover Crunchbase’s projections of how – and how much – the global venture capital ecosystem invested in Q1 2017. Crunchbase News will then evaluate how that result compares to both Q4 2016 and Q1 2016, giving us looks into both sequential quarter and year-over-year performance.

In the Money Out section, we’ll review acquisition statistics and highlight other notable liquidity events, including the thawing market for technology IPOs.

To help you digest this report, each section will contain a bullish and bearish key finding. Without further ado, let’s dive in.

Money In

  • Bullish Key Findings. Compared to the fourth quarter of 2016, more rounds and dollars invested are projected for the global venture ecosystem.
  • Bearish Key Findings. Compared to the first quarter of 2016, rounds are flat and dollars invested fell slightly.

An Overview Of The Global Venture Capital Landscape

How one feels about Q1 2017 is a matter of perspective.

Regarding the number and sheer dollar volume of global VC investments, a quarter-over-quarter comparison might leave you feeling optimistic about the VC market. Although the projected number of deals investors struck didn’t significantly change on an annual basis, far more capital was invested in Q1 2017 compared to Q4 2016.

On a year-over-year basis, Q1 2017 feels more like a return to the “new normal.” When comparing Q1 2017 to the same period the year before, little has changed, though some metrics are slightly less favorable than in Q1 2016.

Global Funding Activity: A Look From Cruising Altitude

To provide a high-level overview of the state of venture finance around the world, Crunchbase News examined the number and volume of venture deals in Q1 2017. We also examined which investors led the charge.

The Pace Of Deals

The pace of new venture capital deals gives us a high-level understanding of how private-market investors approached the market in the first quarter.

Crunchbase projects that the global total number of equity funding rounds in Q1 2017 increased by 11.9 percent compared to Q4 2016. Results were driven by a near 13.5 percent uptick in seed and angel rounds and a 15 percent jump in late-stage financings.

Other funding stages also saw more activity as well. Early-stage funding rounds increased by nearly 7.5 percent and technology growth rounds grew by exactly 4 percent.

Although there has been growth in the total number of financing rounds between Q4 2016 and Q1 2017, compared to Q1 2016, the aggregate number of financing rounds announced globally is more or less unchanged. Out of thousands of rounds counted for each quarter, the projected difference comes down to single digits.

Compared to Q1 2016,  there have been some minor shifts in the global funding landscape. The projected number of seed and angel deals in Q1 2017 increased globally by 1.4 percent, and the number of late-stage rounds grew by half a percent. The seed increase was offset by a projected 3.7 percent decline in the number of early-stage deals. And although the number of technology growth rounds grew by 18 percent year over year, this category’s effect on the broader landscape is negligible due to the small number of rounds

Leaving funding round counts behind, let’s project the dollar amounts invested in Q1 2017 compared to Q4 and Q1 2016.

Projected Funding

As with the pace of funding activity, the story told by Crunchbase’s projections of the total dollar volume invested in Q1 2017 is two-fold:

  1. The total amount of capital invested in Q1 2017 is higher than both Q3 and Q4 of 2016 by a factor of $2.7 billion and $8.3 billion, respectively.
  2. On an annual basis, total capital inflow into ventures at all stages is projected to be slightly down.

Crunchbase projects that global aggregate equity funding dollar volume increased by 23.9 percent between Q4 2016 and Q1 2017. This aligns in direction, if not magnitude, with the increase in total funding rounds discussed earlier in this report.

The increase in global dollar volume is attributable to significant quarter-over-quarter increases in late stage financing. Dollar volume invested in various other rounds has also increased.

Crunchbase projects that dollar volume invested in late-stage financing deals rose by 33.6 percent since the end of Q4 2016. During this same period, the amount of money invested in at the technology growth stage increased by 9 percent. In dollar volume, early-stage rounds saw a significant increase of 17.6 percent.

Meanwhile, seed and angel rounds did not see a significant quarter-over-quarter increase in dollar volume. Crunchbase projects an increase of just half a percent when compared to the previous quarter.

