Venture capital investments rebound for tech startups in Q2

A billboard displays the logo of Snapchat above Times Square in New York March 12, 2015. REUTERS/Lucas Jackson

Venture capital investments in startups rebounded in the second quarter, as a general stock market recovery helped restore confidence, according to a new report published on Friday.

Investors plowed $15.3 billion into venture-backed startups in the second quarter of this year, a 20.5 per cent increase over the $12.7 billion invested in the first quarter, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association. The report’s conclusions are based on data from Thomson Reuters.

“There was a bit of a pause in the first quarter when the public markets took a beating,” said Sean Cunningham, managing director of Trident Capital Cybersecurity. “The public markets are back. Everyone is bullish.”

Ride-hailing company Uber Technologies Inc and messaging app Snapchat boosted the quarter, raising a combined total of $4.8 billion, or nearly a third of total investments.

In terms of total dollars, second-quarter investments outpaced all but three quarters since 2000, the height of the dot-com boom, suggesting that despite widespread concerns over valuations and a dormant market for tech initial public offerings, venture capitalists and institutional investors are not shying away from writing big checks.

“It’s not heading straight to the moon and it’s not going off a cliff,” said Tom Ciccolella, who leads the venture capital practice for PwC, a consulting firm.

Even as total funding was up sharply, the number of deals was down by about 5 per cent, falling to 961 from 1,011 during the first quarter.

“We are being more selective,” said Erik Gordon, professor at the University of Michigan Ross School of Business and faculty adviser to the university’s venture capital fund. “We’re not going to invest in everything that says ‘We are the Uber of X’ or ‘the Facebook of Y.'”

Indeed, the bar for companies seeking venture capital funding is higher than it was a year ago. After a rash of startups that had received huge funding rounds over the last year failed to reach growth targets or proved to be unsustainable businesses, investors pulled back. The global stock selloff last summer and hammering of tech stocks early this year increased anxiety.

Valuations are generally lower this year, with venture capitalists reporting valuations dropping by 30 per cent to 50 per cent, and the lower prices are helping to get deals done.

The involvement of mutual funds and sovereign wealth funds continues to drive huge deals. The biggest deal of the quarter was Uber’s $3.5 billion round from Saudi Arabia’s Public Investment Fund, followed by Snapchat’s $1.3 billion round from Fidelity Investments and T. Rowe Price, among others.

It was the first time that two venture-backed startups in the same quarter raised billion-dollar-plus investments, according to PwC. Uber’s $1.2 billion financing in the second quarter of 2014 was the first round of that size on record.

Venture capitalists continue to favor software startups, which took in $8.7 billion in funding, a 70 per cent increase from the previous quarter.

Other industries saw a pullback. Investments in financial services fell 25 per cent to $601 million, likely a response to recent struggles at lending platforms Prosper Marketplace and Lending Club.

“We’ve gone pretty cold on these lending platforms,” Gordon said.

Read Also:

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Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.