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Venture investment slides in 2016, startup appetite for this year
January 11, 2017 / 5:01 AM / a year ago

Venture investment slides in 2016, startup appetite for this year

SAN FRANCISCO, Jan 10 (Reuters) - Venture capital investment continued its slide in the fourth quarter of last year, rounding out a restrained year in startup financing but not the collapse many had feared.

Investments in venture-backed companies in the United States fell 16 percent to $11.7 billion from the previous quarter. That was 19 percent below the same period the year before and marked a three-year quarterly low, according to the latest MoneyTree Report from PricewaterhouseCoopers and CB Insights, released on Wednesday.

The quarter had 982 venture deals, marking the first time since 2011 that there were fewer than 1,000 deals in a quarter, according to the report.

The decline ended a calmer year after venture capital reached fever pitch in 2015, driving valuations to record levels and raising concerns about another Silicon Valley bubble.

The cooling in 2016 has been widely viewed as healthy, providing it does not lead to a sudden collapse of funding.

“There was (caution) of catastrophe. I don’t think that’s yielded itself,” said Tom Ciccolella, U.S. venture capital leader at PwC.

Although the fourth quarter of 2016 produced the lowest funding since the same period in 2013, when only $9.9 billion was invested, startups continued to score billion-dollar deals, which prior to 2014 were unheard of, Ciccolella said.

In December, satellite communications company OneWeb raised $1.2 billion, the lion’s share of which came from Japan’s SoftBank Group Corp.

However, investors are generally keeping a tighter lid on startup valuations, with just four new companies in the fourth quarter earning the highly prized “unicorn” status of a valuation of $1 billion or more.

The third quarter of 2015 marked the peak for unicorns, when 16 startups earned that designation, according to the MoneyTree report.

Last year’s restraint may not extend to this year, as venture firms have padded their coffers. Venture capital fundraising hit a 10-year high of $41.6 billion last year, creating a surplus of cash for new startups, according to a separate report from PitchBook Data Inc and the National Venture Capital Association, also released on Wednesday.

More venture capital funds are also hitting their fundraising target: 88 percent of venture funds achieved their target in 2016, compared to 80 percent the year prior, according to the PitchBook report.

“There is a big appetite for the asset class,” Ciccolella said. “There is so much money ready to be invested.” (Reporting by Heather Somerville; Editing by Bill Rigby)

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