Leaving behind sequential data, let’s compare Q1 2017 to its 2016 analog. Total dollar volume into equity funding rounds is expected to experience a two percent downswing when compared to the year-ago period.

Although dollar volume in technology growth equity rounds more than doubled in Q1 2017 when compared to Q4 2016, other funding stages saw comparatively modest growth or, in the case of early-stage funding, significant declines year over year.

On a year-over-year basis, dollar volume into angel and seed rounds is projected to have declined by less than a percentage point, while late-stage deal dollar volume is projected to have increased by an impressive 13.5 percent on a year-over-year basis. However, one of the main drivers of the two percent decline in total dollar volume was the projected 28.7 percent decline in early stage deal dollar volume, which translates to a reduction in dollar volume of around $5.35 billion.

Heading one step deeper into the data, let’s examine which investors were the most active in Q1 2017.

Most Active Lead Investors

Crunchbase News analyzed over 3,200 venture financing rounds from this quarter using Crunchbase’s funding round data, which often designates lead investors on a given deal. Based on the set of rounds for which lead investors are listed, Crunchbase News then summarized that data by the count of those investors.

In the chart below, you can find a list of the most active lead investors, globally, across all stages. Note that these rankings are likely to shift as more data comes in.

In many ways, this is a list of usual suspects. The majority of these investors also found themselves on the list of most active lead investors in Crunchbase’s 2016 Global Innovation Investment Report.

Now, let’s go through the numbers with a fine-toothed comb.

Stage-by-Stage Analysis Of Global VC Funding Trends

From the broad category of venture activity, we will now focus on per-stage figures. Exploring trends inside of each stage category—instead of focusing on raw round counts and dollars invested—improves our view of directional changes.

The following charts show the average size of various stage rounds. In terms of scale, they are workable benchmarks to weigh future rounds against.

We’ll start with the smallest to end with the largest.

Angel And Seed-Stage Deals

Seed and angel-stage companies may not receive a lot of capital, individually or as an asset class, but the stage is as close to the economic metal as it gets. By looking at investment activity trends into seed-stage companies, we can gauge an investor’s current risk appetite and catch a glimpse at what companies will be raising funds at later stages.

Below is a chart depicting the reported median and mean round sizes for companies Crunchbase categorizes as Seed or Angel stage.

Although the projected number and the amount of capital invested into angel and seed rounds is unchanged on a quarterly and annual basis, a consistent upward trend of money raised in rounds at this stage can be observed. The median size of seed and angel rounds grew by 20 percent since last quarter; however, the average round size grew at half that pace on a quarterly basis.

Compared to Q1 2016, the average seed or angel-stage round is roughly 38 percent larger in Q1 2017. The median round size at this stage has also increased by 50 percent relative to last year.

Why is the trendline positive for the size of both the median and mean seed round? According to Tom Tunguz, a venture capital investor at Redpoint, a growing proportion of seed-stage rounds in his data are, in fact, “second seed” rounds, which can average more total dollars.

Below is a chart depicting the most active seed and angel-stage investors based on the count of reported rounds each investor participated in.

It should come as no surprise that the most active investors are accelerator programs. These investors are in the business of providing capital, at scale, to nascent companies. And as a quirk of how Crunchbase defines the “Angel-Seed” category, equity crowdfunding platform Crowdcube was listed as the second most active investor based on rounds reported.

Moving along, the following chart lists a number of notable global seed and angel fundings from Q1 2017:

Early-Stage Deals

It’s at the early stage – mostly comprised of Series A and Series B deals – where the numbers start getting bigger. More money is invested at this stage, both into individual companies and in aggregate, than seed and angel rounds. But with that scale, the pace and amount of capital invested better reflects investor sentiment about the state of the market. With more money comes more risk and variability. In general, early-stage companies are more likely to feel the squeeze due to risk averse investors.

As we saw in the previous section, investment into seed and angel rounds remained relatively stable, and even grew, amidst challenging market conditions in 2016. Let’s see how early-stage investors around the world deployed capital in Q1 2017 and how that compares to previous quarters.

