National Venture Capital Association Yearbook 2014: software, bio-tech and media sector startups receive most investment in the US

The recently released National Venture Capital Association Yearbook 2014 provides a wealth of data into the wealth of investments poured into US startups over the years (see also my overview of the Kaufmann Foundations’ report on US entrepreneurial activity in 2013).

Venture capital supports entrepreneurial talent and appetite by turning ideas and basic science into products and services that are the envy of the world, says the NVCA. For every 100 business plans that come to a venture capital firm for funding, usually only 10 or so get a serious look, and only one ends up being funded, the 2014 Yearbook claims.

Still, the activity level of the US venture capital industry is roughly half of what it was at the 2000-era peak. For example, in 2000, 1,050 firms each invested $5 million or more during the year. In 2013, the count was roughly half that at 548, according to NVCA data.

Regional performance

California-domiciled venture capital firms made investments in 38 states in 2013. Approximately 48% of all the money invested in California came from California-domiciled firms, the report shows. California-based firms concentrated 68% of their investment dollars within the state. Companies in California received 50% of the total investments in 2013, followed by Massachusetts (10%), New York (10%) and Texas (4%). Five states (California, Massachusetts, New York, Washington and Texas) received 78% of all the dollars invested nationally, according to NVCA data.

The top fundraising state in 2013 was Massachusetts at $5.5 billion, which edged typical leader California at $5.3 billion. New York was third largest at about half that amount. Much further behind, Washington state and Virginia rounded out the top five. Combined, Massachusetts and California funds raised 64% of the total. Adding in New York, the top three states raised more than three-quarters (77%) of the total amount, the report shows.

Sectors

Software was the leading sector in 2013, receiving 37.3% of the total dollars. The second largest sector was Biotechnology, which was less than half that amount at 15.4% of total investment. Media and Entertainment, where much of the social networking is categorised, received 9.9%, according to tables and charts in the report. Medical Devices and Equipment received 7.2%. The Life Sciences share of the venture capital investment dollars decreased in 2013 to its lowest level since 2001 at 23.6% of the total dollars.

Among first fundings, Software led the way with 591 companies getting their initial venture capital rounds. This is more than 46% of the first fundings. Also in 2013, the second most active first-funding sector was Media and Entertainment at 170 first fundings, the report documents.

IPOs

During 2013, 81 venture-backed companies went public in the US, marking the strongest full year total for the number of new venture-backed listings since 2007. More than half of them were biotechnology IPOs, according to data sources cited in the report.

While the total dollars raised in 2012 was higher at $21.5 billion, $16.0 billion of that came from the Facebook IPO alone. The remaining $5.5 billion was raised by the remaining 48 IPOs in 2012. In 2013, $11.1 billion was raised, according to NVCA.

Growth equity investments

In 2013, there were an estimated 342 growth equity deals in the US. A disclosed $12.3 billion in equity investment was reported for 2013. There were also 105 deals for which no dollar equity amounts were disclosed, according to NVCA research.

Approximately 38% of disclosed equity dollars went to California companies. This compares with 50% of traditional venture capital dollars going to California companies. As with traditional venture capital, the sector receiving the most dollars through the most deals is Software. By count, 148 of the 342 deals, or 43%, were into software companies, the report indicates.

In sum, the report sheds light on larger trends in the US startup industry over the years, with lots of room for comparison between Silicon Valley and other entrepreneurial hubs around the world. For example, the number of private equity deals outside the US was 845 in Canada, 742 in the UK, 310 in China, 442 in Germany and 355 in India in the year 2013.

As interest in globalisation increases with each year, private equity investors have continued to broaden their investment criteria to include overseas ventures, the report concludes.