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Bubble Is Bubble, Funding Is Funding

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Oct 16, 2015

Investors poured increasing amounts of cash into start-ups in the third quarter, defying fears of a bubble in the technology sector, a survey showed on Wednesday.

About 1,799 venture-backed start-ups around the world pulled in $37.6 billion in funding in the quarter—the highest since 2001, according to the survey by CB Insights and KPMG.

The vast majority of the funding—77% in the quarter—went to technology start-ups, according to the report.

The largest other segment was healthcare, including digital health start-ups, taking in 12%.

Venture funding so far this year has hit $98.4 billion, already eclipsing the 2014 total of $88.7 billion and double the amount of 2013.

But the survey did find some signs of cooling of tech investment fever.

A large share of the funds went to mega deals of $100 million or more, and the money flowing into early-stage or “seed” funding fell for a fifth consecutive quarter.

Ten of the deals topped $500 million and more than 60 deals drew in excess of $100 million, according to the survey, with large start-ups, such as Uber Technologies Inc. and Airbnb Inc., eschewing initial public offerings (IPOs).

Only 23% of the funding went to early-stage deals, the lowest level in five quarters.

“Today, there are more late-stage deals and fewer IPO exits than in years past,” said the report. “This may be affecting the availability of cash for seed investment.” The cash flow has led to accelerating growth in the number of billion-dollar start-ups, which have come to be known as “unicorns”.

A total of 23 unicorns were created in the past quarter—17 in the US—bringing the total to 58 so far this year. According to CB Insights, there are 104 unicorns worldwide with a combined valuation of $503 billion.

The North America region drew the lion’s share of venture funding in the quarter at $20.3 billion, while Asian-based startups took in $13.5 billion and European firms $3.6 billion, the report showed.

Some of the big Asian investments went to China’s transport start-up Didi Kuaidi, Shanghai food delivery group Ele.me and India’s e-commerce firm Snapdeal.

Notable start-ups in Europe pulling in cash in the past quarter include France’s car-sharing BlaBlaCar and German food prep group HelloFresh.

By sector, Internet and mobile communications represented bulk of venture-backed investments, accounting for 67% of all deals in the quarter. Other important sectors, including financial technology start-ups, which drew $3 billion in the past quarter led by online lender Social Finance, and digital health, with $1.46 billion led by China’s Guahao and US-based Zocdoc.

h/t: AFP


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