Crunchbase data suggests that the average size of early-stage rounds grew by 9 percent between Q4 2016 and Q1 2017—a possible recovery from the multi-quarter downtrend in the average size of early-stage rounds.

Although there’s been some fluctuation in the average early-stage round size over time, the median round size has remained flat until this quarter. Between Q4 2016 and Q1 2017, the median round size jumped by nearly 18 percent.

On a year-over-year basis, the median early stage round size, globally, is up 20 percent. The average size of reported early-stage rounds may have grown on a quarterly basis, but compared to last year, rounds of this type were still smaller by 22 percent.

Tonally, the downtrend observed in 2016 continues the market narrative of a cooling venture market. The uptick in Q1 2017 could indicate that investors are pulling back from 2016’s extending conservatism. It can also be viewed as a repudiation of prior cashflow asceticism.

The following chart indicates which investment groups were the most active in early-stage funding:

Closing the book on the early-stage slice of global venture data from Q1 2017 is the following list of financings, showing off which firms collected large checks that, despite their scale, count as early-stage disbursements.

 

Heading up the venture mountain capped by the previously desolate IPO peak, we enter the late-stage realm.

Late-Stage Deals

In contrast to seed and angel rounds, the data involving late-stage venture capital activity is comparatively noisier. It doesn’t trend in a single direction. Regarding round size, both in terms of median and average round sizes, the data gyrates.

Crunchbase defines “Late Stage” as Series C and beyond, plus other equity funding rounds with participation by venture capitalists that total more than $15 million.

Globally, the average late-stage funding round reported in Q1 2017 is roughly 15 percent larger than Q4 2016; however, the median size of late-stage rounds remains unchanged on a quarterly basis.

On an annual basis, both the average and median size of late-stage rounds have grown. Relative to the same period last year, average reported round sizes are up 12 percent and the median round size increased by 7 percent.

As with early-stage financing rounds, there has been some volatility in the average size of late-stage rounds. The amount of capital invested in the median early stage round has not meaningfully changed. Accordingly, the volatility in average round size for these late-stage deals is likely attributable to “outlier” rounds that push up the average round size for the given quarter.

Below is a chart depicting the most active late-stage investors based on the count of reported rounds they participated in:

Among the various late-stage deals, here are the funding events that stood out to the Crunchbase News team.

Continuing up the ladder of relative expense, we consider growth capital next.

Technology Growth Deals

Technology growth capital, often referred to as “growth equity,” is late-stage financing raised in the interest of shoring up assets before going public, or as an alternative to raising money in the public market. Crunchbase categorizes technology growth equity rounds as the set of private equity rounds that contain participation from venture capital firms.

The chart below shows the growth (and somewhat erratic nature) of growth equity funding. As companies continue to raise large rounds from private investors, there is a general, long-term upward trend in the size of technology growth rounds.

The growth of both median and mean round sizes in this category signals a robust appetite for shares in very mature technology companies prior to going public. For now, huge private companies continue to be able to raise capital from private investors, prolonging an IPO.

The average size of technology growth rounds has shrunk by approximately 30 percent, although the median size of these rounds has grown by the same amount. Compared to Q1 of 2016, both median and mean round sizes have grown significantly. Average reported round size for deals of this type increased by 125 percent while the median round size grew by nearly 132 percent.

Money Out

  • Bullish Key Findings. Both sequentially and compared to the year-ago quarter, M&A activity was up in Q1 2017.
  • Bearish Key Findings. Two 2016 quarters, the second and the third, beat Q1 2017 in terms of both number of exits and the dollar value of those exits.

Venture-Backed Acquisitions

Acquisitions are an important source of liquidity for investors, forming half of the critical duo that frees money (and hopefully capital gains) out of private-market companies. IPOs constitute the other half.

The pace at which venture-backed companies are acquired is a macro-level measure of the health of the venture capital market. As the pace increases, venture capitalists are able to return more capital to their investors who, in turn, can invest back into the venture asset class.

