From the Wall Street Journal's Venture Capital Dispatch:
Last year was a great one for venture capital. Mega amounts raised by startups and venture firms were supported by the large returns clocked by the industry via initial public offerings and mergers and acquisitions.
But the first quarter of this year changed the dynamic, according to data from Renaissance Capital, an IPO research and investment-management firm. While venture investments appear to be barreling ahead, venture exits via IPOs dropped.
The first quarter of 2015 was the worst in two years in terms of the number of venture exits via IPOs, as well as the amount of IPO proceeds that venture-capital backed companies raised, Renaissance said.
Just 17 venture-backed companies went public in the U.S. in Q1, down from 40 a year ago. IPO proceeds dropped 59% to $1.3 billion in the first quarter from $3.2 billion a year ago. The first quarter IPO proceeds were also lower than the fourth quarter of 2014, when 30 venture-backed companies raised $4.4 billion.
Total exits for venture-backed startups, including mergers and acquisitions, in North America also dropped in the first quarter to 181 deals totaling $4.91 billion from 255 deals totaling $14.07 billion in value in the year-ago quarter, according to PitchBook Data Inc. That is a 65% decline in dollar value.
By contrast, global venture activity in the first quarter was the highest on record by dollars invested, according to research firm Preqin. Global venture investments in startups jumped to $27.4 billion, up from $18.1 billion in the year-ago quarter. Eighteen private companies raised rounds at a valuation of a billion dollars or more since the start of the year, according to data from The Wall Street Journal and Dow Jones VentureSource.
U.S. startups raised $16.3 billion in the first quarter, the highest level in the past five years, according to Preqin. Dollar totals increased 35% from the year-ago quarter, when U.S. companies raised $12.06 billion. The funding level was also about double the quarterly amounts five years ago. Although the amount invested jumped, the number of venture investments declined in the first quarter of this year, to 887 deals from 1,285 a year ago, according to Preqin.
The slowdown in IPOs could indicate an imminent problem for venture capital investors that have accumulated large portfolios, invested a lot of capital, and might not be able to push their startups out through IPOs to get a return.
“The data shows, though, that the current investment levels aren’t yet justified by the exit environment,” Tomasz Tunguz, a partner at Redpoint Ventures, wrote in a blog post on Wednesday. Mr. Tungusz was looking at the IPOs through 2014 in his analysis, not taking into account the decline in the first quarter of this year.
Mr. Tunguz estimated that the industry would need two times the number of IPOs in its biggest year of 2000 to accommodate the exits of just those IT companies that raised growth rounds of $40 million or more in 2014.
But Scott Kupor, a managing partner at venture firm Andreessen Horowitz, said in a tweet in response to the Renaissance Capital IPO data: “tech money [is] shifting from public markets to private markets.”...MORE
