Amidst the talk of economic gloom and doom in D.C. this week, the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters, provided some encouragement for venture capitalists, innovators and entrepreneurs. Early Stage dollar investments rose to their highest level in 12 years, rising 7 percent in dollars and 8 percent in deals. In fact, Seed/Early stage deals accounted for 58 percent of total deal volume in Q3, a record percentage for a single quarter. (Full data can be accessed here.) These figures bode well for the future of innovation.
The strong investment numbers in the Software sector also provide cause for optimism. Software investment in the third quarter reached $3.6 billion, which marks the first push over $3 billion for a quarter in 12 years. The Software industry also counted the most deals in Q3 at 420, a 23 percent increase from the 342 rounds completed in the second quarter of 2013. Finally, nine of the 11 largest investments in Q3 went into Software companies. These numbers speak to the continued preference of investors for deals that require less capital to get to proof of concept. That’s good news for software companies, of course, but less encouraging for more capital-intensive sectors.
The picture isn’t entirely rosy, however. While the next generation of companies may have gotten a healthy boost this quarter, many VCs are still trying to gain exits for the previous generation of companies. While this month’s Exit Poll report by Thomson Reuters and NVCA indicated some improvement on that front, we would like to see it strengthen even further. Unfortunately, uncertainty in Washington and in the public markets of the kind we witnessed earlier this week won’t help matters. That said, the strong showing in the Seed, Early Stage and Software sectors in Q3 suggests that VCs remain undaunted, and that the outlook for America’s startup ecosystem remains optimistic.
