Software and Internet-Specific Companies Continue to Dominate Investment Dollars
WASHINGTON, DC – Venture capitalists invested $48.3 billion in 4,356 deals in 2014, an increase of 61 percent in dollars and a 4 percent increase in deals over the prior year, according to the MoneyTree™ Report by PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data from Thomson Reuters. In Q4 2014, $14.8 billion went into 1,109 deals.
Internet-specific companies captured $11.9 billion in 2014, marking the highest level of Internet-specific investments since 2000. Additionally, annual investments into the Software industry also reached the highest level since 2000 with $19.8 billion flowing into 1,799 deals in 2014. Dollars going into Software companies accounted for 41 percent of total venture capital investments in 2014, the highest percentage since the inception of the MoneyTree Report in 1995.
“2014 has been an exciting year for venture capital investing,” noted Mark McCaffrey, global software leader and technology partner at PwC. “For the first time in MoneyTree history, we saw two deals exceed one billion dollars and more than 40 megadeals — which are investments exceeding $100 million. In addition, there’s been an influx of private equity investors at a level we’ve not seen previously. As a result, entrepreneurial companies are capable of disrupting entire industries and leveraging investment dollars to expand to the global markets. With the continued economic conditions, we would expect venture capital investing to be positioned to continue strong levels of investing in 2015.”
“With the fundraising environment improving in 2014 and non-traditional investors increasingly joining venture capital firms in later-stage funding rounds, more capital was deployed to the startup ecosystem in 2014 than any year since 2000,” said Bobby Franklin, President and CEO of NVCA. “As the epicenter for technological innovation, the United States has a wealth of groundbreaking startup companies that require the financial capital and business expertise of venture investors to take their businesses to the next level. Whether it be a medical device company whose products will save thousands of lives or the software company whose services will transform an entire industry, the venture community is investing in the future of our economy.”
Sector and Industry Analysis
The Software industry maintained its status as the single largest investment sector for the year, with dollars rising 77 percent over 2013 to $19.8 billion, which was invested into 1,799 deals, a 10 percent rise in volume over the prior year. Software remained the number one sector in Q4 for both dollars invested and number of deals with $5.8 billion going into 461 deals, nearly four times the number of deals than the second highest volume sector, Media and Entertainment. Software has held the number one spot in terms of dollars invested for 21 straight quarters.
Biotechnology investment dollars rose 29 percent while volume decreased 4 percent in 2014 to $6.0 billion going into 470 deals, placing it as the second largest investment sector for the year in terms of dollars invested. The Media and Entertainment sector accounted for the second largest number of deals in 2014 at 481, however it was third largest in terms of dollars invested with an annual total of $5.7 billion.
Overall, investments in 2014 in the Life Sciences sector (Biotechnology and Medical Devices combined) rose to the highest level since 2008 with $8.6 billion invested into 789 deals, a 29 percent increase in dollars but a 3 percent drop in deals compared 2013. In Q4, the Life Sciences sector captured $2.8 billion going into 202 deals, a 62 percent increase in dollars invested while deal volume remained relatively flat compared to Q3 2014. Dollars invested into Life Sciences companies accounted for 18 percent of total venture capital investments in 2014.
Internet-specific companies experienced a 68 percent increase in dollars but a 6 percent drop in deals for the full year 2014 with $11.9 billion going into 1,005 rounds compared to 2013 when $7.1 billion went into 1,074 deals. This marked the highest level of Internet-specific investment since 2000. For the fourth quarter, $3.0 billion went into 236 Internet-specific deals. ‘Internet-specific’ is a discrete classification assigned to a company whose business model is fundamentally dependent on the Internet, regardless of the company’s primary industry category. These companies accounted for 25 percent of all venture capital dollars in 2014.
Fourteen of the 17 industry categories experienced increases in dollars invested for the year. Industry sectors experiencing some of the biggest dollar increases for 2014 included: Retailing/Distribution (265 percent); Computers and Peripherals (132 percent); Electronics/Instrumentation (128 percent); and Financial Services (109 percent).
