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Focus on Life Sciences & Technology: 2015 Venture Capital Investment - Third Quarter Update

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Venture capital (“VC”) investment experienced pull back in the third quarter, following an exceptional second quarter in 2015 and an overall remarkable year so far.
October 21, 2015

Venture capital (“VC”) investment experienced pull back in the third quarter, following an exceptional second quarter in 2015 and an overall remarkable year so far.

According to the PricewaterhouseCoopers / National Venture Capital Association MoneyTree™ Report, third quarter VC activity in the United States decreased about 5.5% to $16.3 billion, down from $17.3 billion in the second quarter of 2015. Although, a substantial decrease from the second quarter, market participants can still be optimistic as activity in the third quarter is up 56% year-over-year.

The average deal size was up in the third quarter of 2015 from the second quarter of 2015 ($15.3 million vs. $14.4 million, respectively) and overall the trend towards larger deals continues as deal sizes in 2015 are significantly higher than long term averages. The largest deals in the third quarter of 2015 were SoFi and Uber which each received $1 billion in funding, while other companies like Fanatics and DraftKings received $300 million, and GitHub received $251 million.

There was a total of 1,070 deals completed in the third quarter of 2015, compared to 1,202 in the second quarter of 2015. Seed funding increased from $174.6 million in the second quarter to $214.2 million in the third quarter of 2015, but still attracts the least amount of investment when compared to later stage investments.

The software industry continues to lead in attracting VC investment, however, its overall share has decreased from the second quarter. In the third quarter of 2015, software accounted for 36% of the investment, down from 42% in the second quarter of 2015, and below the 42% for all of 2014 (see our 2014 Venture Capital Investment: Year in Review). Despite this decrease, Software led the third quarter of 2015 investments with $5.8 billion spread among 412 deals. Biotechnology remains in second place with $2.1 billion in investment, followed by Media and Entertainment with $1.4 billion in investment. 

 

Geographically, California (1) and Massachusetts (2) lead the nation in VC investment. California received $9.4 billion in VC funding, spread over 436 deals (about $21.5 million per deal). Massachusetts received over $2.0 billion in VC funding, averaging $18.2 million per deal over 110 deals.

Missouri and Colorado ranked 15th and 20th, respectively, in amounts invested while Kansas did not have any deals reported for the third quarter of 2015. The following table highlights the third quarter 2015 VC investments for these selected states:

 

For Missouri, this level of activity represents an improvement over the second quarter of 2015. Colorado and Kansas saw a decrease in overall investment.

We will continue to monitor the levels and trends in VC investment and what they mean for life sciences and technology related industries and the overall economy. RubinBrown has a dedicated Life Sciences and Technology Services Group that works with local, national, and international companies to provide advisory, assurance, and tax services for entities participating in or supporting life sciences and technology industries.


1The MoneyTree™ Report provides definitions for each industry classification. All Other Industries includes the twelve other MoneyTree™ Report industries of: Business Products and Services; Computers and Peripherals; Consumer Products and Services; Electronics/Instrumentation; Financial Services; Healthcare Services; Networking and Equipment; Retailing/Distribution; Semiconductors; Telecommunications; and Other.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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