Venture investing is slowing

We just received Dow Jones VC Edge report for Q2 2019.  The data is excellent and shows the trends in venture capital.  What are the trends? i) the market has never been more awash with venture capital; but ii) the number of deals done is declining.  As a result, the average deal size has ballooned with more attention being paid to later rounds than earlier rounds.   Additionally, while investment has been robust, it may be leveling off.  The data and commentary are below.



Dollars invested are way up.  In the past 12 months, venture firms have invested $141 billion in US deals, which is up 35% YOY As you can see, 2018 is when the dollar volume of deals really picked up: from Q2 2015 to Q4 2017, the 12 month moving average was $81 billion, whereas from Q1 2018 to Q2 2019, the 12 month moving average was $126 billion.


While the YOY growth is tremendous, notice when you chart the data, it appears as though we’re flattening out in terms of dollar invested per quarter.  Over the past three quarters, the range of investment has been tight, from $134bln in Q4 2018 to $141bln today.


Number of deals declined.  Over the past 12 months, there were 5,785 venture deals done in the US.  That’s actually down 7% year over year and is the second quarter of YOY declines.  Unlike dollars invested, the number of deals has never increased by more than 10% year over year.  The moving average of the past 4 quarters is only a 1% year over year increase.  The chart really drives the point home of fewer deals being done.


Deal size is up.  Given that dollars invested has increased but the number of deals done is down, average deal size is now $22mm.  Note that from Q3 2014 to Q1 2018, average deal size each quarter rose from $11mm to $17mm.


Where is the cash going? In Q2 2019, Northern California received 46% of the investment, Mid Atlantic received 18%, Southern California received 8%, and New England got 7%.  The rest of the nation shared 22% of all venture dollars.   IT companies 27% of the capital, business & financial services received 23%, healthcare took 22%, consumer services was 14%, and consumer goods were 9%.  Industrial goods, materials, and energy combined took 5%.


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