Foley Shechter LLP is an active participant in finance, startup and M&A activities, and as part of our service we aim to stay abreast of the landscape and share this information with our clients and the community.

In general, venture capitalists and M&A participants have been busy during the 2nd quarter of 2016.  We’re excited to see that more funding is flowing into startups and M&A deals, with Technology continuing to pace the way, and the IPO market coming back.  Below please find some recent data highlights from the NVCA, Dealogic and Renaissance Capital reports on the state of the VC, M&A and IPO activity in the recent months.

Venture Capital Update: VCs deployed $15.3B into 961 deals during Q2 2016.  Total VC dollars deployed to startup companies for the quarter increased 20% and total deal count was down 5%, compared with Q1 2016 when $12.7B was invested in 1,011 deals.  Compared with Q2 2015, dollars and deals are down 12% and 2%, respectively.  The data is showing that deal sizes are climbing while the number of deals is shrinking.  This is the tenth consecutive quarter of more than $10B in venture capital invested in a single quarter.  The full National Venture Capital Association report can be found here.  We have also summarized a few other key VC & startup investment data points further below.

M&A Update: Dealogic reported that global announced M&A is now at $1.7T year-to-date, down 18% from this point in 2015.  US targeted M&A volume was $748.5B, down 18% year-on-year.  Technology was the top sector with a total of $294.8B, which was the second highest 1st half volume on record (trailing the $304.6B 1H volume seen in 2000). Conversely, the Telecom sector saw the biggest year-on-year drop among the top 10 sectors in the 1st half M&A deal volume, down some 70% from the $200.5B seen in the 1H of 2015 to $60.7B.  The full summary of the Dealogic report can be found here.

IPO Market Update: During Q2 2016, the IPO market improved with 34 IPOs raising approximately $5.5B, according to Renaissance Capital.  While activity in the quarter was significantly higher than Q1 2016 (there were only 8 IPOs in Q1), overall IPO levels are down.  Healthcare continues to represent the most significant sector, accounting for 15 of the 34 IPOs during the quarter.  There were a few tech company IPOs, as well as 2 REITs, a utility and 4 consumer IPOs.  Many of the quarter’s IPO issuers are VC-backed companies.  Private equity backed IPOs have not returned to typical levels.  The depressed levels are attributable to uncertainty regarding interest rates, disparities in valuations between the private and public markets and Brexit concerns.

VC Industry Investment Analysis: The Software industry continued to receive the highest level of funding of all industries, receiving $8.7B across 379 deals for Q2 2016, a 70% increase in dollars despite a 4% decrease in deals versus Q1 2016. The Software industry has held the top spot for dollars invested among all MoneyTree industries for 27 straight quarters. The Biotech industry received the second largest amount of VC $ for the quarter, with $1.7B invested into 100 deals, representing a 14% decrease in dollars and a 19% decrease in deals, compared with the previous quarter. Investments in the Life Sciences sector (Biotech and Medical Devices combined) during the Q2 2016 accounted for $2.2B going into 161 deals, decreasing 10% in dollars and 12% in deals.  Investments in Life Sciences companies accounted for 15% of all VC $ deployed to the startup ecosystem in the second quarter.  IT Services companies received the third largest amount of VC $ for the quarter with $946M deployed across 80 deals.

Investment into Seed & Early Stage Companies: Dollars invested in Seed stage companies declined 5% during Q2 2016, totaling $535M in 45 deals and representing only 3% of all VC $ dollars for the quarter and 5% of all deals.  Early stage investment declined 14% in dollars and increased 3% in deals with $4B going into 446 deals.  The average Seed stage deal in the second quarter was $11.9 million, up from $8.4 million in the first quarter.  The average Early stage deal in the second quarter was $8.9M, down from $10.7M in the prior quarter.

First-Time Financings: First-time financing dollars (companies receiving VC $ for the first time) decreased 8% to $1.7B in Q2 2016 as the number of deals declined by 14% to 267.  Of the companies receiving VC $ funding for the first time in Q2 2016, Software companies captured the largest share, accounting for 38% of the dollars and 41% of the deals with $638M going into 109 deals.  First-time funding in the Life Sciences sector during Q2 2016 was down 27% in dollars and was flat in deals, dropping to $372M going into 34 deals.  The average first-time deal was $6.3M, up from $5.9M in the prior quarter.

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Foley Shechter LLP