Dec 19, 2016, 5:37 PM
The funding slide continued in Q3, with US technology venture capital investments dropping 13.6% on a 12-month trailing basis. Additionally, the number of deals dropped 35% compared with this quarter last year.
Click the graph for an interactive look at Q3 funding activity
Established continues to trump early-stage
Investors continue to put money toward expansion and late stage companies, but Q3 saw fewer deals above $100M compared to the same time last year. While some of this large deal flow could be attributed to election uncertainty, seed funding also continued to recede.
Click the chart for an interactive look at Q3 funding activity
Young startups are finding it far more competitive to secure money as investors have been placing series A and seed-worthy companies under a microscope.
Those that have landed larger funding rounds ($45 million and greater) have been primarily software and media-related companies. Specifically, cloud networking and big data startups are attracting attention.
So, early-stage funding isn’t impossible to secure, but startups need to prove their worth by running lean and building their product and user-base—which likely means forgoing the high-dollar real estate.
Bright spots for growth
Innovation still exists, and more importantly it’s occurring outside of the Bay Area. Los Angeles-based Snapchat is prepping for a large IPO while Florida’s MagicLeap continues to push AI boundaries. Meanwhile, markets like Raleigh-Durham, Chicago and Phoenix were among the few to see gains in funding volume this quarter. The Bay Area will remain as the center of tech, but this recent cycle has shown that innovation can, and will, occur anywhere in the U.S.
Click the graphs for an interactive look at Q3 funding activity
Exit strategies wanted
The IPO market is making a slow comeback, and next year looks to fare better than 2016. Investors are going to start pressuring some of the bigger unicorn-sized companies to make a run at the public market. If high-profile startups show well on Wall Street, there could be a small resurgence in funding, and subsequently another uptick in demand for commercial real estate.
Outlook for 2017 TBD
Despite the funding slowdown, we’re not falling just yet. Rather, we’re close to the edge looking down. Consider, though, that the level of funding secured in 2014 and 2015 was unsustainable and the current slide will shield the industry from a hard landing or painful correction. (Thank you, dot-com era, for a lesson in avoiding the plunge.)
The political shift in Washington combined with potential changes in policy may dampen industry momentum, so like most industries, we’re waiting to see what 2017 will bring.
Compare VC funding activity across four major markets:
Research: Christan Basconcillo | Editor: Lillian Veley