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VC Investment Down Slightly in Q3 2016

Oct 19, 2016

A Quarterly Wink and a Glance at Venture Capital

The third quarter of 2016 saw venture capital funding fall slightly from Q2. In Q3, investors deployed a little less than $15 billion in approximately 1,800 companies. With $56 billion of venture capital invested for the first three quarters of 2016, this year is on track to be the second highest so far this decade. Venture capitalists are making fewer (but larger) investments. The number of deals closed in 2016 is expected to be down by more than 20% compared to 2015. Q3 marks the 11th consecutive quarter of more than $10 billion in venture capital invested in a single quarter.

Milestone in Q3

In August, for the first time, five venture-backed companies – Apple, Alphabet, Microsoft, Amazon and Facebook – were the most valuable companies in the world by market capitalization. These powerhouse brands have about 530,000 employees.

Less Deals, Larger Bets

Venture capitalists are continuing to make fewer investments at every stage of the deal life cycle:  angel/seed, early stage VC and later stage VC. However, they are making significantly larger bets. In fact, the median seed deal value through the first three quarters of 2016 is triple the median value just three years ago. In Q3, more than 50% of the venture capital dollars invested went to later-stage deals.

Deal Volume

VCs continue to make sizable investments in a more select group of potentially outstanding companies. VCs are projected to close 600-plus deals of more than $25M in 2016. Will these large bets continue? Q4 should be quite interesting, considering that the U.S. will elect a new president, and the FED continues to discuss possible interest rate increases later this year.

Next time in a Wink and a Glance, we’ll recap 2016 and look into our crystal ball for the VC market in 2017.

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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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