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Focus on Life Sciences & Technology: 2016 Venture Capital Investment – A Year in Review

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Following a banner year in 2015, venture capital (VC) activity returned to a more normalized level in 2016. According to PriceWaterhouseCoopers’ and CBInsights’ MoneyTree™ Report, VC investment in the United States dropped 20% in 2016 to $58.6 billion, down from $73.4 billion in 2015. Deal count decreased to 4,520, down 16% from 2015’s 5,409 deals. Average deal size during 2016 declined roughly $.5 million year-over-year, but is still up nearly $2.4 million compared to 2014.
January 30, 2017

Following a banner year in 2015, venture capital (VC) activity returned to a more normalized level in 2016. According to PriceWaterhouseCoopers’ and CBInsights’ MoneyTree™ Report, VC investment in the United States dropped 20% in 2016 to $58.6 billion, down from $73.4 billion in 2015. Deal count decreased to 4,520, down 16% from 2015’s 5,409 deals. Average deal size during 2016 declined roughly $.5 million year-over-year, but is still up nearly $2.4 million compared to 2014.

 

 

Only four sectors experienced increases in funding:

  • Mobile & Telecommunications ($1.5 billion)

  • Electronics ($0.1 billion)

  • Automotive & Transportation ($0.07 billion)

  • Agriculture ($0.02 billion)

Of the 13 sectors that decreased, the Internet sector endured the largest setback (down $11.1 billion).

Despite the decrease, the Internet sector accounted for the largest share of dollars invested in 2016 ($22.0 billion), receiving nearly 38% of total invested capital. Its 2,144 deals accounted for over 47% of 2016 VC deal activity. The Mobile & Telecommunications and Healthcare sectors followed, $13.5 billion and $11.0 billion accounting for 23% and 19% of total dollars invested, respectively.

 

 

Geographically, California (1) and New York (2) led the nation in VC investment. California received $31.4 billion in VC funding in 2016, averaging $16.6 million per deal over 1,894 deals. New York received $7.5 billion in VC funding in 2016, averaging $12.4 million per deal over 601 deals. Combined, the two states collected over 66% of all VC funding in 2016.

Colorado, Missouri, and Kansas ranked 10th, 20th, and 40th, respectively, in amounts invested. The following table highlights the 2016 VC investments for these selected states:

 

 

In 2016 we witnessed a continuous decline in VC deal count and investment. This trend is now about a year and a half old, but the level of activity still remains relatively robust compared to longer term averages. It remains to be seen if the recent trend is simply a reversion to the mean after extremely strong investment activity in late 2014 and into 2015. We will continue to monitor these developments and their effect on VC investment, the life sciences and technology 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.   

*Note: PriceWaterhouseCoopers changed data providers during Q4 2016. Due to differences in methodologies, data reported in the Q4 MoneyTree™ report may not tie to past MoneyTree™ reports or past RubinBrown E-Focus newletters.

 

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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