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Focus on Life Sciences & Technology: 2016 Venture Capital Investment – First Quarter Update

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U.S. venture capital (VC) investment was $12.1 billion in Q1 2016, up 1% over Q4 2015, but down 11% when compared to Q1 2015. On a national level, the slowdown in venture activity that began in the second half of 2015 (2015 Venture Capital Investment: Year in Review) appears to be continuing. Venture activity peaked in Q2 2015 and has steadily decreased since then.
May 4, 2016

U.S. venture capital (VC) investment was $12.1 billion in Q1 2016, up 1% over Q4 2015, but down 11% when compared to Q1 2015. On a national level, the slowdown in venture activity that began in the second half of 2015 (2015 Venture Capital Investment: Year in Review) appears to be continuing. Venture activity peaked in Q2 2015 and has steadily decreased since then.


 


There was a total of 969 deals completed in Q1 2016, compared to 1,021 in Q4 2015. Seed stage and early stage investment appears to be experiencing the slowdown the most, which helps explain why even with the slowdown in overall activity, average deal size remains relatively high.

Looking at VC investment by industry, the software industry continues to lead in attracting VC investment accounting for 42% of all investments. This 42% share is up from 38% in Q4, and up from 40% for all of 2015 (2015 Venture Capital Investment: Year in Review). Biotechnology also experienced growth with $1.8 billion in total investment, accounting for 15% of all investments, up from 14% in Q4 2015 and the 13% for all of 2015. Following biotechnology in industry share, media and entertainment came in third with $931 million in total investment.

 

Geographically, California (1) and Massachusetts (2) lead the nation in VC investment. California received $5.7 billion in VC funding, spread over 364 deals (about $15.8 million per deal). Massachusetts received over $1.5 billion in VC funding, averaging $13.9 million per deal over 109 deals. 

Missouri, Colorado and Kansas ranked 16th, 20th and 37th respectively, in amounts invested. The following table highlights Q1 2016 VC investments for these selected states:

 


Missouri, Colorado and Kansas saw a decrease in overall investment compared to the fourth quarter of 2015. However, one encouraging data point for Missouri is that Q1 2016 investment far exceeded Q1 2015 investment (of about $10.1 million).

While the slow-down continued into Q1, please keep in mind that VC activity remains relatively robust when looking back over the past 15-years during the post dot-com bubble era. We will continue to monitor the levels and trends in VC investment and what they mean for life sciences and technology related industries, valuations 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.

 

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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