California Helps Re-Inflate the Bubble; Leads Venture Capital Surge

Monday, April 21, 2014

California Helps Re-Inflate the Bubble; Leads Venture Capital Surge

Venture capitalists poured money into California startup companies in the first quarter of 2014 at a rate not seen since the dot-com burst in 2001 that ended moments later in bust.

Eight of the Top 10 recipients of investor largesse are based in California, according to the MoneyTree Report from Pricewaterhouse Coopers and and the National Venture Capital Association (NVCA). San Francisco-based Dropbox led the way, pulling in $325 million, followed by another S.F. company, AirBnB, at $200 million.

Software companies captured $4 billion of the $9.5 billion distributed in 951 deals, three times as much money as the second-place sector, biotech. IT services finished a distant third, receiving $816 million. Half of the Top 10 deals were with software companies.

The surge of venture capital into private Silicon Valley companies comes as publicly-traded tech stocks have sputtered of late and resentment of wealthy techies has soared. The Nasdaq Composite Index is down around 7% since early March. The index suffered its biggest drop on April 10-11 since 2011 and then staged its biggest bounce back in five years on April 15.

Class tensions have been swelling in the Bay Area, especially in San Francisco, where longtime residents are being squeezed out of the housing market by tech-fueled soaring rents, elites are transforming neighborhoods, ride-sharing startups like Uber are bashing the taxi industry, private tech company buses parade through the city and “glassholes” poke their faces into the wrong watering holes.

The quarter marked a shift in emphasis among investors from fledgling startup seed money to second-stage financing for companies that have already been to the dance. Seed-stage financing dollars fell 64% while expansion-stage dollars were up 34%. First-time financing fell 25% from the previous quarter, setting a new low in the history of the survey.

Accompanying the shift to slightly more mature companies was a narrowing in scope of investment. While investment was up 12% in the quarter, the number of deals was down 14% from 1,112 the previous three-months. Overall, the quarter's investment was 57% more than in the first quarter of 2013.

Of course, there are bubbles and there are BUBBLES. Even if venture capitalists keep up the first-quarter pace for a year, they won't have invested half of the $100 million poured into startups in 2000.

The first-quarter 2014 winners are:

Dropbox  San Francisco-based $325 million
AirBnB  San Francisco-based $200 million
Tangome  Mountain View-based $200 million
Cloudera  Palo Alto-based $160 million
Wayfair  Boston-based $156.9 million
Domo  American Fork, Utah-based $125 million
One Kings Lane  San Francisco-based $111.9 million
Palantir Technologies  Palo Alto-based $101.6 million
Hortonworks  Palo Alto-based $100 million
View  Milpitas-based $99.9 million

–Ken Broder


To Learn More:

First-Quarter Venture Funding at $9.6B in U.S., Highest Since 2001 (& Top 10 Deals) (by Bruce V. Bigelow, Xconomy)

Venture Capital Funding Soars to Levels Last Seen in Dot-Com Bubble (by Chris O'Brien, Los Angeles Times)

Rich Start-Ups Go Back for Another Helping (by David Gelles and Michael J. de la Merced, New York Times)

Venture-Backed IPOs & Late-Stage Investments Surged in Q1 (by Curt Woodward, Xconomy)

Venture Capital Dollars Invested in Q1 2014 Reaches Highest Quarterly Total Since Q2 2001 (PricewaterhouseCoopers)



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