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The state of venture capital: Is there a VC bubble or not?

Everyone likes to talk about economic bubbles, and venture capitalists are the latest targets of such scrutiny. So who won big in 2015, and where is startup investment headed?


VC bubble staying strong

Everyone likes to talk about economic bubbles, and venture capitalists are the latest targets of such scrutiny. Everything from less-than stellar IPO markets to floundering tech stocks seems to point to an inevitable bubble burst.

The numbers seem to tell a different story. While investing growth is good, VCs seem to be focusing on safer bets.

TechCrunch recently reported on news from the National Venture Capital Association that venture capitalists spent $12 billion on startups in Q1 2016, spent over the course of 969 deals.

This quarter showcased the second-best start to the year since the dot-com boom in 2001, beat only by last year’s $13.7 billion in VC startup investments. That all sounds awesome (and it is), but there are some signs that VC firms have shirked some of their riskier investment strategies from the quarters of yore.

What are investment strategies looking like now?

The number didn’t move much from quarter to quarter; Q4 2015 saw $12 billion worth of VC investments in startups. Additionally, the deal count dropped 5 percent compared to last quarter.

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Furthermore, the breakdown of the investments shows a certain amount of conservative thinking amongst VC investors. The top 10 VC deals of this quarter accounted for 25 percent of total invested dollars. Compared to last year’s 18 percent, it appears that the VC wealth is concentrating on some key players. However, the most telling of all the numbers is 18 percent. That number reflects the decrease in early-stage investments by VC firms.

Put another way; companies with a proven track record of success got the money to keep innovating. Expansion-stage deals grew 25 percent, and late-stage deals increased 10 percent, but seed-stage deals fell 10 percent.

Companies with track records of success

So, where’s the money going?

Ride-sharing service Lyft and augmented reality company Magic Leap won big in Q1, raising $1 billion and $794 million, respectively. Other winners included Sunnova Energy, Lyft competitor Uber, and Flatiron Health, an oncology technology startup. That’s two mature startups amongst the top five pulling in big funding.

When broken down by industry, software won big, attracting $5.1 billion in investments through 376 deals. Biotechnology came in second with $1.8 billion. This dovetails nicely with an IPO boom for the sector, which could be a predictor of even more explosive growth in quarters to come. Finally, media and entertainment snagged $930 million in VC money through deals conducted with 109 startups.

Showing caution

When compared with the top 10 deals of Q4 2015, the industry range holds pretty steady. However, Q1 saw more prominent deals struck in two industries that didn’t show as much prominence last quarter: computers and peripherals, and industrial/energy.

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So, while the numbers may be up overall, the investor behavior shows a certain element of caution as experienced software startups lap up investor dollars.


Written By

Born in Boston and raised in California, Connor arrived in Texas for college and was (lovingly) ensnared by southern hospitality and copious helpings of queso. As an SEO professional, he lives and breathes online marketing and its impact on businesses. His loves include disc-related sports, a pint of a top-notch craft beer, historical non-fiction novels, and Austin's live music scene.

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  1. Pingback: Finally! A yelp styled site for venture capitalists - The American Genius

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