VC Investments High at $13 Billion with Technology on a Roll

VC investments are looking good all round at the moment. When we compare the first quarter of 2014 with the second quarter, we can see a 34% increase in cash terms ($9.7 billion to $13 billion) and an increase of 13% in the number of individual deals made (985 to 1,114.)

VCs are feeling pretty enthusiastic right about now. At least, that’s what the latest data show. In fact, the $13 billion invested in the second quarter of 2014 marks the largest quarterly investment total since the $13.1 billion invested way back in the first quarter 2001. The base data for this was made available by Thomson Reuters, which also offered evidence for this increase to be due largely to a very strong software industry.

Technology Rocks for VCs

Software investment increased by 50% from quarter 1 to quarter 2, and there is no doubt at all that technology currently rocks where innovation, company development and capital investment is concerned. Compare this with a 69% decline in investment in business products and services, and it continues rolling upwards, largely due to one specific investment but not reliant upon it.

That was the well-publicized $1.2 billion raise of primary capital by Uber at a $17 billion pre-money valuation. This came mainly from Fidelity Ventures, with Bloomberg reporting 5 other firms also taking part (Caufield & Byers, Google Ventures, Kleiner Perkins , Menlo Ventures and Summit Partners.) This is the largest single-quarter deal reported by the Money Tree Report since it began in 1995.

The negative effect of the setbacks of Uber in Seoul, Malaysia, Brussels and Germany, and resistance to this unusual taxicab operation worldwide, might ultimately have an effect on these investments, but this is only a small part of what would still be a record investment figure since 2003.

Other VC Winners and Losers

Biotech is another high trending area, with 122 deals made involving a total of $1.8 billion. This represents a dollar increase of 69% and 7% up in deals over the first quarter of 2014. After software and biotech comes the media & entertainment industry, with $1 billion invested in 124 deals (40% increase in dollars and 9% increase in deal.) In each of these cases, the massive increase in dollars invested was due to specific large individual investments rather than a general overall increase.

Internet-specific companies experienced an increase in investment from $2.3 to $2.7 billion between the two quarters, with a 20% increase in individual deals from 225 to 270. These are companies whose business models are fundamentally dependent upon web-based activities.

As previously noted, big losers were the Business Products & Services sector with a 69% reduction in investment, telecoms at 43% and semiconductors with a 29% drop.

Investment by Stage

New technology is definitely a big target for venture capital investments in 2014, but at what stage was most investment made? According to the Money Tree Report investment has increased in all stages of a company's development. The major figures are:

  • Seed Stage: an increase of 46% in cash invested between Q1 and Q2 of 2014 with a total of $189 million invested in 55 deals. The average deal was up between the two quarters from $2.8 million to $3.4 million.
  • Early Stage: cash investment increased by 17% with $3.8 billion invested in 522 deals. Average deal up from $6.8 million to $7.3 million.
  • Expansion Stage: a 53% increase in dollars invested, with $5.7 billion over 308 deals. Average deal up from $14.0 million to $18.7 million -
  • Later Stage: a cash investment increase of 25%, with $3.2 billion over 119 rounds. Average deal up from $13.3 million to $14.0 million.
  • First-Time Financing: a 48% cash increase to $1.9 billion over 351 companies. The dollar value of first-time financings represented 14% of all cash invested in Q2, while first-time deals totaled 32% of all deals in Q2.

Software companies came tops in the number of first-time financings and in the share of the total cash value of second-quarter deals. Not only is VC investment high just now, but technology companies are on a roll – and not all of this is due to the Uber deal.