2014 and 2015 in Review

The Fundraising Report released by Thomson Reuters and the National Venture Capital Association (NVCA) in January revealed that U.S. venture firms committed $28.2 billion over 2015 and $31.1 billion in 2014, making the past two years the strongest since the economic downturn began in 2008.

According to the NVCA report, the decline for 2015 is attributable in large part to the uptick in caution and dip in new private investment in Q4. Valuations soared through much of 2015, with 60 unicorns – those tech startups reaching valuation of $1 billion or more – established worldwide in the first three quarters, and median U.S. startup valuations ranging between $50 and $70 million during the same period. Moving into Q4, investors pulled back significantly with only 12 new unicorn valuations worldwide and U.S. startup valuations dropping to a median of $27.5 billion – a 60% decrease from Q3.

A combination of factors appears to be contributing to fatigue in the private investment market, including general economic slowdown in China and uncertainty in the region; longer average time to initial public offerings (IPOs) for startups and, increasingly, technology IPOs falling short of their private valuations; and growing likelihood of U.S. interest rates rising, which would offer institutional investors potential for stable returns without the risks associated with investing in new technology.

New technology continues to dominate the available venture capital landscape and within the U.S., California, New York and Massachusetts remain the leading markets for venture capital investing.

• Enterprise technology solutions focused on mobility, cloud-computing, data security and analytics attracted much of the venture capital funds over the past year, with many startups finding eager corporate investors as an available source of capital.
• Internet and mobile technology, including ongoing focus on the Internet of Things, remain attractive to private investors, though a sustained focus on privacy by regulators requires that founders be watchful of the regulatory landscape and engage in privacy-by-design where possible.
• Education technology may be a singular area that remained strong through the close of 2015, and founders in this sector must continue to focus on profitability and solutions that satisfy the varied stakeholders involved in private and public education.

Strategies for Startups

The Wall Street Journal recently highlighted sound advice for surviving in the increasingly cautious venture capital marketplace. Founders should consider focusing on the following:

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