Innovation
Web Summit 2014: VC funding this year led by US, China, Europe and Israel
By Michael Hennigan, Finfacts founder and editor
Nov 4, 2014 - 7:10 AM

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Web Summit 2014: With the summit opening in Dublin this morning, we have data on VC (venture capital) funding of mainly tech companies in business and financial services, healthcare, consumer services and IT, for the first nine months of this year with the US in the lead, followed by China, Europe and Israel.

US companies have raised $37bn so far in 2014; $8bn was raised in China; $6bn in Europe and $2.3bn in Israel.

Dow Jones Venture Source says [pdf] US-based companies raised $11bn from 899 venture capital deals during Q3 2014, a 24% and 7%  decrease in capital and deal count, respectively, from the previous quarter.

Compared to the same period in 2013, amount invested registered a 16% increase, while number of deals dipped 5%.

Business and Financial Services and Healthcare were the strongest sectors, respectively with 27% and 25%  share of total amount invested.

IT companies raised $2.1bn across 221 deals, a 31% and 9% decrease compared to the previous quarter.

22 venture-backed IPOs took place during Q3 2014, a 12% decrease from the previous quarter.

US companies have raised $37bn in VC so far this year, compared with $26bn in 2013.

Dow Jones says [pdf] Chinese venture-backed companies raised $2.8bn in 195 deals during Q3 2014, a 5% decline in capital  invested from Q2 2014 despite a 50% increase in the number of deals completed.

Compared with Q3 2013, however, dollars invested rose by 88% while deal flow increased by 61%.

Investment for the nine-month period dwarfs that of the equivalent 2013 timeframe, with $8.1bn raised  compared with $3.2bn. Similarly, deal flow has also risen, from 282 to 442, equating to an increase of 57%.

Consumer Services companies took $1.8bn through 91 deals during Q3 2014, an increase of 40% in deal  flow but a dip of 1% in dollars invested from Q2 2014. The sector attracted 48% of all deals completed for the quarter and a 66% share of total amount invested.

The Business and Financial Services sector placed second for investment, receiving $414m across 35 deals. Sector investment declined by 18% compared with Q2 2014 despite deal flow improving by 46%. The investment figure represents a 15% share of total equity financing into China-based VC-backed companies for Q3 2014.

The Information Technology sector raised the third highest proportion of investment during Q3 2014. IT companies garnered $377m across 48 deals; a 9% rise in dollars invested from the prior quarter and a 66% increase in the number of deals completed.

Nine VC-backed companies went public during Q3 2014 in China, a decline of 18% from the previous quarter. Total dollars raised in VC-backed IPOs fell substantially from Q2 2014, by 61% to $1.06bn.

European companies raised €2.3bn for 323 deals during Q3 2014, an increase of 3% in the amount raised, despite a 17% fall in the number of deals completed from the previous quarter. Q3 2014 saw the highest quarterly investment figure since Q3 2001 when €2.7bn were raised.

In contrast with Q3 2013 figures, despite deal flow decreasing by 15%, investment improved by 36%.

So far in 2014, European venture-backed companies have attracted €6.1bn across 1089 deals, a decline of  6% in deals completed from the first nine months of 2013, but a rise of 38% in euros invested.

Dow Jones says [pdf] the Business and Financial Services sector received the largest allocation of investment during Q3 2014 (40%), accumulating €927m through 76 deals. Despite deal flow dropping by 36% from Q2 2014, sector investment rose by 68%.

Consumer Services placed second in terms of equity financing, taking a 30% share of all Q3 2014 investment.

The sector raised €680m across 98 deals, a decline of 12% in capital raised and 13% in deals completed from the previous quarter.

Healthcare remained third, with companies in the sector gathering 15% of the total amount invested during the quarter. The sector received €351m across 48 deals, representing a 20% drop in deal flow and a 26% fall in capital invested from Q2 2014.

Dow Jones said Germany became the most favoured destination for equity financing during Q3 2014, receiving €1.2bn across 60 deals. The country took in 53% of all investment into European VC-backed companies for the quarter.

The United Kingdom placed second, capturing a 23% share of European investment. Deal flow declined by 9% from Q2 2014 with 90 completed, while investment fell by 11% from the prior quarter to total €526m.

Switzerland occupies third spot raising €136m, a 6% share of investment. France  placed in fourth position with a 5% share, raising €113m during Q3 2014.

Sixteen venture-backed IPOs took place during Q3 2014, five fewer than in Q2 2014. Companies raised €447m for their listings during Q3 2014, a decline of 15% from the €530m raised in Q2 2014.

In Israel, the IVC Research Center reported [pdf] that In Q3 2014, 170 Israeli high-tech companies attracted $701m, 6% above the $661m of Q3 2013, but down 24% from the exceptionally high $928m raised in the previous quarter. The third quarter amount was 29% above the
$545m average of the last three years.

The average company financing round was $4.12m, compared to $4.08m in Q3/2013 and $5.33m in Q2/2014.

Ninety-eight VC-backed deals in Q3/2014 accounted for $476m or 68% of total capital invested. This was an improvement from 61% in Q2/2014, and just short of the 70% of Q3/2013.

In the first three quarters of 2014, 504 Israeli high-tech companies raised $2.3bn, just 1%  short of the $2.33bn raised in all of 2013, and 50% more than the $1.5bn attracted in
the Q1-Q3/2013 period.

Ireland

In 2013 companies raised VC funding of €285m ($370m) and the latest data from the Irish Venture Capital Association shows that €145m ($196m) was raised in the first quarter.

GC Aesthetics, the breast implant manufacturer, accounted for €43m -  the company manufactures its products at its own facilities based in Scotland, England and France and its Irish presence appears to be very small.

The Irish Government accounts for about 40% of VC funding.

VC funding

John Mullins, an associate professor at London Business School and the author of The Customer-Funded Business: Start, Finance, or Grow Your Company with Your Customers’ Cash, wrote in the HBR blog last August that that more than two generations ago, the venture capital community  - - VCs, business angels, incubators, and others - convinced the entrepreneurial world that writing business plans and raising venture capital constituted the twin centerpieces of entrepreneurial endeavour. "They did so for good reasons: the sometimes astonishing returns they’ve delivered and the incredibly large and valuable companies that their ecosystem has created.

But the vast majority of successful entrepreneurs never take any venture capital and taking VC funds can be bad for a startup.

About 76% of US tech companies acquired in 2012 had not raised institutional investment (VC/PE -private equity) prior to acquisition.

Venture capital investor Fred Wilson of Union Square Ventures says:  “The fact is that the amount of money startups raise in their seed and Series A rounds is inversely correlated with success. Yes, I mean that. Less money raised leads to more success. That is the data I stare at all the time.”

For more myth-busting and background on Irish tech policy, see here:

Dublin Web Summit 2014: Separating hype and reality


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