Venture capital funding slips in fourth quarter of 2017

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Venture capitalists pulled back in the fourth quarter, but that doesn't necessarily bode ill for 2018. (Image: Getty/daizuoxin)

Venture capital funding took a dip in the fourth quarter compared with the third, with dollar volume and deal counts declining for most stages of funding, according to Crunchbase News.

But even though there was a downward trend, 2017 ended ahead of prior years in terms of total venture deals and dollar volume. Early-stage deals drove most of the increase in deal volume, while increases in late-stage and technology growth investment can be cited for much of the dollar volume expansion for the year.

Crunchbase projected an overall quarterly decline in aggregate venture deal volume of just under 13%. The pace of dealmaking slowed across all stages, but the decline was primarily driven by a significant drop in round count at the earliest stage of venture funding—the angel, seed, convertible notes and related deal types that make up the bulk of venture deal volume around the world.

Similar to the count of deals, projected global venture dollar volume pulled back from previous record highs in the final quarter of the year. At a projected total of $53.7 billion in venture capital deals around the world, fourth-quarter totals shrank 19.5% since the third quarter of 2017, Crunchbase said.

However, venture dollar volume in the fourth quarter was still larger—by a factor of 33.4%—than the same time period in 2016.

Some venture capitalists see a pretty robust year ahead, with some bullish about voice technology, in-home deliveries and IoT devices, according to GeekWire.

Len Jordan, managing director at Madrona Venture Group in the Seattle area, sees his firm making 12 to 16 investments this year.

“We are seeing incredibly talented Northwest entrepreneurs launch companies focused on multisense (voice, AR/VR applications), IoT/robotics, intelligent applications and next-generation consumer products/marketplaces," Jordan said. "We will continue investing in early-stage companies at an aggressive pace and are also happy to see accelerating activity from strong and diverse investing firms partnering with us as we scale existing portfolio companies.”

Dan Levitan, co-founder and general partner at Maveron, said the number of new investments his firm plans to make in 2018 is 4 to 6 cores and 20 seeds—“a very exciting time to invest in disruptive consumer businesses.”

“There is still plenty of demand on the investor side,” Colman Lynch, a lawyer at Gunderson Dettmer, told FierceCEO. “And it’s still pretty spread out” among investors.

At the high end, “There continues to be plenty of activity in number and size,” Lynch said.

There have been some new entrants, like an infusion by SoftBank, a large Japanese investor, Lynch said.

In the third quarter of 2017, investors deployed $19 billion to U.S. VC-backed companies across 1,207 deals, nearly the same as the prior quarter, a survey by PwC and CB Insights found. Funding activity was driven by another strong quarter of megarounds of $100 million or more, as the third quarter’s total reached 26, the report said. The deal total was one short of the tally in the second quarter and just above the eight-quarter low seen in fourth quarter of 2016.

"With 40% of value coming from mega-deals, the third quarter of 2017 saw the largest quarter for deal value in two years,” said Tom Ciccolella, PwC’s US Venture Capital Leader in a statement. “Three of the quarter’s five largest occurred outside of California, further demonstrating the overall health of the venture capital ecosystem across the U.S."