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Slowdown in Q1 of 2016?

Apr 19, 2016

A Quarterly Wink and a Glance at Venture Capital 

It was a banner year for venture capital investing in 2015. Investors pumped about $58 billion in startups, making it the second highest full-year total in the last 2 decades. The software, biotech, and media and entertainment sectors were the biggest beneficiaries of this funding bonanza. 

However, the first quarter of 2016 shaped up to be quite a different story. We may be on the doorstep of a period where investors are becoming much more cautious. Sky-high valuations are retreating, and certain funds are even marking down the value of some prominent companies in their portfolios. 

Funding for startups in Q1 hit a dry spell, as it was down 25% from Q4 of 2015. Combine that with a lack of IPOs, and startup valuations are feeling a bit anemic. In fact, not a single venture-backed technology company went public in the first quarter of 2016. That has not happened since 2009. Does this lack of an IPO market mean that private market valuations have been on the high side? It certainly appears so.  VC firms are worrying about exits because the IPO market has been quiet, and larger companies are doing far fewer acquisitions. 

Thankfully, venture capital funding for biopharmaceutical startups is still relatively robust— increasing 7% from Q4 of 2015. A total of 6 venture-backed biotech companies went public in Q1 of 2016, in what was a very quiet quarter for IPOs. 

Next time in a Wink and a Glance, we’ll examine if Q2 got the venture capital market back on track.

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Alan Wink

Mr. Wink assists clients with capital budgeting, capital structuring and capital sourcing. He has worked with many tech and life science companies on developing the appropriate capital structure for their position in the business life cycle.

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