Silicon Valley early-stage venture capital (VC) funding has been cut in half in the last two years, as venture capitalists are stuck with investments in mature companies that are not able to go public.
Pitchbook, which monitors venture capital fundraising and commitments, reported that startup “angel” fundings of 500,000 or less, plus early-stage fundings of $1 million or less, have been cut in half over the last eight quarters.
U.S. venture investment activity peaked between 2014 and early 2016. Although there were 1,958 companies that received $21.78 billion in venture funding for the second quarter of 2017, 10 “mega-financings” accounted for $4.3 billion, or 19.6 percent, of total invested dollars. With another 34 venture financings of at least $100 million, the percentage of venture capital angel and early-stage fundings has shrunk from over 40 percent two years ago, to about 26 percent of fundings in the second quarter of 2017.
The biggest reason for the shriveling of early stage start-up funding has been the inability of venture capitalists and their Wall Street investment banking fellow travelers to make the really big bucks by cashing out their venture investments through initial public offerings (IPOs). The 74 IPOs completed in 2016 were down by 89 percent from the record 677 IPOs in 1996. 2016 was the worst performance year in the number of deals completed since the 41 deals during the bottom of the Great Recession in 2009.
Unable to gain IPO exit liquidity, most venture capitalists are being forced to provide new rounds of funding for their mature portfolio companies, such as Uber’s $3.5 billion Series G [seventh round] in June 2016. The closed IPO window explains why a record 441 late-stage venture capital financings were completed in 2016.
The West Coast accounted for 40.8 percent of VC deals that were funded. But 55.0 percent of the VC dollars invested in the West Coast were due to the number of late stage companies in Silicon Valley.
Pitchbook reported that VC fund raising remained strong for the ninth consecutive year, with 58 venture capital limited partnerships raising an additional $11.4 billion in the second quarter. But most of the money is focused on late-stage and pre-IPO deals.
Breitbart News recently reported that the shriveling of early-stage venture capital financings also explains why Silicon Valley fell from the most attractive job market in 2015 to the 12th most attractive job market today, according to LinkedIn. Breitbart also reported that high-end Silicon Valley real estate is still rising in price, but the total number of sales is down by over 11 percent from last year.