Based on reported data gathered by Crunchbase, the pace of acquisitions in the first quarter of 2017 has continued to recover from a significant contraction toward the end of last year.

Not every acquisition in Crunchbase’s database has pricing information attached. The dark blue bars in the above chart reflect the sum of all known venture-backed M&A transaction values for this period of time.

With the exception of two quarters in 2016, both the number of exits and the reported aggregate dollar volume of acquisitions for venture-backed companies continue on a mostly linear growth trajectory.

The two prior quarters appear to be historical outliers in the amount of M&A activity that took place. Here are some of the biggest deals of 2016:

  • Uber China’s sale to Didi Chuxing.
  • Finnish gaming company Supercell’s sale to Tencent Holdings.
  • Jet.com’s sale to Walmart.

Between Q4 2016 and the first quarter of this year, the total number of acquisitions of venture-backed companies grew by approximately seven percent, while the total dollar volume of those deals increased by 31 percent.

Comparing Q1 2017 to the same time period last year, the total number of deals grew by around 9 percent. The total dollar volume of those increased as well, albeit by a disproportionate amount. The amount of money exchanged for these companies grew by a factor of nearly 72 percent.

Following, Crunchbase News has broken out a number of notable Q1 2017 M&A transactions that held our attention:

As you can see, single deals can greatly impact M&A dollar volume inside of a single quarter. If you shifted the Mobileye deal either forward, or backwards by a quarter, it would dramatically shift the narrative presented by the preceding chart.

However, M&A isn’t the only way to foster employee, founder, and investor liquidity. It’s time examine the quarter’s global IPO performance.

Initial Public Offerings

The massive Snap IPO in the US markets matched the strength of the global IPO market in Q1 2017. The global IPO market in the first quarter was notably strong.

To get a handle on which companies went public, and how much they raised in the first quarter, Crunchbase News has broken out a number of deals that mattered.

As this report goes to publication, the IPO market in the second quarter appears lively. Following the debuts of Alteryx, Mulesoft, and Snap, Elevate Credit has also gone public. Okta and Yext are next on deck. Other offerings appear likely in the second quarter, especially from a United States-centered perspective.

Conclusion

The Q1 2017 venture market performed sufficiently well to quell potential market concerns that the bottom could fall out of the private capital markets. Instead, tracking up along with the Nasdaq, a key signal for technology investing as a whole, projected invested dollars and projected rounds executed recovered from the disappointing results of Q4 2016.

That sounds slightly boring, and it is. However, returning capital outflows to recent levels means a return to historically high levels of investment.

Following this report, Crunchbase News will publish entries focused on the United States market during the first quarter, a look into sectors and metro areas of note, and a report diving into the changing gender dynamics of the startup fundraising space.

Methodology

The data contained in this report comes directly from Crunchbase, and in two varieties: projected data and reported data.

Crunchbase uses projections for global and U.S. trend analysis. Projections are based on historical patterns in late reporting, which are most pronounced at the earliest stages of venture activity. Using projected data helps prevent undercounting or reporting skewed trends that only correct over time. All projected values are noted accordingly.

Certain metrics, like mean and median reported round sizes, were generated using only reported data. Unlike with projected data, Crunchbase calculates these kinds of metrics based only on the data it currently has. Just like with projected data, reported data will be properly indicated.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to US dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs, and other financial events as reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary Of Funding terminology

  • Seed/Angel include financings that are classified as a seed or angel, including accelerator fundings and equity crowdfunding below $5 million.
  • Early stage venture include financings that are classified as a Series A or B, venture rounds without a designated series that are below $15M, and equity crowdfunding above $5 million.
  • Late stage venture include financings that are classified as a Series C+ and venture rounds greater than $15M.
  • Technology Growth include private equity investments with participation from venture investors.

Crunchbase News Editor in Chief Alex Wilhelm contributed to this report. Special thanks to Holden Page for editorial and moral support. Additional thanks to Matt Kaufmann and Gené Teare for data assistance.

Note: Since time of original publication, some of the tables have been modified.