Contributed by our colleague Mark Radcliffe
2014 was a great year for startups seeking funding. Two of the leading reporting companies, PitchBook and CB Insights, report similar trends (both of these reports focus on funding by traditional financial venture capitalists and corporate venture capitalists, but the numbers differ because PitchBook also includes some angel investments). The key points are:
1. Significant Increase in the Amount of Funding: The funding in 2014 increased dramatically from 2013: according to PitchBook, funding increased almost $20 billion from $39.4 billion to $59 billion http://blog.pitchbook.com/5-takeaways-from-pitchbooks-2015-u-s-venture-industry-report/ (see chart below). This total is the largest since 2000. CB Insights has slightly lower numbers $47.2 billion but the trends are the same, with a sixty two percent (62%) increase over 2013 https://www.cbinsights.com/venture-capital-2014.
*Chart from PitchBook
2. Larger Deals: According to PitchBook, the number of deals declined from 6,124 to 5,160, a drop of 16%. On the other hand, CB Insights shows a slight increase in the number of deals (8%) to 3617. According to PitchBook, this drop reflects a significant increase in the size of later stage financing: the proportion of capital invested in rounds that raised more than $25 million was sixty four percent (64%). These deals also reflect a trend to delay exits and the rise of “unicorns” (private companies worth more than $1 billion). According to Fortune, over 80 technology startups are unicorns and we are beginning to see the rise of “decacorns” (companies worth $10 billion). Fortune now counts eight decacorns. The reason for the difference in the numbers is difficult to determine (I have talked with both PitchBook and CB Insights), but is probably due to the angel deals counted by PitchBook.
3. California Retains Its Lead: According to CB Insights, California widened its lead over other states in 2014. California based companies raised $6 billion more of venture capital funding than all 49 other states and Washington D.C. California-based companies raised $26.84 billion across 1631 deals while companies based outside of the California raised $20.46 billion across 1986 deals. https://www.cbinsights.com/blog/california-venture-capital/. PitchBook’s most recent infographic on the geography of venture investments is focused only on the Bay Area, but suggests a similar continued dominance with the Bay Area taking 29% of venture funding http://blog.pitchbook.com/vc-by-region-in-2014-bay-area-nyc-pnw-europe/.
These numbers reflect the fundamental nature of the changes taking place in economy: business is becoming more digital, driven by software, big data and mobile platforms.