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

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U.S. venture capital (VC) results for the second quarter present a mixed picture. On the one hand, capital raised increased significantly from Q1 2016, up 20% to $15.3 billion.
July 21, 2016

U.S. venture capital (VC) results for the second quarter present a mixed picture. On the one hand, capital raised increased significantly from Q1 2016, up 20% to $15.3 billion. On the other hand, deal volume dropped (down 5% to 961 deals) and year-over-year capital is down 12% (from the $17.4 billion raised in Q2 2015). On a national level, the slowdown in venture activity that began in the second half of 2015 appears to be continuing, especially for markets outside of California (see our 2015 Venture Capital Investment: Year in Review and the 2016 First Quarter Update). Venture activity peaked in Q2 2015 and has trended down since then.

 

As in Q1 2016, the earliest stage companies are feeling the brunt of the slow down, as expansion and later stage companies are attracting most of the investment (71% of capital in Q2 2016).1

Looking at VC investment by industry, the software industry continues to lead in attracting VC investment accounting for 57% of all investment, up from 41% in Q1 2016. Software accounted for virtually the entire increase in funding this quarter (in actuality more than the entire increase, offset by decreases in many other industries). Biotechnology captured the second largest share at 11%, but total investment decreased from Q1 by $269 million. Following Biotechnology in industry share, IT Services came in third, attracting about 6% of capital invested.

 

Geographically, California (1) and New York (2) lead the nation in VC investment. California received $10.7 billion in VC funding (70% of U.S. total), spread over 404 deals (42% of U.S. deals), a whopping $26.4 million per deal. New York, a distant second, received over $1.2 billion in VC funding (8% of U.S. total), averaging $11.2 million per deal over 103 deals (11% of U.S. total).

Colorado, Missouri, and Kansas ranked 17th, 23rd and 41st, respectively, in amounts invested. The following table highlights Q2 2016 VC investments for these selected states:

 

Missouri and Kansas saw a decrease in overall investment compared to the Q1 of 2016 while Colorado saw an increase. However, Missouri VC activity remains relatively robust when compared to the longer term average.

While the slow-down continues into Q2, in particular for non-West Coast markets, 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.


1 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Repot Data.

 

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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