Stage of Development
Expansion Stage investments captured the most investment dollars in 2014, increasing 102 percent to $19.8 billion which flowed into 1,156 deals, a 13 percent increase compared to the prior year. In the fourth quarter, 297 Expansion Stage companies captured $6.2 billion. Expansion Stage companies attracted 41 percent of dollars and 27 percent of deals in 2014 compared to 33 percent of dollars and 24 percent of deals in 2013. The average Expansion Stage deal in 2014 was $17.1 million compared to $9.6 million in 2013.
Investments in Early Stage companies accounted for the most deals during 2014 with 2,165 deals capturing $15.8 billion. While the number of deals remained relatively flat in 2014 compared to the prior year, the dollars invested rose 54 percent over the same time period. In the fourth quarter, $5.6 billion flowed into 576 Early Stage deals. Early Stage companies attracted 33 percent of dollars and 50 percent of deals in 2014 compared to 34 percent of dollars and 51 percent of deals in 2013. The average Early Stage deal in 2014 was $7.3 million, up notably from $4.8 million in 2013.
Seed Stage investments fell 29 percent in terms of dollars and 18 percent in deals with $719 million going into 192 companies in 2014, the lowest number of Seed deals since 2002. In the fourth quarter, venture capitalists invested $176 million into 39 Seed Stage deals. Seed Stage companies attracted 1 percent of dollars and 4 percent of deals in 2014 compared to 3 percent of dollars and 6 percent of deals in 2013. The average Seed Stage round in 2014 was $3.7 million, down from $4.3 million in 2013.
In 2014, $12.0 billion was invested into 843 Later Stage deals, a 35 percent increase in dollars and a 6 percent increase in deals for the year. In the fourth quarter, $2.7 billion went into 197 deals. Later Stage companies attracted 25 percent of dollars and 19 percent of deals in 2014 compared to 30 percent of dollars and 19 percent of deals in 2013. The average size of a Later Stage deal rose from $11.2 million in 2013 to $14.3 million in 2014.
First-time financings in 2014 rose 47 percent in dollars while the number of deals was flat compared to 2013, with $7.4 billion going into 1,409 companies. Investments into companies receiving venture capital for the first time in Q4 increased 57 percent in dollars and 8 percent in deals when compared to the prior quarter. First-time financings accounted for 15 percent of dollars and 32 percent of deals in 2014 compared to 17 percent of dollars and 33 percent of deals in 2013.
Industries that captured the highest total of first-time dollars and deals in 2014 were Software, Media and Entertainment and Biotechnology. Sixty-eight percent of first-time deals in 2014 were in the Early Stage of development, followed by the Expansion Stage of development at 14 percent, Seed Stage companies at 11 percent and Later Stage companies at 7 percent.
Note to the Editor
Information included in this release or related venture capital investment data should be cited in the following way: “The MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters” or “PwC/NVCA MoneyTree™ Report based on data from Thomson Reuters.” After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA or MoneyTree Report. Charts and tables displaying the data are sourced to “PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters.” After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA, MoneyTree Report or MoneyTree.
About the PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
The MoneyTree™ Report measures cash-for-equity investments by the professional venture capital community in private emerging companies in the U.S. It is based on data provided by Thomson Reuters. The survey includes the investment activity of professional venture capital firms with or without a U.S. office, SBICs, venture arms of corporations, institutions, investment banks and similar entities whose primary activity is financial investing. Where there are other participants such as angels, corporations, and governments, in a qualified and verified financing round the entire amount of the round is included. Qualifying transactions include cash investments by these entities either directly or by participation in various forms of private placement. All recipient companies are private, and may have been newly-created or spun-out of existing companies.
The survey excludes debt, buyouts, recapitalizations, secondary purchases, IPOs, investments in public companies such as PIPES (private investments in public entities), investments for which the proceeds are primarily intended for acquisition such as roll-ups, change of ownership, and other forms of private equity that do not involve cash such as services-in-kind and venture leasing.
Investee companies must be domiciled in one of the 50 U.S. states or DC even if substantial portions of their activities are outside the United States.
Data is primarily obtained from a quarterly survey of venture capital practitioners conducted by Thomson Reuters. Information is augmented by other research techniques including other public and private sources. All data is subject to verification with the venture capital firms and/or the investee companies. Only professional independent venture capital firms, institutional venture capital groups, and recognized corporate venture capital groups are included in venture capital industry rankings.