Mixed Signals for Venture Capital in Q1 2017

A Quarterly Wink and a Glance at Venture Capital

Q1 2017 got off to a good start in terms of venture capital dollars invested. A total of $16.5B was invested during the first 3 months of the year, compared to the $11.7B in Q4 2016. The $16.5B was deployed across some 1,800 deals, making it the smallest number of companies to receive funding since Q4 2011. Software and life sciences were the 2 sectors that received the majority of activity, representing more than 50% of the deals.

Seed-and Early-Stage Deals Continue to Trend Behind

There were only 827 seed-stage deals completed in Q1 2017, which was down considerably from the 1,223 seed deals completed in Q1 2016. In fact, there were only 497 first-time financings in Q1, which represented the fewest in a single quarter in almost 7 years.

Investor Liquidity Getting Better

There were 29 IPOs in Q1 2017, raising approximately $13.3B. This is up dramatically from Q1 2016 when there were just 9 IPOs totaling about $1.2B. Of the 29 IPOs, 15 represented venture-capital-backed companies. The biggest U.S. IPO of the quarter was Snap, Inc., which was also the biggest tech offering since 2014.

Some think that this flurry of completing or filing for IPOs will instill confidence in a market long in the doldrums, and, these events might be enough to convince some of those unicorn companies to proceed with offerings.

Even though the IPO market has recently regained some luster, there is still plenty of dry powder sitting on the sidelines for companies that would prefer to remain private.

Outlook

Despite the uncertainty surrounding the new administration in Washington, Q1 2017 was a good quarter for venture capital firms in terms of dollars deployed and investor liquidity thanks to a resurgence of the IPO market. Is Q1 any indication of where venture capital is going in 2017? We’ll see.